ECO2 PLASTICS, INC. CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT September 2, 2008
Exhibit
10.1
ECO2
PLASTICS, INC.
September
2, 2008
This
Convertible Note and Warrant Purchase Agreement (the “Agreement”)
is made as of September 2, 2008 (the “Effective
Date”), by and among ECO2 PLASTICS, INC., a Delaware corporation (the
“Company”),
and each of those persons and entities, severally and not jointly, listed as a
Purchaser on the Schedule of Purchasers attached as Schedule I
hereto. Such persons and entities are hereinafter
collectively referred to herein as “Purchasers”
and each individually as a “Purchaser.”
Whereas
on August 22, 2008 and on August 28, 2008, the Company issued convertible
secured promissory notes (collectively, the “Aug08
Notes”) and warrants (collectively, “the “Aug08
Warrants”) to certain Purchasers, as more specifically set forth on Schedule I attached
hereto, and the parties thereto desire such Aug08 Notes and Aug08 Warrants to be
governed by the terms of, and considered issued pursuant to, this
Agreement.
AGREEMENT
In
consideration of the mutual covenants contained in this Agreement, and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Company and each Purchaser (severally and not jointly) hereby agree as
follows:
1. The Loans; Closing;
Delivery.
(a) The
Notes. Subject to the terms and conditions hereof, each
Purchaser proposes to lend to the Company the amount set forth opposite such
Purchaser’s name under the column heading, “Loan Amount” on Schedule I attached
hereto. The loans shall be evidenced by convertible secured
promissory notes (together with the Aug08 Notes, the “Notes”),
in substantially the form attached hereto as Exhibit A dated the
date set forth on Schedule I. The
loans made in accordance with this Section 1, including the loans evidenced by
the Aug08 Notes, shall be referred to herein as the “Loans.”
The maximum amount of Notes that may be issued under this Agreement shall be
five million dollars ($5,000,000).
(b) The
Warrants. Subject to the terms and conditions hereof, the
Company agrees to issue to each Purchaser a warrant, in substantially the form
attached hereto as Exhibit B
(collectively, together with the Aug08 Warrants, the “Warrants”),
to purchase, at an exercise price of $0.015 per share, that number of shares of
common stock of the Company, par value $0.001 per share (the “Common
Stock”), equal to 33.3333333 multiplied by the principal amount of such
Purchaser’s loan, as more specifically set forth opposite each Purchaser’s name
under the column heading, “Warrant Shares” on Schedule I attached
hereto.
(c) Place and Date of
Closing. The closing of the transactions provided for herein
shall take place at the offices of ▇▇▇▇▇▇ &Watkins LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at not later than 5:00 p.m. (PDT) on
September 2, 2008 (the “Initial
Closing”),
or at such date as the Purchasers and the Company may agree upon, such time and
date of delivery against payment being herein referred to as the “Initial Closing
Date.” References herein to the “Closing
Date” herein shall mean the Initial Closing Date or the date of any
Additional Closing (as defined below), as applicable.
(d) Delivery. At
each Closing, the Notes and Warrants in definitive form evidencing the Loans and
Warrants that the Purchasers have agreed to purchase pursuant to this Agreement
shall be delivered by or on behalf of the Company, against delivery by or on
behalf of each of the Purchasers of the amount set forth opposites each
Purchaser’s name under the column heading, “Loan Amount” on Schedule I by check
or wire transfer of immediately available funds to the account of the Company
previously designated by it in writing.
(e) Subsequent
Closings. The Purchasers understand and agree that at any time
and from time to time during the period following the Initial Closing Date but
not later than September 15, 2008, the Company may, at one or more additional
closings (each, an “Additional
Closing”), without obtaining the signature, consent or permission of any
of the Purchasers, offer and sell any authorized but unsold Notes and Warrants
to such persons as shall be acceptable to the Board of Directors of the Company
on the terms and conditions set forth herein. The term “Closing”
as used herein shall refer to the “Initial
Closing” and/or each “Additional
Closing,” as appropriate.
(f) No
Usury. This Agreement and each Note issued pursuant to the
terms of this Agreement are hereby expressly limited so that in no event
whatsoever, whether by reason of deferment or advancement of loan proceeds,
acceleration of maturity of the loan evidenced hereby, or otherwise, shall the
amount paid or agreed to be paid to the Purchasers hereunder for the loan, use,
forbearance or detention of money exceed the maximum interest rate permitted by
the laws of the State of California. If at any time the performance
of any provision hereof or any Note involves a payment exceeding the limit of
the price that may be validly charged for the loan, use, forbearance or
detention of money under applicable law, then automatically and retroactively,
ipso facto, the obligation to be performed shall be reduced to such limit, it
being the specific intent of the Company and the Purchasers hereof that all
payments under this Agreement or any Note are to be credited first to interest
as permitted by law, but not in excess of (i) the agreed rate of interest
set forth in the Note, or (ii) that permitted by law, whichever is the
lesser, and the balance toward the reduction of principal. The
provisions of this Section 1(f) shall never be superseded or waived and shall
control every other provision of this Agreement and any Note.
(g) Security
Agreement. The Company and the Purchasers agree to execute the
Amended and Restated Security Agreement, dated as of the date hereof, in
substantially the form attached hereto as Exhibit E (the “Security
Agreement”), whereby the Purchasers will receive a security interest in
the collateral of the Company described in the Security Agreement, pursuant to
the terms of the Security Agreement. It is agreed that all the
Company’s indebtedness, whether outstanding on the date hereof or subsequently
incurred or assumed, except all indebtedness secured by perfected security
interests granted by the Company in connection with the Senior Debt (as such
term is defined in the Security Agreement), shall be junior in right of payment
to the indebtedness and other obligations of the Company pursuant to the
Notes.
(h) Securities and
Disclosure. The Notes and Warrants are referred to herein as
the “Securities.” The
Securities will be offered and sold to the Purchasers without such offers and
sales being registered under the Securities Act of 1933, as amended (together
with the rules and regulations of the Securities and Exchange Commission (the
“SEC”)
promulgated thereunder, the “Securities
Act”), in reliance on exemptions therefrom.
In
connection with the sale of the Securities, the Company has made available
(including electronically via the SEC's ▇▇▇▇▇ system) to Purchasers its periodic
and current reports, forms, schedules, proxy statements and other documents
(including exhibits and all other information incorporated by reference) filed
with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). These reports, forms, schedules, statements, documents,
filings and amendments, are collectively referred to as the “SEC
Documents.” All references
in this Agreement to financial statements and schedules and other information
which is “contained,” “included” or “stated” in the SEC Documents (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules, documents, exhibits and other information
which is incorporated by reference in the SEC Documents.
This
Agreement, the Notes, the Warrants and the Security Agreement are sometimes
herein collectively referred to as the “Transaction
Documents.” The shares of Common Stock issuable upon exercise
of the Warrants are referred to herein as the “Warrant
Conversion Shares.” The Warrant Conversion Shares and the shares of
Common Stock issuable upon conversion of the Series C Convertible Preferred
Stock are herein collectively referred to as the “Conversion
Shares.”
2. Representations and
Warranties of the Company. Except as set forth in the SEC
Documents and on the Disclosure Schedule attached hereto and made a part hereof
(the “Disclosure
Schedule”), the Company represents and warrants to and agrees with
Purchasers as follows:
(a) Except as
set forth in Section 2(a) of the Disclosure Schedule, the Company has filed in a
timely manner all documents that the Company was required to file with the SEC
under the Exchange Act since becoming subject to the requirements of the
Exchange Act. The SEC Documents as of their respective dates did not
and will not as of the Closing Date (after giving effect to any updated
disclosures therein), contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The SEC
Documents and the documents incorporated or deemed to be incorporated by
reference therein, at the time they were filed or hereafter are filed with the
SEC, complied and will comply, at the time of filing, in all material respects
with the requirements of the Securities Act and/or the Exchange Act, as the case
may be, as applicable.
(b) The
Company has no subsidiaries. The Company has been duly
incorporated and is
validly existing in good standing as a corporation under the laws of its
jurisdiction of incorporation, with the requisite corporate power and authority
to own its properties and conduct its business as now conducted as described in
the SEC Documents and is duly qualified to do business as a foreign corporation
in good standing in all other jurisdictions where the ownership or leasing of
its properties or the conduct of its business requires such qualification,
except where the failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on the business, condition (financial
or other), earnings, management, properties, prospects or results of operations
of the Company (any such event, a “Material Adverse
Effect”); the Company does not own directly or indirectly any of the
capital stock or other equity or long-term debt securities of or have any equity
interest in any other individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization or a government or
agency or political subdivision thereof (a “Person”);
all of the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and non-assessable, have been
issued in compliance with all federal and state securities laws, and were not
issued in violation of or subject to any preemptive or other rights to subscribe
for or purchase securities, and are owned free and clear of all liens,
encumbrances, equities, and restrictions on transferability (other than those
imposed by the Securities Act and the state securities or “Blue Sky” laws);
except as set forth in Section 2(b) of the Disclosure Schedule, no options,
warrants or other rights to purchase from the Company, agreements or other
obligations of the Company to issue or other rights to convert any obligation
into, or exchange any securities for, shares of capital stock of or ownership
interests in the Company are outstanding; and there is no agreement,
understanding or arrangement between the Company and any of its stockholders or
any other Person relating to the ownership or disposition of any capital stock
of the Company or the election of directors of the Company or the governance of
the Company’s affairs, and, if any, such agreements, understandings and
arrangements will not be breached or violated as a result of the execution and
delivery of, or the consummation of the transactions contemplated by, the
Transaction Documents; there are no bonds, debentures, notes or other
indebtedness having general voting rights (or convertible into securities having
such rights) (“Voting
Debt”) of the Company issued and outstanding; except as set forth in
Section 2(b) of the Disclosure Schedule, there are no existing options,
warrants, calls, subscriptions or other rights, agreements, arrangements or
commitments of any character, relating to the issued or unissued capital stock
of the Company, obligating the Company to issue, transfer, sell, redeem,
purchase, repurchase or otherwise acquire or cause to be issued, transferred,
sold, redeemed, purchased, repurchased or otherwise acquired any capital stock
or Voting Debt of, or other equity interest in, the Company or securities or
rights convertible into or exchangeable for such shares or equity interests or
obligations of the Company to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment; the issuance of the Notes, the Warrants or the Conversion Shares
will not give rise to any preemptive rights or rights of first refusal on behalf
of any Person or result in the triggering of any anti-dilution or other similar
right; except as set forth in Section 2(b) of the Disclosure Schedule, there are
no agreements or arrangements under which the Company is obligated to register
the sale of any of their securities under the Securities Act; there are no
securities, agreements, documents or instruments containing anti-dilution
provisions that will be triggered by the issuance of the Notes, the Warrants and
the Conversion Shares; the Company has made available to Purchasers a true,
correct and complete copy of its certificate of incorporation and bylaws, each
as amended and as in effect on the date hereof.
(c) The
authorized capital stock of the Company (immediately prior to the Closing Date)
consists of 1,500,000,000 shares of Common Stock and 700,000,000 shares of
preferred stock, par value $0.001 per share (the “Preferred
Stock”), and 152,843,414 shares of Preferred Stock have been designated
as the Series A Convertible Preferred Stock (the “Series A
Preferred Stock”), 336,240,039 shares of Preferred Stock have been
designated as Series B-1 Stock, and 10,916,547 shares of Preferred Stock have
been designated as Series B-2 Stock. The issued and outstanding
capital stock of the Company, as of immediately prior to the Closing Date and as
of the Closing Date, is as set forth in Section 2(c) of the Disclosure Schedule
attached hereto (other than for subsequent issuances, if any, pursuant to
employee benefit plans described in the SEC Documents or upon exercise of
outstanding options, warrants and other convertible securities described in the
SEC Documents). Each share of Preferred Stock is convertible into one
share of Common Stock. Except for preemptive rights or rights of
first refusal which have been waived or complied with, the issuance of the
Securities will not give rise to any preemptive rights, rights of first refusal,
or similar rights on behalf of any person. There are no securities,
agreements, documents or instruments containing anti-dilution provisions that
will be triggered by the issuance of the Securities.
(d) The
Company has the requisite corporate power and authority to execute, deliver and
perform its obligations under the Transaction Documents. Each of the
Transaction Documents has been duly and validly authorized by the Company and,
when executed and delivered by the Company, will constitute a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors’ rights generally and to general principles of
equity).
(e) The
Warrant Conversion Shares have been duly authorized and validly reserved for
issuance, and when issued upon exercise of the Warrants in accordance with the
terms of the Warrant, will have been validly issued, fully paid and
non-assessable. The shares of Series C Convertible Preferred Stock
(and the shares of Common Stock issuable upon conversion thereof) issuable upon
conversion of the Notes shall be duly authorized and validly reserved for
issuance, and when issued upon conversion of the Notes in accordance with the
terms thereof, will have been validly issued, fully paid and
non-assessable. The Common Stock of the Company conforms to the
description thereof contained in the SEC Documents. No stockholder of
the Company or other Person has any preemptive, co-sale rights, rights of first
refusal or any other similar rights with respect to the Warrants, the Notes or
the Common Stock, except for rights which have been waived or fully complied
with.
(f) No
consent, approval, order or authorization of, license, registration,
qualification, exemption or filing with any court or governmental agency or body
or third party is required for the performance of the Transaction Documents by
the Company or for the consummation by the Company of the transactions
contemplated thereby, or the application of the proceeds of the issuance of the
Securities as described in this Agreement, except for such consents, approvals,
authorizations, licenses, qualifications, exemptions or orders (i) as have
been obtained on or prior to the Closing Date, or (ii) as are not required
to be obtained on or prior to the Closing Date that will be obtained when
required.
(g) The
Company is not (i) in violation of its certificate of incorporation,
certificates of designations or bylaws (or similar organizational document),
(ii) in breach or violation of any statute, judgment, decree, order, rule
or regulation applicable to it or any of its properties or assets, or
(iii) in default (nor has any event occurred which with notice or passage
of time, or both, would constitute a default) in the performance or observance
of any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to which it
is a party or to which it is subject.
(h) The
execution, delivery and performance by the Company of the Transaction Documents
and the consummation by the Company of the transactions contemplated thereby and
the fulfillment of the terms thereof will not (a) violate, conflict with or
constitute or result in a breach of or a default under (or an event that, with
notice or lapse of time, or both, would constitute a breach of or a default
under) any of (i) the terms or provisions of any contract, indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate or agreement or instrument to which the Company
is a party or to which any of its properties or assets are subject,
(ii) its certificate of incorporation, certificates of designations or
bylaws (or similar organizational document) or (iii) any statute, judgment,
decree, order, rule or regulation of any court or governmental agency or other
body applicable to the Company or any of its properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company; with
respect to (a)(i), (a)(iii) and (b) only, which violation, conflict, breach,
default or lien would, individually or in the aggregate, have a Material Adverse
Effect.
(i) The
audited financial statements included in the SEC Documents present fairly the
financial position, results of operations, cash flows and changes in
shareholders’ equity of the Company, at the dates and for the periods to which
they relate and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis; the interim un-audited
financial statements included in the SEC Documents present fairly the financial
position, results of operations and cash flows of the Company, at the dates and
for the periods to which they relate subject to year-end audit adjustments and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with the audited financial statements included
therein; the selected financial and statistical data included in the SEC
Documents present fairly the information shown therein and have been prepared
and compiled on a basis consistent with the audited financial statements
included therein, except as otherwise stated therein; and each of the auditors
previously engaged by the Company or to be engaged in the future by the Company
is an independent certified public accountant as required by the Securities
Act. Except as set forth in the SEC Documents, since the date of the
latest interim un-audited balance sheet of the Company included in the SEC
Documents, (i) there has been no material change in total liabilities of the
Company and (ii) there have been no liabilities incurred outside of the
ordinary course of business. Except as set forth in the SEC
Documents, immediately after the Closing Date, the Company will not have any
indebtedness, except the Loans and indebtedness incurred in the ordinary course
of business and consistent with past practices. The Company is not a
guarantor or indemnitor of any indebtedness of any third party.
(j) There is
not pending or, to the knowledge of the Company, threatened, any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to which the
Company is a party, or to which its properties or assets are subject, before or
brought by any court, arbitrator or governmental agency or body, that, if
determined adversely to the Company, would, individually or in the aggregate,
have a Material Adverse Effect or that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of the Securities to
be sold hereunder or the application of the proceeds therefrom or the other
transactions described in the SEC Documents. The Company is not a party to or
subject to the provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental agency or
body.
(k) Intellectual
Property.
(i) General. Section
2(k)(i) of the Disclosure Schedule sets forth with respect to the Company
Intellectual Property Rights: (A) for each patent and patent application, the
patent number or application serial number for each jurisdiction in which the
patent or application has been filed, the date filed or issued and the present
status thereof; (B) for each registered trademark, trade name or service ▇▇▇▇,
the application serial number or registration number for each applicable
country, province and/or state and the class of goods covered; (C) for each URL
or domain name, the registration date, any renewal date and name of registry;
and (D) for each registered copyrighted work, the number and date of
registration for each by country, province and/or state in which a copyright
application has been registered. In addition, true and correct copies
of all applications filed and registrations (including all pending applications
and application related documents) related to the Intellectual Property Rights
listed on Section 2(k)(i) of the Disclosure Schedule have been provided or made
available to Purchasers.
(ii) Sufficiency. The
Intellectual Property Rights and Technology owned or licensed by the Company
constitute all Intellectual Property Rights and Technology necessary for the
conduct of the Company’s business as presently conducted, including the design,
manufacture, license and sale of all products currently under development or in
production.
(iii) Royalties
and Licenses. Except pursuant to the licenses listed in Section
2(k)(iii) of the Disclosure Schedule, the Company has no obligation to
compensate or account to any person for the use of any of the Intellectual
Property Rights or Technology used by the Company in the conduct of the
business. Section 2(k)(iii) of the Disclosure Schedule sets forth all
third party components, whether hardware, firmware or software, that are
incorporated in or provided by the Company with its products, or that are
otherwise necessary for the manufacture of the Company’s
products. Section 2(k)(iii) of the Disclosure Schedule lists
all in-licenses of the Intellectual Property Rights and Technology applicable to
the Company’s products, other than standard, off-the-shelf software commercially
available on standard terms from third-party vendors.
(iv) Ownership. The
Company (A) owns all right, title and interest in and to the Company
Intellectual Property Rights and Company Technology, including the Intellectual
Property Rights and Technology listed in Section 2(k)(iv) of the Disclosure
Schedule, free and clear of any liens, claims or encumbrances and (B) has a
valid and enforceable right or license to use all other Intellectual Property
Rights and Technology used in the conduct of the business, and all such licensed
Intellectual Property Rights and rights to use Technology will not cease to be
valid and enforceable rights of the Company by reason of the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby. Without limiting the foregoing, the Company
Intellectual Property Rights and Company Technology have been: (1) developed by
employees of the Company within the scope of their employment and who have
assigned their rights to the Company pursuant to enforceable written agreements;
(2) developed by independent contractors or agents who have assigned their
rights to the Company pursuant to enforceable written agreements or (3)
otherwise acquired by the Company from a third party who has assigned all the
Intellectual Property Rights and ownership of all Technology it has developed on
the Company’s behalf to the Company.
(v) Absence
of Claims; Non-infringement. No claim or legal proceeding has been
instituted or is pending against the Company, or, to the knowledge of the
Company, is threatened, that challenges the right of the Company with respect to
the use or ownership of the Company Intellectual Property Rights or Company
Technology. Without limiting the foregoing, no interference,
opposition, reissue, reexamination, legal proceeding or other proceeding is or
has been pending or, to the best of the Company’s knowledge, threatened, in
which the scope, validity or enforceability of any of the Company Intellectual
Property Rights is being, has been or could reasonably be expected to be
contested or challenged. The Company’s past and present use of the
Company Intellectual Property Rights or Company Technology does not infringe
upon, misappropriate, breach or otherwise conflict with the rights of any other
Person anywhere in the world. The Company has not received any notice
alleging, and otherwise has no knowledge of (A) the invalidity of, or any
limitation on the Company’s right to use, any of the Company Intellectual
Property Rights or Company Technology or of (B) the alleged infringement,
misappropriation or breach of any Intellectual Property Rights of others by the
Company. The Company Intellectual Property Rights and Company
Technology are not subject to any judgment, decree, order, writ, award,
injunction or determination of an arbitrator, court or other governmental
authority affecting the rights of the Company with respect
thereto. To the knowledge of the Company, no person has interfered
with, infringed upon or misappropriated any of the Company Intellectual Property
Rights, or is currently doing so.
(vi) Licenses
to Third Parties. Section 2(k)(vi) of the Disclosure Schedule lists
all of the contracts pursuant to which any person has been granted any license
under, or otherwise has received or acquired any right (whether or not currently
exercisable) or interest in, any Company Intellectual Property Rights or Company
Technology. The Company is not bound by, and no Company Intellectual
Property Rights are subject to, any contract containing any covenant or other
provision that in any way limits or restricts the ability of the Company to use,
exploit, assert or enforce any of its Intellectual Property Rights anywhere in
the world. Without limiting the foregoing, the Company has not
granted any exclusive licenses to the Company Intellectual Property Rights or
Company Technology.
(vii) Protection
of Intellectual Property Rights. All of the registrations and pending
applications to governmental or regulatory bodies with respect to the Company
Intellectual Property Rights have been timely and duly filed, prosecution for
such applications has been attended to, all maintenance and related fees have
been paid and the Company has taken all other actions required to maintain their
validity and effectiveness. The Company has taken all steps
reasonably necessary or appropriate (including, entering into written
confidentiality and nondisclosure agreements with officers, directors,
subcontractors, employees, licensees and customers) to safeguard the Company
Intellectual Property Rights and maintain the secrecy and confidentiality of
trade secrets that are material to the Company. Without limiting the
foregoing, (A) there has been no misappropriation of any trade secrets or other
confidential Intellectual Property Rights or Technology used in connection with
the business by any person; (B) no employee, independent contractor or agent of
the Company has misappropriated any trade secrets of any other person in the
course of performance as an employee, independent contractor or agent of the
business and (C) no employee, independent contractor or agent of the Company is
in default or breach of any term of any employment agreement, nondisclosure
agreement, assignment of invention agreement or similar agreement or contract
relating in any way to the protection, ownership, development, use or transfer
of the Company Intellectual Property Rights and Company Technology.
(viii) Funding;
Certification with Standards Bodies. Except as set forth in Section 2(k)(viii)
of the Disclosure Schedule, no funding, facilities or personnel of any
governmental entity or educational institution were used, directly or
indirectly, to develop or create, in whole or in part, any of the Company
Intellectual Property Rights or Company Technology. The Company
has not made any submission or suggestion to, or otherwise participated in, and
is not subject to any agreement with, government, any standards bodies or other
entities that could obligate the Company to grant licenses to or otherwise
impair its control of Company Intellectual Property Rights.
(ix) “Intellectual
Property Rights” means all (A) United States and foreign patents and
patent applications and disclosures relating thereto (and any patents that issue
as a result of those patent applications), and any renewals, reissues,
reexaminations, extensions, continuations, continuations-in-part, divisions and
substitutions relating to any of the patents and patent applications; (B) United
States and foreign trademarks, service marks, trade dress, logos, 800 numbers,
trade names and corporate names, whether registered or unregistered, and the
goodwill associated therewith, together with any registrations and applications
for registration thereof; (C) United States and foreign copyrights and rights
under copyrights, whether registered or unregistered, including moral rights,
and any registrations and applications for registration thereof; (D) rights in
databases and data collections (including knowledge databases, customer lists
and customer databases) under the laws of the United States or any other
jurisdiction, whether registered or unregistered, and any applications for
registration therefor; (E) trade secrets and other rights in know-how and
confidential or proprietary information (including any business plans, designs,
technical data, customer data, financial information, pricing and cost
information, bills of material or other similar information); (F) URL and domain
name registrations; (G) inventions (whether or not patentable) and improvements
thereto; (H) all claims and causes of action arising out of or related to
infringement or misappropriation of any of the foregoing and (I) other
proprietary or intellectual property rights now known or hereafter recognized in
any jurisdiction.
(x) “Technology”
means tangible embodiments of the Intellectual Property Rights, whether in
electronic, written or other media, including software, technical documentation,
specifications, designs, bills of material, build instructions, test reports,
schematics, algorithms, application programming interfaces, user interfaces,
routines, formulae, databases, lab notebooks, processes, prototypes, samples,
studies or other know-how and other works of authorship.
(l) The
Company possesses all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations and
filings with, all federal, state, local and other governmental authorities
(including, but not limited to, those that may be required by the U.S. Food and
Drug Administration (the “FDA”)),
all self-regulatory organizations and all courts and other tribunals presently
required or necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as now or proposed to be conducted as
set forth in the SEC Documents (“Permits”),
except where the failure to obtain such Permits would not, individually or in
the aggregate, have a Material Adverse Effect. Each of such
Permits is in full force and effect, and the Company has not received any notice
of any proceeding relating to revocation or modification of any such Permit,
except where such revocation or modification would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse
Effect.
(m) The
Company holds and is operating in compliance with such exceptions, permits,
licenses, franchises, authorizations and clearances of the FDA and/or any
committee thereof required, for the conduct of its business as currently
conducted (collectively, the “FDA
Permits”), and all such FDA Permits are in full force and
effect. The Company has fulfilled and performed all of its
obligations with respect to the FDA Permits, and, no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
thereof or results in any other impairment of the rights of the holder of any
FDA Permit.
(n) The
Company: (i) is and at all times has been in material compliance with all
statutes, rules, regulations, or guidance applicable to the ownership, testing,
development, manufacture, packaging, processing, use, distribution, marketing,
labeling, promotion, sale, offer for sale, storage, import, export or disposal
of any product under development, manufactured or distributed by the Company
(“Applicable
Laws”); (ii) has not received any FDA Form 483, notice of adverse
finding, warning letter, untitled letter or other correspondence or notice from
the FDA or any other federal, state, local or foreign governmental or regulatory
authority alleging or asserting noncompliance with any Applicable Laws or any
licenses, certificates, approvals, clearances, authorizations, permits and
supplements or amendments thereto required by any such Applicable Laws (“Authorizations”);
(iii) has not received notice of any claim, action, suit, proceeding,
hearing, enforcement, investigation, arbitration or other action from the FDA or
any other federal, state, local or foreign governmental or regulatory authority
or third party alleging that any product operation or activity is in violation
of any Applicable Laws or Authorizations and has no knowledge that the FDA or
any other federal, state, local or foreign governmental or regulatory authority
or third party is considering any such claim, litigation, arbitration, action,
suit, investigation or proceeding; (iv) has not received notice that the
FDA or any other federal, state, local or foreign governmental or regulatory
authority has taken, is taking or intends to take action to limit, suspend,
modify or revoke any Authorizations and has no knowledge that the FDA or any
other federal, state, local or foreign governmental or regulatory authority is
considering such action; (v) has filed, obtained, maintained or submitted
all reports, documents, forms, notices, applications, records, claims,
submissions and supplements or amendments as required by any Applicable Laws or
Authorizations and that all such reports, documents, forms, notices,
applications, records, claims, submissions and supplements or amendments were
complete and correct on the date filed (or were corrected or supplemented by a
subsequent submission); and (vi) has not, either voluntarily or
involuntarily, initiated, conducted, or issued or caused to be initiated,
conducted or issued, any recall, market withdrawal or replacement, safety alert,
post sale warning, “dear doctor” letter, or other notice or action relating to
the alleged lack of safety or efficacy of any product or any alleged product
defect or violation and, to the Company’s knowledge, no third party has
initiated, conducted or intends to initiate any such notice or
action.
(o) (i) The
Company is not in material violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common law or
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
natural resources or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum, petroleum products or by-products, asbestos-containing materials or
mold (collectively, “Hazardous
Materials”) or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of, or exposure to,
Hazardous Materials (collectively, “Environmental
Laws”), including, without limitation, to the best of the Company’s
knowledge, the handling, transport, and disposal of the by-product generated by
the Company’s recycling operations, (ii) the Company has all permits,
authorizations and approvals required under any applicable Environmental Laws
for the operation of its business and facilities (“Environmental
Permits”) and is in material compliance with their requirements, (iii) no
material expenditures will be required to maintain compliance with applicable
Environmental Laws or Environmental Permits; (iv) there are no pending or
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company and (v) there are no events or circumstances that would reasonably be
expected to form the basis of an order for clean-up or remediation, or an
action, suit or proceeding by any private party or governmental body or agency,
against or affecting the Company relating to Hazardous Materials or
Environmental Laws, including, without limitation, the Company’s leasing of
facilities located at the Riverbank Army Ammunition Plant Superfund site (EPA
ID# CA7210020759).
(p) Subsequent
to the respective dates as of which information is given in the SEC Documents,
(i) the Company has not incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions not in the
ordinary course of business or (ii) the Company has not purchased any of
its outstanding capital stock, or declared, paid or otherwise made any dividend
or distribution of any kind on any of its capital stock or otherwise,
(iii) there has not been any material increase in the indebtedness of the
Company, (iv) there has not occurred any event or condition, individually
or in the aggregate, that has had a Material Adverse Effect, (v) the
Company has not sustained any material loss or interference with respect to its
business or properties from fire, flood, hurricane, earthquake, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding; (vi) the Company has not received any
notice from the SEC in connection with any investigation or action by the SEC
that seeks to, or could reasonably be expected to result in, the restatement by
the Company of any of its current or previously disclosed financial statements;
(vii) there has not been any material change in compensation agreement or
arrangement with any executive officer or director of the Company; (viii) there
has not been any loan or guarantees made by the Company to or for the benefit of
its employees, officer or directors or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of
business and consistent with past practice; and (ix) the Company has not altered
its method of accounting or changed its auditors. The Company has not
taken any steps to seek protection pursuant to any bankruptcy law nor does the
Company have any knowledge or reason to believe that its creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact,
which would reasonably lead a creditor to do so. Based on the
financial condition of the Company as of the Closing Date, after giving effect
to transactions contemplated hereby to occur on the Closing Date, the Company
reasonably expects to have sufficient cash on hand to pay all of its currently
foreseeable expenses for at least the next four months.
(q) There are
no material legal or governmental proceedings nor are there any material
contracts or other documents required by the Securities Act to be described in a
prospectus that are not described in the SEC Documents. The Company
is not in default under any of the contracts described in the SEC Documents, has
not received a notice or claim of any such default and does not have knowledge
of any breach of such contracts by the other party or parties thereto, except
for such defaults or breaches as would not, individually or in the aggregate,
have a Material Adverse Effect.
(r) The
Company has good and marketable title to all real property described in the SEC
Documents as being owned by it and good and marketable title to the leasehold
estate in the real property described therein as being leased by it, free and
clear of all liens, charges, encumbrances or restrictions, except, in each case,
as would not, individually or in the aggregate, have a Material Adverse
Effect. All material leases, contracts and agreements to which the
Company is a party or by which it is bound are valid and enforceable against the
Company, are, to the knowledge of the Company, valid and enforceable against the
other party or parties thereto and are in full force and effect.
(s) The
Company has filed all necessary federal, state and foreign income and franchise
tax returns, except where the failure to so file such returns would not,
individually or in the aggregate, have a Material Adverse Effect, and has paid
all taxes shown as due thereon; and other than tax deficiencies which the
Company is contesting in good faith and for which adequate reserves have been
provided in accordance with generally accepted accounting principles,
there is no material tax deficiency that has been asserted against the
Company.
(t) The
Company is not, and immediately after the Closing Date will not be, required to
register as an “investment company” or a company “controlled by” an “investment
company” within the meaning of the Investment Company Act of 1940, as amended
(the “Investment
Company Act”).
(u) None of
the Company or, to the knowledge of the Company, any of its directors, officers,
employees, agents or controlling persons, has taken, directly or indirectly, any
action designed, or that might reasonably be expected, to cause or result in the
stabilization or manipulation of the price of the Common Stock.
(v) None of
the Company or any of its affiliates (as defined in Rule 501(b) of
Regulation D under the Securities Act) directly, or through any agent,
engaged in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) in connection with
the offering of the Securities or engaged in any other conduct that would cause
such offering to be constitute a public offering within the meaning of
Section 4(2) of the Securities Act. Assuming the accuracy of the
representations and warranties of the Purchasers in Section 5 hereof, it is
not necessary in connection with the offer, sale and delivery of the Securities
to the Purchasers in the manner contemplated by this Agreement to register any
of the Securities under the Securities Act.
(w) There is
no strike, labor dispute, slowdown or work stoppage with the employees of the
Company which is pending or, to the knowledge of the Company,
threatened.
(x) The
Company maintains insurance underwritten by insurers of recognized financial
responsibility covering its properties, operations, personnel and businesses
comparable to other companies of its size and similar business, including,
without limitation, appropriate general business, environmental and directors’
and officers’ liability insurance. All such insurance is in full
force and effect.
(y) The
Company maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management’s authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain accountability
for its assets, (C) access to its material assets is permitted only in
accordance with management’s authorization and (D) the values and amounts
reported for its material assets are compared with its existing assets at
reasonable intervals.
(z) Except as
disclosed in the SEC Documents, the Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) of the
Exchange Act) that comply with the requirements of the Exchange Act; such
disclosure controls and procedures have been designed to ensure that material
information relating to the Company is made known to the Company’s principal
executive officer and principal financial officer by others within those
entities; and such disclosure controls and procedures are
effective.
(aa) No Person
has or will have a claim for services, either in the nature of a finder’s fee or
financial advisory fee, with respect to the offering of the Securities and the
transactions contemplated by the Transaction Documents.
(bb) The
Common Stock is traded on the National Association of Securities Dealers OTC
Bulletin Board (the “OTC Bulletin
Board”). The Company currently is not in violation of, and the
consummation of the transactions contemplated by the Transaction Documents will
not violate, any rule of the OTC Bulletin Board.
(cc) The
Company is eligible to use Form S-1 for the resale of the Conversion Shares by Purchasers or their
transferees. The Company has no reason to believe that it is not
capable of satisfying the registration or qualification requirements (or an
exemption therefrom) necessary to permit the resale of the Conversion
Shares under the
securities or “blue sky” laws of any jurisdiction within the United
States.
(dd) None of
the Company, any of its affiliates, or any Person acting on their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of any of the Securities under the Securities Act or cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable stockholder approval
provisions, including without limitation, under the rules and regulations of the
OTC Bulletin Board.
(ee) The
Company and its Board of Directors have taken all necessary action, if any, to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s charter documents or the laws of its
state of incorporation that is applicable to any of the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including, without limitation, as
a result of the Company’s issuance of the Securities and the Purchasers’
ownership of the Securities.
(ff) The
Company has described in, or filed as an exhibit to, the SEC Documents filed
prior to the date of this Agreement all of the following types of documents,
agreements, plans or arrangements that are required by federal securities laws
to be described in, or filed as an exhibit to, the SEC
Documents: employment agreements, consulting agreements, deferred
compensation, pension or retirement agreements or arrangements (including all
“employee pension benefit plans” as defined in Section 3(2) of ERISA, bonus,
incentive or profit-sharing plans or arrangements, or labor or collective
bargaining agreements in effect by the Company) (the “ERISA
Documents”). Except for any compliance failures that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect, (a) the Company is in compliance in all material respects with
all applicable laws and regulations relating to labor, employment, fair
employment practices, terms and conditions of employment, and wages and hours,
and with the terms of the ERISA Documents; and (b) each such ERISA Document is
in compliance in all material respects with all applicable requirements of
ERISA. To the Company’s knowledge, none of the Company’s employees
are obligated under any contract (including licenses, covenants or commitments
of any nature) or other agreement, or subject to any judgment, decree or order
of any court or administrative agency, that would interfere with the use of his
or her employment obligations to the Company or that would conflict with the
Company’s business as now conducted or proposed to be conducted, except for such
contracts and other agreements, judgments, decrees and orders that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(gg) Except as
disclosed in the SEC Documents, no transaction has occurred: (A) between or
among the Company and any of its officers or directors, stockholders or any
affiliate of any such officer or director or stockholder; and (B) to the
Company’s knowledge, between or among any stockholders of the
Company.
3. Certain Covenants of the
Company. The Company covenants and agrees with each Purchaser
as follows:
(a) Use of
Proceeds. The proceeds of the issuance of the Securities as
described in this Agreement shall be used to purchase new equipment and spare
parts for the Company’s continuous flow CO2 cleansing process and ▇▇▇.▇▇
pre-cleaning systems (estimated at $1,200,000), reduce trade payables (estimated
at $800,000), fund operations through December 2008, with the remainder of the
proceeds to be available for growth initiatives approved by the Board of
Directors. None of the proceeds of the Loans will be used to reduce
or retire any existing debt of the Company (other than for trade payables),
except to the extent any such notes or debt are being cancelled as consideration
for purchase of Securities by a Purchaser hereunder and as specifically set
forth on Schedule
I hereto.
(b) No Integrated
Offering. None of the Company or any of its affiliates will
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any “security” (as defined in the Securities Act) that could be integrated
with the sale of the Securities in a manner which would require the registration
under the Securities Act of the Securities.
(c) Investment Company Act
Status. The Company will not become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under the Investment
Company Act.
(d) Further
Action. The Company will use its best efforts to do and
perform all things required to be done and performed by it under this Agreement
and the other Transaction Documents and to satisfy all conditions precedent on
its part to the obligations of the Purchasers to purchase and accept delivery of
the Securities.
(e) Stockholder
Approval. As soon as reasonably practicable following the
Initial Closing, the Company shall obtain the approval and consent of a majority
of the outstanding shares of its Series B Convertible Preferred Stock, as well
as any other stockholder approvals required in connection with the authorization
and designation of the shares of a newly created series of the Company’s
preferred stock (the “Stockholder
Approvals”), to be designated “Series C Convertible Preferred
Stock.” The Series C Convertible Preferred Stock shall have the
rights, preferences and privileges as are set forth in the Form of Certificate
of Designations attached hereto as Exhibit C (the “Series C
Certificate of Designations”).
(f) Investor Rights
Agreement. The Purchasers
shall be entitled, with respect to any shares of the Company’s capital stock
issued upon exercise of the Warrants and upon conversion of the Notes, as the
case may be, to all of the registration and other rights set forth in the
Company’s Investor Rights Agreement dated as of June 4, 2008 (the “Rights
Agreement”), to the same extent and on the same terms and conditions as
possessed by the investors thereunder and as if such were included in the
definition of “Registrable Securities” in the Rights Agreement. The
Company shall take such action as may be reasonably necessary, including
amending the Rights Agreement as soon as reasonably practicable following the
Initial Closing, to assure that the granting of such registration rights to the
Purchasers does not violate the provisions of the Rights Agreement or any of the
Company’s charter documents or rights of prior grantees of registration
rights.
(g) Further Indebtedness. The Company hereby covenants and
agrees that so long as any principal amount and accrued interest remains
outstanding under the Notes issued pursuant to the terms of this Agreement, that
it shall not, without the written consent of Purchasers holding Notes
representing at least 60% of the principal amount of all Notes then outstanding,
incur, guaranty, assume or otherwise become obligated to pay indebtedness, other
than amounts under equipment leases existing as of the Initial Closing Date,
accounts payable and other obligations incurred in the ordinary course of
business, other than pursuant to this Agreement.
4. Conditions of the
Purchasers’ Obligations. The obligation of each Purchaser to
purchase and pay for the Securities at each Closing Date is subject to the
following conditions unless waived by the Purchaser:
(a) The
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the Closing Date. The Company shall have
complied in all material respects with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to the
Closing Date.
(b) None of
the issuance and sale of the Securities pursuant to this Agreement or any of the
transactions contemplated by any of the other Transaction Documents shall be
enjoined (temporarily or permanently) and no restraining order or other
injunctive order shall have been issued in respect thereof; and there shall not
have been any legal action, order, decree or other administrative proceeding
instituted or, to the Company’s knowledge, threatened against the Company or
against any Purchaser relating to the issuance of the Securities or any
Purchaser’s activities in connection therewith or any other transactions
contemplated by this Agreement, the other Transaction Documents or the SEC
Documents.
(c) The
Purchasers shall have received certificates, dated the Closing Date and signed
by the Chief Executive Officer and the Chief Financial Officer of the Company,
to the effect of Sections 4(a) and 4(b).
(d) The
Purchasers shall have received an opinion of legal counsel to the Company, with
respect to the Securities and other customary matters in the form attached
hereto as Exhibit D.
(e) The Major
Investors (as defined in Section 8 hereof) shall be satisfied, in their sole
discretion, with the results of their due diligence investigation with respect
to the Company.
(f) The
Company’s Board of Directors shall have approved the Series C Certificate of
Designations, in substantially the form as set forth on Exhibit C
hereto.
(g) The
Company shall have received all necessary governmental and third party waivers,
consents and approvals, other than the Stockholder Approval referred to in
Section 3(e) hereof.
(h) The
Company shall have complied with all applicable securities laws.
(i) On or
prior to the date of the Initial Closing, the Company shall have authorized the
filing of an amendment to the certificate of incorporation of the Company as
necessary to give effect to the provisions set forth herein or in the
Transaction Documents.
(j) The
Security Agreement shall have been duly executed by the Company and the parties
thereto.
(k) As soon
as reasonably practicable following the Initial Closing, the Company shall
receive a fairness opinion with regard to valuation matters.
(l) As soon
as reasonably practicable following the Initial Closing, the Rights Agreement
shall be amended so as to satisfy the covenant set forth in Section 3(f)
hereof.
(m) On or
prior to the date of the Initial Closing, the Company shall have filed (or
authorized the filing of) all UCC and similar financing statements in form and
substance satisfactory to the Purchasers at the appropriate offices to create a
valid and perfected security interest in the Collateral (as defined in the
Security Agreement).
(n) On or
prior to the Closing Date, the Company shall have furnished to the Major
Investors such additional information, certificates and documents as they may
reasonably require for the purpose of enabling them to pass upon the issuance
and sale of the Securities as contemplated herein, or to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained, or otherwise in connection with the transaction
contemplated hereby; and all opinions and certificates mentioned above or
elsewhere in this Agreement shall be reasonably satisfactory in form and
substance to the Major Investors.
5. Representations and
Warranties of the Purchasers.
(a) Each
Purchaser represents and warrants to the Company that the Securities to be
acquired by it hereunder (including the Conversion Shares that it may acquire
upon conversion thereof) are being acquired for its own account for investment
and with no present intention of distributing or reselling such Securities
(including the Conversion Shares that it may acquire upon conversion thereof) or
any part thereof or interest therein in any transaction which would be in
violation of the securities laws of the United States of America or any
State. Nothing in this Agreement, however, shall prejudice or
otherwise limit a Purchaser’s right to sell or otherwise dispose of all or any
part of such Conversion Shares under an effective registration statement under
the Securities Act and in compliance with applicable state securities laws or
under an exemption from such registration.
(b) Each
Purchaser understands that the Securities and Conversion Shares have not been
registered under the Securities Act and may not be offered, resold, pledged or
otherwise transferred except (a) pursuant to an exemption from registration
under the Securities Act (and, if requested by the Company, based upon an
opinion of counsel acceptable to the Company) or pursuant to an effective
registration statement under the Securities Act and (b) in accordance with
all applicable securities laws of the states of the United States and other
jurisdictions.
Each
Purchaser agrees to the imprinting, so long as appropriate, of the following
legend on the Securities (including the Conversion Shares that it may acquire
upon conversion thereof):
THE
SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES
LAWS. THESE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT.
The
legend set forth above may be removed if and when the Securities or Conversion
Shares are disposed of pursuant to an effective registration statement under the
Securities Act or, in the opinion of counsel to the Company experienced in the
area of United States Federal securities laws, such legends are no longer
required under applicable requirements of the Securities Act. The
Company agrees that it will provide each Purchaser, upon request, with a
substitute certificate, not bearing such legend at such time as such legend is
no longer applicable.
(c) Each
Purchaser is an “accredited investor” within the meaning of Rule 501(a) of
Regulation D under the Securities Act. None of the Purchasers learned
of the opportunity to acquire Securities or any other security issuable by the
Company through any form of general advertising or public
solicitation.
(d) Each
Purchaser represents and warrants to the Company that it has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, having been represented by counsel, and has so evaluated the merits
and risks of such investment and is able to bear the economic risk of such
investment and, at the present time, is able to afford a complete loss of such
investment.
(e) Each
Purchaser represents and warrants to the Company that the purchase of the
Securities to be purchased by it has been duly and properly authorized and this
Agreement has been duly executed and delivered by it or on its behalf and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’ rights
generally and to general principles of equity.
(f) Each
Purchaser represents and warrants to the Company that neither it nor any of its
directors, officers, employees, agents, partners, members, or controlling
persons has taken, or will take, directly or indirectly, any actions designed,
or that might reasonably be expected to cause or result in, the destabilization
or manipulation of the price of the Common Stock.
(g) Each
Purchaser acknowledges it or its representatives have reviewed the SEC Documents
and further acknowledges that it or its representatives have been afforded
(i) the opportunity to ask such questions as it has deemed necessary of,
and to receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Securities and the merits and risks of
investing in the Securities; and (ii) access to information about the
Company and the Company’s financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment in the Securities.
(h) Each
Purchaser represents and warrants to the Company that it has based its
investment decision solely upon the information contained in the SEC Documents
and such other information as may have been provided to it or its
representatives by the Company in response to its inquiries, and has not based
its investment decision on any research or other report regarding the Company
prepared by any third party (“Third Party
Reports”). Each Purchaser understands and acknowledges that
(i) the Company does not endorse any Third Party Reports and (ii) its
actual results may differ materially from those projected in any Third Party
Report.
(i) Each
Purchaser understands and acknowledges that (i) any forward-looking
information included in the SEC Documents is subject to risks and uncertainties,
including those risks and uncertainties set forth in the SEC Documents; and
(ii) the Company’s actual results may differ materially from those
projected by the Company or its management in such forward-looking
information.
(j) Each
Purchaser understands and acknowledges that (i) the Securities are offered
and sold without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act and
(ii) the availability of such exemption depends in part on, and that the
Company and its counsel will rely upon, the accuracy and truthfulness of the
foregoing representations and Purchaser hereby consents to such
reliance. Each Purchaser also understands that there is no assurance
that any exemption from registration under the Securities Act will be available
and that, even if available, such exemption may not allow Purchaser to transfer
all or any portion of the Securities or Conversion Shares under the
circumstances, in the amounts or at the times Purchaser might
propose.
(k) None of
the Purchasers is a broker or dealer registered pursuant to Section 15 of
the Exchange Act (a “registered
broker-dealer”) or is affiliated with a registered
broker-dealer.
6. Covenants of
Purchasers.
(a) No Short
Sale. Purchasers, on behalf of themselves and their affiliates
and the permitted assignee of any Conversion Shares, hereby covenant and agree
not to, directly or indirectly, offer to “short sell”, contract to “short sell”
or otherwise “short sell” any securities of the Company prior to the Closing
Date.
(b) Agreement to Convert or
Subordinate Notes. All Notes may be converted or subordinated
at any time upon approval of the same by holders of at least 60% of the
principal amount of the Notes then outstanding. In the event of such
conversion of the Notes pursuant to this Section 6(b), the Notes shall
immediately accrue the full amount of interest that would otherwise be payable
as of March 31, 2009, as if such Notes were outstanding on such date,
notwithstanding the fact such Notes would have been converted prior to that
date.
7. No Original Issue
Discount. The Company and the Purchasers hereby acknowledge
and agree that each Warrant is part of an investment unit within the meaning of
Section 1273(c)(2) of the Internal Revenue Code, which includes the Note issued
to each respective Purchaser. The Company and the Purchasers further agree as
between the Company and each Purchaser, that the fair market value of the
Warrant issued to such Purchaser is equal to 0.1% of the principal amount of the
Notes purchased by such Purchaser, as more specifically set forth opposite such
Purchaser’s name under the column heading, “Warrant Shares Purchase Price” on
Schedule I
attached hereto. The Company and the Purchaser agree to prepare their
federal income tax returns in a manner consistent with the foregoing agreement
and, pursuant to Treas. Reg. §1.1273, the original issue discount on the Notes
shall be considered to be zero.
8. Indemnification. The
Company agrees to indemnify and hold harmless each of ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇ Living Trust, dated 12-10-96 and funds associated with Trident Capital,
Inc. (the “Major
Investors”), any affiliates of the Major Investors, and each Person, if
any, who controls, is controlled by or under common control with any Major
Investor within the meaning of the Securities Act (each, an “Indemnified
Party”), against any losses, claims, actions, damages, liabilities or
expenses (collectively, “Losses”),
joint or several, to which such Indemnified Party may become subject under the
Securities Act, the Exchange Act, or any other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such Losses (or actions in respect thereof as contemplated
below) arise out of or are based in whole or in part on any inaccuracy in the
representations and warranties of the Company contained in this Agreement or any
failure of the Company to perform its obligations hereunder, and will reimburse
each Indemnified Party for any legal and other expenses reasonably incurred as
such expenses are incurred by such Indemnified Party in connection with
investigating, defending, settling, compromising or paying any such Loss; provided, however, that the
Company will not be liable in any such case to the extent that any such Loss
arises out of or is based upon the inaccuracy of any representations made by
such Indemnified Party herein.
9. Termination.
(a) This
Agreement may be terminated by the Major Investors by notice to the Company
given in the event that (i) the Company shall have failed, refused or been
unable to satisfy all material conditions on its part to be performed or
satisfied hereunder on or prior to the Closing Date or (ii) if after the
date of this Agreement but prior to the Closing Date, trading in securities of
the Company on the OTC Bulletin Board shall have been suspended and the Company
ceases to be publicly traded.
(b) This
Agreement may be terminated by mutual written consent of the Company and the
Major Investors.
10. Notices. All
communications hereunder shall be in writing and shall be hand delivered, mailed
by first-class mail, couriered by next-day air courier or by facsimile and
confirmed in writing (i) if to the Company, at the addresses set forth
below, or (ii) if to a Purchaser, to the address set forth for such party
on the signature pages hereto, with a copy to ▇▇▇▇▇▇ &Watkins LLP, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
Esq.
If to the
Company:
ECO2
Plastics, Inc.
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief
Executive Officer
Telephone:
▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a
copy to:
The ▇▇▇▇
Law Group, PLLC
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇
▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
All such
notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered;
(ii) five business days after being deposited in the mail, postage prepaid,
if mailed certified mail, return receipt requested; (iii) one business day
after being timely delivered to a next-day air courier guaranteeing overnight
delivery; (iv) the date of transmission if sent via facsimile to the
facsimile number as set forth in this Section or the signature page hereof prior
to 5:00 pm in the time zone of the recipient on a business day, with
confirmation of successful transmission or (v) the business day following
the date of transmission if sent via facsimile at a facsimile number set forth
in this Section or on the signature page hereof after 5:00 p.m. in the time zone
of the recipient or on a date that is not a business day. Change of a
party’s address or facsimile number may be designated hereunder by giving notice
to all of the other parties hereto in accordance with this Section.
11. Survival
Clause. The respective representations, warranties, agreements
and covenants of the Company and the Purchasers set forth in this Agreement
shall survive until the first anniversary of the Closing.
12. Fees and
Expenses. Promptly in connection with a Closing where at least
an aggregate principal amount of $4,000,000 in Notes has been issued by the
Company, the Company shall pay, by wire transfer of immediately available funds
(i) to an account or accounts designated by ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, at least
$288,916.81 for Purchasers’ legal and other transaction expenses incurred in
connection with the preparation and negotiation of the Transaction Documents and
the Company’s previously completed Series B Preferred Stock financing; and (ii)
to an account or accounts designated by the ▇▇▇▇ Law Group PLLC, the amount of
$171,905.82 for the Company’s legal and other transaction expenses incurred in
connection with the preparation and negotiation of the Transaction Documents,
the Company’s previously completed Series B Preferred Stock financing, and other
general corporate, securities, and transactional work previously performed on
behalf of the Company.
13. Enforcement. If
any action at law or in equity is necessary to enforce or interpret the terms of
this Agreement or the Certificates of Designations, the prevailing party or
parties shall be entitled to receive from the other party or parties reasonable
attorneys’ fees, costs and necessary disbursements in addition to any other
relief to which the prevailing party or parties may be entitled.
14. Successors and
Assigns. This Agreement shall inure to the benefit of and be
binding upon Purchasers and the Company and their respective successors and
legal representatives. Neither the Company nor any Purchaser may
assign this Agreement or any rights or obligation hereunder without the prior
written consent of the other party.
15. Amendment and
Waiver. Except as otherwise expressly provided herein,
this Agreement may be amended or modified, and any obligations of the Company
and rights of the Purchasers hereunder may waived, in each case only upon the
written consent of (i) the Company and (ii) the holders of at least 60% of the
principal amount of then outstanding Notes; provided, however, that no
amendment of this Agreement shall materially and adversely affect the rights of
a Purchaser in a manner that materially and disproportionately discriminates
against such Purchaser by its express terms in relation to the other Purchasers
without such Purchaser's written consent. Notwithstanding anything to
the contrary herein, Schedule I hereto may be amended and revised by the Company
in connection with Additional Closings (as defined in Section 1(e) above)
without requiring the consent of any of the other parties hereto. Any
amendment or waiver effected in accordance with this Section 15 shall be binding
upon each Purchaser, each future Purchaser, and the Company. The
Purchasers and their respective successors and assigns acknowledge that by the
operation of this Section 15, the holders of at least 60% of the Notes then
outstanding, acting in conjunction with the Company, will have the right and
power to diminish or eliminate any or all rights pursuant to this
Agreement.
16. Entire Agreement; No Third
Party Beneficiary. This Agreement, together with the other
Transaction Documents, constitutes the entire agreement among the parties hereto
and supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof. Disclosure by the Company in any Schedule to this Agreement
shall be deemed applicable to all applicable provisions hereof. This
Agreement is not intended to confer upon any Person not a party hereto (or their
successors and permitted assigns) any rights or remedies hereunder, except as
provided in Section 8 hereof.
17. Aug08 Notes and Aug08
Warrants. The Company and those certain Purchasers party to
the Aug08 Notes and Aug08 Warrants hereby acknowledge and agree that the Aug08
Notes and Aug08 Warrants shall hereafter be governed by the terms of, and
considered issued pursuant to, this Agreement.
18. Severability. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired
thereby.
19. APPLICABLE
LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND
THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO
PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR
FEDERAL COURTS LOCATED IN THE CITY OF SAN FRANCISCO, CALIFORNIA AND HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH
PURPOSE.
20. Waiver of Participation
Rights. By execution of this Agreement, each Purchaser
expressly waives any right of first refusal, pre-emptive right, right of first
offer or other participation right (and any related document delivery and notice
rights) with respect to the issuance of the Notes, the Warrants and any shares
of the Company’s capital stock issuable upon conversion or exercise thereof,
including without limitation, all rights under Section 7 of the Rights Agreement
to the extent the Purchaser is a party thereto and qualifies as a “Major Holder”
thereunder.
21. Waiver of
Conflicts. Each party to this Agreement acknowledges that
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP (L&W),
counsel for ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ LLC and Trident Capital, has in the past performed
and is or may now or in the future perform legal services for one or more of the
Purchasers or their affiliates in matters unrelated to the transactions
described in this Agreement (the “Financing”),
including the representation of such Purchasers or their affiliates in matters
of a similar nature to the Financing and other matters. The
applicable rules of professional conduct require that L&W inform the parties
hereunder of this representation and obtain their consent. L&W
has served as counsel to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ LLC and Trident Capital and has
negotiated the terms of the Financing solely on behalf of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ LLC
and Trident Capital. It is the belief of L&W that these terms and
conditions represent an arm’s length transaction between the Company and the
Purchasers. Each of the Purchasers has had the opportunity to be
represented by independent legal counsel regarding the terms of the
Financing. Accordingly, each party to this Agreement hereby
(i) acknowledges that it has had an opportunity to ask for and has obtained
information relevant to such representation, including disclosure of the
reasonably foreseeable adverse consequences of such representation;
(ii) acknowledges that with respect to the Financing, L&W has
represented solely ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ LLC and Trident Capital, and not any other
Purchaser or any stockholder, director or employee of any Purchaser; and (iii)
gives its informed consent to L&W’s representation of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ LLC
and Trident Capital and their respective affiliates in such unrelated matters
and to L&W’s representation of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ LLC and Trident Capital in
connection with the Financing.
22. Conflict with Terms of the
Notes or Warrants. In the event that any of the terms of this
Agreement conflict with the terms contained in the Notes or Warrants, except for
any conflict with Section 1(f) of this Agreement which shall govern and control,
such terms contained in the Notes or Warrants shall govern and
control.
23. Counterparts. This
Agreement may be executed in two or more counterparts and may be delivered by
facsimile transmission, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
[signature
pages follow]
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the day and year first above
written.
ECO2
PLASTICS, INC.
By: _________________________
Name: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇
Title: Chief
Executive Officer
PURCHASERS:
|
Trident
Capital Fund - VI, L.P.
Trident Capital Fund - VI Principals Fund,
L.L.C.
Executed by the
undersigned as an authorized signatory of the General Partner of Trident
Capital Fund-VI, L.P. and of the Managing Member of Trident Capital
Fund-VI Principals Fund, L.L.C
|
|
|
By: _________________________________
|
|
|
(signature)
|
|
|
_________________________________
|
|
| (print name) | |
|
Address:
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Administrative Officer and General Counsel
|
|
|
Fax: ▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
|
PURCHASERS:
|
▇▇▇▇▇▇
Living Trust, dated 12-10-96
|
|
|
By: _________________________________
|
|
|
▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
Trustee
|
|
|
Address: ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
|
|
E-Mail: ▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
|
PURCHASERS:
|
By: _________________________________
|
|
|
Name: _________________________________
|
|
|
Title: _________________________________
|
|
|
Address:
Fax: ______________________________
|
|
|
E-Mail: ______________________________
|
Schedule
I
Schedule
of Purchasers at the Initial Closing Date
September
2, 2008
|
Purchaser
|
Loan
Amount
|
Principal
Amount of Notes (plus any accrued unpaid interest)
Cancelled
|
Warrant
Shares
|
Warrant
Shares Purchase Price
|
|
September
15, 2008 Transaction:
|
||||
|
[TBD]
|
||||
|
September
2, 2008 Transaction:
|
||||
|
▇▇▇▇▇▇
▇. ▇▇▇▇▇
|
$250,000.00
|
--
|
8,333,333
|
$250
|
|
The
▇▇▇▇▇-▇▇▇▇▇ 1997 Trust
|
$150,000.00
|
--
|
5,000,000
|
$150
|
|
August
28, 2008 Transaction:
|
||||
|
Trident
Capital Fund-VI, L.P.
|
$481,332.31
|
--
|
16,044,411
|
$481.33
|
|
Trident
Capital Fund-VI Principals Fund, L.L.C.
|
$18,667.69
|
--
|
622,256
|
$18.67
|
|
▇▇▇▇▇▇
Living Trust, dated 12-10-96
|
$50,000.00
|
--
|
1,666,667
|
$50.00
|
|
August
22, 2008 Transaction:
|
||||
|
Trident
Capital Fund-VI, L.P.
|
$481,332.31
|
--
|
16,044,411
|
$481.33
|
|
Trident
Capital Fund-VI Principals Fund, L.L.C.
|
$18,667.69
|
--
|
622,256
|
$18.67
|
|
▇▇▇▇▇▇
Living Trust, dated 12-10-96
|
$50,000.00
|
--
|
1,666,667
|
$50.00
|
|
TOTAL:
|
$[1,500,000]
|
--
|
Disclosure
Schedule
This
Disclosure Schedule is being furnished by ECO2 Plastics, Inc., a Delaware
corporation, (the “Company”),
to the Purchasers listed on Schedule I to that
certain Convertible Note and Warrant Purchase Agreement of even date herewith by
and among the Company and such Purchasers (the “Agreement”)
in connection with the execution and delivery of the Agreement, pursuant to
Section 2 of the Agreement. Unless the context otherwise requires,
all capitalized terms used in this Disclosure Schedule shall have the respective
meanings ascribed to such terms in the Agreement.
This
Disclosure Schedule and the information, descriptions and disclosures included
herein is intended to set forth exceptions to the representations and warranties
of the Company contained in the Agreement. The contents of all
agreements and other documents referred to in a particular section of this
Disclosure Schedule is incorporated by reference into such particular section as
though fully set forth in such section.
[Attached separately]
Exhibit
A
Form of
Note
THE
SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES
LAWS. THESE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT.
CONVERTIBLE
SECURED PROMISSORY NOTE
San
Francisco, California
Date of
Issuance: September ___, 2008
FOR VALUE RECEIVED, ECO2 PLASTICS, INC., a Delaware
corporation (the “Promisor”) hereby
promises to pay to the order of __________________________ (the “Holder”), in lawful
money of the United States at the address of the Holder set forth herein, the
principal amount of __________________________ ($___________) (the “Note Amount”),
together with Interest, as defined below. This Convertible Secured
Promissory Note (“Note”) has been
executed by the Promisor on the date set forth above (the “Effective
Date”).
This Note is one of a series of
convertible secured promissory notes issued by the Promisor pursuant to that
certain Convertible Note and Warrant Purchase Agreement, dated as of September
2, 2008, by and among the Promisor and the parties named therein (the “Purchase
Agreement”). This Note and such other convertible secured
promissory notes issued by the Promisor pursuant to the Purchase Agreement are
herein collectively referred to as the “Notes.” This
Note is secured by a security interest in certain collateral of the Promisor
pursuant to the Amended and Restated Security Agreement, dated as of September
2, 2008, as amended, supplemented, restated or otherwise modified from time to
time, by and among the Promisor and the parties named therein (the “Security
Agreement”) and is entitled to all
the benefits and obligations provided therein. All payments of
interest and principal shall be in lawful money of the United States of America
and shall be made pro rata among all holders of the Notes. The
following is a statement of the rights of the Holder of this Note and the terms
and conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of the Note agrees:
1. Interest. Interest
shall accrue at fifteen percent (15%) per annum on the outstanding principal
amount of this Note (the “Interest”). Upon
the occurrence of an Event of Default and for so long as such Event of Default
continues, Interest shall accrue on the outstanding Note Amount at the rate of
fifteen percent (15%) per annum (the “Default Interest
Rate”).
2. Maturity
Date. The Note Amount, any accrued Interest thereon and all
other sums due hereunder, shall be due and payable on demand at any time on or
after March 31, 2009 (the “Maturity
Date”).
3. Security. The
Notes are secured pursuant to the terms of the Security Agreement by a security
interest in the Collateral (as such term is defined in the Security
Agreement). This Note is subject to the provisions of the Security
Agreement. It is agreed that all Promisor’s indebtedness, whether outstanding on
the date hereof or subsequently incurred or assumed, except all indebtedness
secured by perfected security interests granted by Promisor in connection with
the Senior Debt (as such term is defined in the Security Agreement) shall be
junior in right of payment to the indebtedness and other obligations of Promisor
pursuant to the Notes.
4. Application of
Payments.
4.1. Except as otherwise expressly provided
herein, payments under this Note shall be applied, (i) first to the repayment of
any sums incurred by the Holder for the payment of any expenses in enforcing the
terms of this Note, (ii) then to the payment of Interest accrued at the Default
Interest Rate, (iii) then to the payment of Interest, and (iv) then to the
reduction of the Note Amount.
4.2. The
Promisor may only prepay principal upon the written consent of holders of 60% or
more of the aggregate principal amount of the Notes then
outstanding.
4.3. Upon payment in full of the Note Amount
and applicable accrued and unpaid Interest thereon, this Note shall be marked
“Paid in Full” and returned to the Promisor.
5. Waiver of
Notice. The Promisor hereby waives diligence, notice,
presentment, protest and notice of dishonor.
6. Transfer. This
Note may be transferred by the Holder at any time without the written consent of
the Promisor.
7. Holder’s Option to
Convert.
7.1. At any time upon the written election
at their discretion of holders of 60% or more of the aggregate principal amount
of Notes then outstanding, the entire principal amount of and accrued, unpaid
interest on each Note shall be converted into shares of the Promisor’s equity
securities (the “Conversion
Securities”) pursuant to either Section 7.1.1 or 7.1.2
below:
7.1.1 In
the event that the Promisor shall have consummated a new equity financing in a
single transaction or a series of related transactions yielding gross proceeds
to the Promisor of at least $1,000,000.00 in the aggregate (other than (i) the
Notes, (ii) issuances of equity securities upon conversion of the Notes or
exercise of warrants issued pursuant to the Purchase Agreement, and
(iii) issuances of equity securities pursuant to Section 3(c) of that
certain Securities Subscription Agreement, dated as of June 4, 2008, as amended,
by and among the Promisor and the parties named therein, relating to the
Promisor’s Series B-1 Convertible Preferred Stock and Series B-2 Convertible
Preferred Stock (the “Series B Stock”))
(the “Next Equity
Financing”), then the Conversion Securities shall consist of equity
securities issued in such Next Equity Financing, at a price per share equal to
the lesser of (x) 80% of the purchase price paid by the purchasers of other
securities sold in such Next Equity Financing or (y) $0.015; or
7.1.2 If
a Next Equity Financing has not occurred, then the Conversion Securities shall
consist of shares of a newly created series of Series C Convertible Preferred
Stock of Promisor having rights, preferences and privileges substantially
similar to those of the Promisor’s Series B Stock, except that the liquidation
preference shall be senior to the Series B Stock and the Promisor’s Series A
Convertible Preferred Stock, at a price per share equal to $0.015 (subject to
appropriate adjustment for all stock splits, subdivisions, combinations,
recapitalizations and the like).
7.2. No fractional shares of Conversion
Securities will be issued upon conversion of a Note. In lieu thereof,
the number of Conversion Securities to be issued to a Holder upon conversion of
the Note or Notes held by such Holder shall be rounded to the nearest whole
share after aggregating all Notes held by the Holder. Upon conversion
of this Note pursuant to this Section 7, the Holder shall surrender this Note,
duly endorsed, at the principal offices of the Promisor or any transfer agent of
the Promisor. At its expense, the Promisor will, as soon as
practicable thereafter, issue and deliver to such Holder, at such principal
office, a certificate or certificates for the number of shares to which such
Holder is entitled upon such conversion, together with any other securities and
property to which the Holder is entitled upon such conversion under the terms of
this Note, including a check payable to the Holder for any cash amounts payable
as described herein. Upon conversion of this Note, the Promisor will
be forever released from all of its obligations and liabilities under this Note
with regard to that portion of the principal amount and accrued interest being
converted including without limitation the obligation to pay such portion of the
principal amount and accrued interest.
7.3. Conversion
Penalty. The Notes may be converted or subordinated at any
time upon approval of the same by holders of at least 60% of the principal
amount of the Notes then outstanding. In the event of a conversion of
this Note pursuant to this Section 7.3, this Note shall immediately accrue
the full amount of interest that would otherwise be payable as of March 31,
2009 as if this Note was outstanding on such date, notwithstanding the fact that
this Note would have been converted prior to that date.
8. Events of
Default. The occurrence of any of the following events (each
an “Event of
Default”), not cured in any applicable cure period, shall constitute an
Event of Default of the Promisor:
8.1. a breach of any representation,
warranty, covenant or other provision of this Note, which, if capable of being
cured, is not cured within three (3) days following notice thereof to the
Promisor;
8.2. the Promisor shall fail to pay
(i) when due any principal or Interest payment on the due date hereunder or
(ii) any other payment required under the terms of this Note on the date
due and the Promisor fails to make such payment within ten (10) days after
receipt of written notice from the Holder of such failure to pay;
8.3. (i) the application for the appointment
of a receiver or custodian for the Promisor or the property of the Promisor,
(ii) a case or other proceeding, whether voluntary or involuntary, seeking
liquidation, reorganization or other relief with respect to the Promisor or the
debts thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within sixty (60) days of
commencement, (iii) any assignment for the benefit of creditors by or against
the Promisor, or (iv) the insolvency of the Promisor;
8.4. any material portion of the Promisor’s
assets is attached, seized, subjected to lien, encumbrance, writ or distress
warrant, or is levied upon and such attachment, seizure, lien, encumbrance, writ
or distress warrant or levy has not been removed, discharged or rescinded within
thirty (30) days; and
8.5. a final judgment is rendered against
the Promisor that, together with other outstanding final judgments against the
Promisor, exceeds an aggregate of $500,000 (after subtracting any amount of such
judgment or judgments covered by Promisor’s insurance), or the Promisor is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs.
This Note shall become immediately due
and payable, without notice or other further action, upon the occurrence of any
Event of Default set forth in Section 8.3 or 8.4. Upon the occurrence
of any other Event of Default that is not cured within any applicable cure
period, if any, Holders of at least 60% of the aggregate principal amount of the
Notes then outstanding may elect, by written notice delivered to the Promisor,
to take at any time any or all of the following actions: (i) declare all Notes
to be forthwith due and payable, whereupon the entire unpaid Note Amount,
together with all accrued and unpaid Interest thereon (including the Default
Interest Rate), and all other cash obligations hereunder, shall become forthwith
due and payable, without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived by the Promisor, anything
contained herein to the contrary notwithstanding, and (ii) exercise any and all
other remedies provided hereunder or available at law or in
equity. Any Event of Default may be waived, or the enforcement of any
remedies available to any Holder of a Note may be tolled for such period as may
be determined by Holders of at least 60% of the aggregate principal amount of
the Notes then outstanding, upon written election by Holders of at least 60% of
the aggregate principal amount of the Notes then outstanding in their
discretion.
If an Event of Default occurs by the
Promisor, the Promisor agrees to pay, in addition to the Note Amount, reasonable
attorneys' fees and any other reasonable costs incurred by the Holders in
connection with pursuit of their remedies under this Note in accordance with the
provisions of this Note.
9. Miscellaneous.
9.1 Successors and
Assigns. Subject to the exceptions specifically set forth in
this Note, the terms and conditions of this Note shall inure to the benefit of
and be binding upon the respective executors, administrators, heirs, successors
and permitted assigns of the parties. This Note (or a portion hereof)
may be assigned by the Holder without the consent of the Promisor.
9.2 Loss or Mutilation of
Note. Upon receipt by the Promisor of evidence satisfactory to
the Promisor of the loss, theft, destruction or mutilation of this Note,
together with indemnity reasonably satisfactory to the Promisor, in the case of
loss, theft or destruction, or the surrender and cancellation of this Note, in
the case of mutilation, the Promisor shall execute and deliver to the Holder a
new promissory note of like tenor and denomination as this Note.
9.3 Notices. Any
notice, demand, offer, request or other communication required or permitted to
be given pursuant to the terms of this Note shall be in writing and shall be
deemed effectively given the earlier of, (i) when received, (ii) when delivered
personally, (iii) one business day after being delivered by facsimile (with
receipt of appropriate confirmation), (iv) one (1) business day after being
deposited with an overnight courier service, or (v) four (4) days after being
deposited in the Global Priority Mail with postage prepaid, and addressed to the
recipient at the addresses set forth below unless another address is provided to
the other party in writing:
If to Holder,
to:
__________________________
__________________________
__________________________
__________________________
Attn:
__________________________
Fax: __________________________
if to the Promisor,
to:
ECO2 Plastics,
Inc.
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
with a copy
to:
The ▇▇▇▇ Law Group, PLLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇
▇. ▇▇▇▇
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
9.4 Governing
Law. This Note shall be governed in all respects by the laws
of the State of California as applied to agreements entered into and performed
entirely within the State of California by residents thereof, without regard to
any provisions thereof relating to conflicts of laws among different
jurisdictions.
9.5 Waiver and
Amendment. Any term of this Note may be amended, waived or
modified with the written consent of the Promisor and the Holder; provided
however, that (a) the terms of this Note may be amended or modified, and
any obligations of Promisor and the rights of Holder may be waived, in each case
upon the written consent of Promisor and the holders of at least 60% of the
aggregate principal amount of Notes then outstanding, in accordance with the
provisions set forth in Section 15 of the Purchase Agreement, and (b) this
Note may be converted or subordinated without any action of Holder upon approval
by holders of at least 60% of the aggregate principal amount of Notes then
outstanding, in accordance with the provisions set forth in Section 7.3 above
and Section 6(b) of the Purchase Agreement.
9.6 Remedies; Costs of
Collection; Attorneys' Fees. No delay or omission by the
Holder in exercising any of its rights, remedies, powers or privileges hereunder
or at law or in equity and no course of dealing between the Holder and the
undersigned or any other person shall be deemed a waiver by the Holder of any
such rights, remedies, powers or privileges, even if such delay or omission is
continuous or repeated, nor shall any single or partial exercise of any right,
remedy, power or privilege preclude any other or further exercise thereof by the
Holder or the exercise of any other right, remedy, power or privilege by the
Holder. The rights and remedies of the Holder described herein shall
be cumulative and not restrictive of any other rights or remedies available
under any other instrument, at law or in equity provided that such rights or
remedies are not inconsistent with the express provisions hereof. If
an Event of Default occurs, the Promisor agrees to pay, in addition to the Note
Amount and any Interest payable thereon, reasonable attorneys' fees and any
other reasonable costs incurred by the Holder in connection with its pursuit of
its remedies under this Note.
9.7 Usury Savings
Clause. In the event any interest is paid on this Note which
is deemed to be in excess of the then legal maximum rate, then that portion of
the interest payment representing an amount in excess of the then legal maximum
rate shall be deemed a payment of principal and applied against the principal of
this Note.
[Signature page to
follow]
IN WITNESS WHEREOF, the Promisor has
caused this Note to be signed on the Effective Date.
ECO2 PLASTICS,
INC.
_______________________________
Name:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:
Chief Executive Officer
Exhibit
B
Form of
Warrant
THE
SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES
LAWS. THESE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT.
Warrant
To Purchase _____________ Shares of Common Stock
Void
after April 14, 2015
ECO2 PLASTICS,
INC.
(f.k.a.,
Itec Environmental Group, inc.)
Date of
Issuance: September ___, 2008
No. _____
THIS CERTIFIES that, for value
received, _______________________, or his/her/its assigns (in either case, the
“Holder”) is entitled to
purchase, subject to the provisions of this Warrant, from ECO2 Plastics,
Inc., a Delaware corporation (the “Company”), at the price per
share set forth in Section 9 hereof, that number of shares of the Company’s
common stock (the “Common
Stock”) set forth in Section 8 hereof. This Warrant is
referred to herein as the “Warrant” and the shares of
Common Stock issuable pursuant to the terms hereof are sometimes referred to
herein as “Warrant
Shares.”
This Warrant is one of a series of
warrants issued by the Company pursuant to that certain Convertible Note and
Warrant Purchase Agreement, dated as of September 2, 2008, by and among the
Company and the parties named therein (the “Purchase
Agreement”). This Warrant and such other warrants issued by
the Company pursuant to the Purchase Agreement are herein collectively referred
to as the “Warrants.” Capitalized
terms used herein but not defined shall have the meanings ascribed to them in
the Purchase Agreement.
1. Holder Exercise of
Warrant. This Warrant shall be exercisable in whole or in
part. To exercise this Warrant, the Holder shall deliver to the
Company at its principal office, (a) a written notice, in substantially the form
of the exercise notice attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (b) this Warrant and (c)
(except in the case of exercise on a net issue basis pursuant to Section 9(b) of
this Warrant) the payment to the Company, by check or wire, of an amount equal
to the then applicable Exercise Price (as defined below) per share multiplied by
the number of Warrant Shares then being purchased. The Company shall as promptly
as practicable, and in any event within twenty (20) days after delivery to the
Company of (a), (b) and (c) above, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice. Each certificate representing Warrant Shares shall bear the
legend or legends required by applicable securities laws as well as such other
legend(s) the Company requires to be included on certificates for its Common
Stock. The Company shall pay all expenses and other charges payable
in connection with the preparation, issuance and delivery of such stock
certificates except that, in case such stock certificates shall be registered in
a name or names other than the name of the Holder, funds sufficient to pay all
stock transfer taxes that are payable upon the issuance of such stock
certificate or certificates shall be paid by the Holder at the time of
delivering the Exercise Notice. All shares of Common Stock issued
upon the exercise of this Warrant shall be validly issued, fully paid, and
nonassessable. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. If this
Warrant is exercised in part, the Company shall, upon surrender of this Warrant,
execute and deliver, within 20 days of the date of exercise, a new Warrant
evidencing the rights of the Holder, or such other person as shall be designated
in the Notice of Exercise, to purchase the balance of the Warrant Shares
purchasable hereunder.
The
Warrant shall expire on April 14, 2015 (the “Expiration
Date”). The Investor may exercise the warrant in whole or in
part at any time prior to the Expiration Date. The Company has no
restriction on the sale or transfer of the Warrant or Warrant Shares; however,
the Investor is required to comply with all state and U.S. laws and regulations
relating to security sales and transfers. This Warrant shall
automatically be exercised in full as of immediately prior to termination of the
Warrant on the Expiration Date, on a net issue basis pursuant to
Section 9(b), to the extent the Warrant shall not have previously been
exercised in full.
2. Reservation of
Shares. The Company hereby covenants that at all times during the term of
this Warrant there shall be reserved for issuance such number of shares of its
Common Stock as shall be required to be issued upon exercise of this
Warrant.
3. Fractional
Shares. This Warrant may be exercised only for a whole number
of shares of Common Stock, and no fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this
Warrant.
4. Representations of the
Company. The Company represents that all corporate actions on the part of
the Company, its officers, directors and shareholders necessary for the sale and
issuance of the Warrant Shares pursuant hereto and the performance of the
Company's obligations hereunder were taken prior to and are effective as of the
effective date of this Warrant.
5. Transfer of Warrant and
Warrant Shares. The Holder may sell, pledge, hypothecate, or
otherwise transfer this Warrant, in whole, in accordance with and subject to the
terms and conditions set forth in this Warrant and then only if such sale,
pledge, hypothecation, or transfer is made in compliance with the Act or
pursuant to an available exemption from registration under the Act relating to
the disposition of securities.
6. Loss of
Warrant. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, or destruction of this Warrant, and of indemnification
satisfactory to it, or upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new warrant of like
tenor.
7. Rights of the
Holder. No provision of this Warrant shall be construed as
conferring upon the Holder the right to vote, consent, receive dividends or
receive notice other than as expressly provided herein. Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the
Company.
8. Number of Warrant
Shares. This Warrant shall be exercisable for _____________
shares (as originally determined pursuant to Section 1(b) of the Purchase
Agreement) of the Company’s Common Stock, as adjusted in accordance with this
Warrant.
9. Exercise Price; Adjustment
of Warrants.
a. Determination of Exercise
Price. The per share purchase price (the “Exercise Price”) for each of
the Warrant Shares purchasable under this Warrant shall be equal to $0.015, as
adjusted in accordance with this Warrant .
b. Net Issue Exercise.
In lieu of exercising this Warrant pursuant to Section 1 above, the Holder may
elect to receive a number of Warrant Shares equal to the value of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with notice of such election, in which
event the Company shall issue to the Holder a number of Warrant Shares computed
using the following formula:
X = Y
(A-B)
-------
A
Where
X =
the number of Warrant Shares to be issued to the
Holder.
Y =
the number of Warrant Shares purchasable under
this Warrant.
A =
the fair market value of one Warrant Share on the
date of determination.
B =
the per share Exercise Price (as adjusted to the
date of such calculation).
Fair Market Value.
For purposes of this section, the per share fair market value of the Warrant
Shares shall mean:
(i) If
the Company's Common Stock is publicly traded, the per share fair market value
of the Warrant Shares shall be the average of the closing prices of the Common
Stock as quoted on the Nasdaq National Market or the principal exchange on which
the Common Stock is listed, or if not so listed then the fair market value shall
be the average of the closing bid prices of the Common Stock as published in The
Wall Street Journal, in each case for the fifteen (15) trading days ending five
(5) trading days prior to the date of determination of fair market
value;
(ii) If
the Company's Common Stock is not so publicly traded, the per share fair market
value of the Warrant Shares shall be such fair market value as is determined in
good faith by the Board of Directors of the Company after taking into
consideration factors it deems appropriate, including, without limitation,
recent sale and offer prices of the capital stock of the Company in private
transactions negotiated at arm's length.
c. Reclassification. In
the case of any reclassification or change of securities of the class issuable
upon exercise of this Warrant (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is the acquiring and the surviving corporation and which does not
result in any reclassification or change of outstanding securities issuable upon
exercise of this Warrant), or in case of any sale of all or substantially all of
the assets of the Company, the Company, or such successor or purchasing
corporation, as the case may be, shall duly execute and deliver to the holder of
this Warrant a new Warrant (in form and substance reasonably satisfactory to the
holder of this Warrant), or the Company shall make appropriate provision without
the issuance of a new Warrant, so that the holder of this Warrant shall have the
right to receive, at a total purchase price not to exceed that payable upon the
exercise of the unexercised portion of this Warrant, and in lieu of the shares
of Common Stock theretofore issuable upon exercise of this Warrant, (i) the kind
and amount of shares of stock, other securities, money and property receivable
upon such reclassification, change, merger or sale by a holder of the number of
shares of Common Stock then purchasable under this Warrant, or (ii) in the case
of such a merger or sale in which the consideration paid consists all or in part
of assets other than securities of the successor or purchasing corporation, at
the option of the Holder of this Warrant, the securities of the successor or
purchasing corporation having a value at the time of the transaction equivalent
to the fair market value of the Common Stock at the time of the transaction. The
provisions of this subparagraph (c) shall similarly apply to successive
reclassifications, changes, mergers and transfers.
d. Stock
Splits, Dividends and Combinations. In the event that the Company shall
at any time subdivide the outstanding shares of Common Stock or shall issue a
stock dividend on its outstanding shares of Common Stock the number of Warrant
Shares issuable upon exercise of this Warrant immediately prior to such
subdivision or to the issuance of such stock dividend shall be proportionately
increased, and the Exercise Price shall be proportionately decreased, and in the
event that the Company shall at any time combine the outstanding shares of
Common Stock the number of Warrant Shares issuable upon exercise of this Warrant
immediately prior to such combination shall be proportionately decreased, and
the Exercise Price shall be proportionately increased, effective at the close of
business on the date of such subdivision, stock dividend or combination, as the
case may be.
e. NO
IMPAIRMENT. THE COMPANY WILL NOT, THROUGH ANY REORGANIZATION,
TRANSFER OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE OR SALE OF
SECURITIES OR ANY OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE
OR PERFORMANCE OF ANY OF THE TERMS TO BE OBSERVED OR PERFORMED HEREUNDER BY THE
COMPANY, BUT WILL AT ALL TIMES IN GOOD FAITH ASSIST IN THE CARRYING OUT OF ALL
THE PROVISIONS OF THIS SECTION AND IN THE TAKING OF ALL SUCH ACTION AS MAY BE
NECESSARY OR APPROPRIATE IN ORDER TO PROTECT THE EXERCISE RIGHTS OF THE HOLDER
OF THIS WARRANT AGAINST IMPAIRMENT.
f. Issue
Taxes. The Company shall pay issue taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on exercise of
this Warrant, in whole; provided, however, that the Company
shall not be obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such exercise.
g. Stock
Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares so purchased shall be
delivered to the Holder within a reasonable time and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the shares with
respect to which this Warrant shall not have been exercised shall also be issued
to the Holder within such time.
h. Stock Fully
Paid. All of the shares issuable upon the exercise of the
rights represented by this Warrant will, upon issuance and receipt of the
Exercise Price therefore, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof.
i. Reservation of Stock
Issuable Upon Conversion. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this Warrant, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the exercise of this Warrant; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
exercise of this Warrant, the Company will take all appropriate corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
10. Certain
Distributions. In case the Company shall, at any time, prior
to the Expiration Date, declare any distribution of its assets to holders of its
Common Stock as a partial liquidation, distribution or by way of return of
capital, other than as a dividend payable out of earnings or any surplus legally
available for dividends, then the Holder shall be entitled, upon the proper
exercise of this Warrant in whole prior to the effecting of such declaration, to
receive, in addition to the shares of Common Stock issuable on such exercise,
the amount of such assets (or at the option of the Company a sum equal to the
value thereof at the time of such distribution to holders of Common Stock as
such value is determined by the Board of Directors of the Company in good
faith), which would have been payable to the Holder had it been a holder of
record of such shares of Common Stock on the record date for the determination
of those holders of Common Stock entitled to such distribution.
11. Dissolution or
Liquidation. In case the Company shall, at any time prior to
the Expiration Date, dissolve, liquidate or wind up its affairs, the Holder
shall be entitled, upon the proper exercise of this Warrant in whole and prior
to any distribution associated with such dissolution, liquidation, or winding
up, to receive on such exercise, in lieu of the shares of Common Stock to which
the Holder would have been entitled, the same kind and amount of assets as would
have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
Holder been a holder of record of such share of Common Stock on the record date
for the determination of those holders of Common Stock entitled to receive any
such dissolution, liquidation, or winding up distribution.
12. Notice of
Adjustments. Whenever the number of Warrant Shares purchasable hereunder
or the Exercise Price thereof shall be adjusted pursuant to Section 9 hereof,
the Company shall provide notice to the Holder setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the number and class of
shares which may be purchased thereafter and the Exercise Price therefor after
giving effect to such adjustment.
13. Registration Rights.
The Holder hereof shall be entitled, with respect to the Warrant Shares issued
upon exercise hereof, to all of the registration rights set forth in the
Company’s Investor Rights Agreement, dated as of June 4, 2008 (the “Rights Agreement”),
to the same extent and on the same terms and conditions as possessed by the
investors thereunder and as if the Warrant Shares were included in the
definition of “Registrable Securities” in the Rights Agreement. The
Company shall take such action as may be reasonably necessary to (a) amend the
Rights Agreement to effect the foregoing and (b) assure that the granting of
such registration rights to the Holder does not violate the provisions of the
Rights Agreement or any of the Company’s charter documents or rights of prior
grantees of registration rights.
14. Miscellaneous.
a. Successors and
Assigns. The terms and conditions of this Warrant shall inure
to the benefit of, and be binding upon, the respective successors and assigns of
the parties, except to the extent otherwise provided herein. Nothing in this
Warrant, express or implied, is intended to confer upon any party, other than
the parties hereto or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant, except
as expressly provided in this Warrant.
b. Governing
Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California without regard to the
principles of conflict of laws thereof.
c. Counterparts; Delivery by
Facsimile. This Warrant may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of
this Warrant may be effected by facsimile.
d. Titles and
Subtitles. The titles and subtitles used in this Warrant are
used for convenience only and are not to be considered in construing or
interpreting this Warrant.
e. Notices. Unless
otherwise provided, any notice required or permitted hereunder shall be given by
personal service upon the party to be notified by certified mail, return receipt
requested and: (i) if to the Company, addressed to ECO2 Plastics,
Inc., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other address as the Company may
designate by notice to each of the Investors in accordance with the provisions
of this Section; and (ii) if to the Warrant holder, at the address indicated on
the signature page hereof, or at such other addresses as such Holder may
designate by notice to the Company in accordance with the provisions of this
Section.
f. Amendments and
Waivers. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either prospectively or retroactively), only with the
written consent of the Company and the Holder; provided, that any term of
this Warrant may be amended or waived upon the written consent of the Company
and holders of at least 60% in interest of the Warrants then outstanding (based
on the number of Warrant Shares exercisable thereunder) if at the same time all
Warrants then outstanding are so amended in a similar manner.
g. Entire
Agreement. This Warrant and the Purchase Agreement constitutes
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties
hereto.
[Signature
Page Follows]
IN WITNESS WHEREOF, the undersigned
hereby sets his hand and seal on the date set forth above.
ECO2 Plastics,
Inc.
By: ____________________________________
Name:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:
Chief Executive Officer
Exhibit
C
FORM
OF
CERTIFICATE
OF DESIGNATIONS OF PREFERENCES AND RIGHTS OF
SERIES
C CONVERTIBLE PREFERRED STOCK
OF
ECO2
PLASTICS, INC.
a
Delaware corporation
Pursuant
to Section 151 of the Delaware General Corporation Law
The
undersigned, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, certifies that:
1. He is the
duly acting Chief Executive Officer and Secretary of ECO2 PLASTICS, INC., a
corporation organized and existing under the Delaware General Corporation Law
(the “Corporation”).
2. Pursuant
to authority conferred upon the Board of Directors by the First Amended and
Restated Certificate of Amendment to the Certificate of Incorporation of the
Corporation (the “Certificate of
Incorporation”), which authorizes [700,000,000]1 shares of preferred stock, par
value $0.001 per share (“Preferred
Stock”), of which 489,083,453 shares are issued and outstanding, and
pursuant to the provisions of the Delaware General Corporation Law, said Board
of Directors, pursuant to unanimous written consent dated August 28, 2008,
adopted a resolution establishing the rights, preferences, privileges and
restrictions of, and the number of shares comprising, the Corporation's Series C
Convertible Preferred Stock, which resolution is as follows:
RESOLVED,
that a series of preferred stock in the Corporation, having the rights,
preferences, privileges and restrictions, and the number of shares constituting
such series and the designation of such series, set forth below be, and it
hereby is, authorized by the Board of Directors of the Corporation pursuant to
authority given by the Corporation's Certificate of Incorporation.
NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and
determines the designations of, the number of shares constituting, and the
rights, preferences, privileges and restrictions relating to, such new series of
preferred stock as follows:
(a) Designation. The
series of preferred stock is hereby designated Series C Convertible Preferred
Stock (the “Series C
Preferred Stock”).
(b) Authorized
Shares. The number of authorized shares constituting the
Series C Preferred Stock shall be 400,000,000.
(c) Original Issue
Price. The Original Issue Price of the Series C Preferred
Stock shall be $0.015 per share (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares).
(d) Dividends. Commencing
on the dates of issuance of the Series C Preferred Stock, the Series A
Convertible Preferred Stock of the Corporation (the “Series A
Preferred Stock”), the Series B-1 Convertible Preferred Stock of the
Corporation (the “Series
B-1 Preferred
Stock”) and the Series B-2 Convertible Preferred Stock of the Corporation
(the “Series B-2
Preferred Stock” and, together with the Series B-1 Preferred Stock, the
“Series B
Preferred Stock”), (collectively, the “Senior Preferred
Stock”), and subject to the rights of any series of Preferred Stock that
may from time to time come into existence, each holder of an outstanding share
of Senior Preferred Stock shall be entitled to receive, on a pari passu basis, when, as
and if declared by the Board of Directors, out of any assets of the Corporation
legally available therefor, dividends at a rate equal to 5% per share of the
Original Issue Price of such share of Senior Preferred Stock (in each case, as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) per annum prior and in preference to the
holders of the Corporation’s Common Stock (the “Common
Stock”), and in preference to the holders of any other equity securities
of the Corporation that may from time to time come into existence to which the
Senior Preferred Stock ranks senior (such junior securities, together with the
Common Stock, “Junior
Securities”). No dividends will be paid on Junior Securities
in any year unless such dividends of the Senior Preferred Stock are paid in full
or declared and set apart. Additionally, whenever the Corporation
shall pay a dividend on the Common Stock, each holder of a share of Senior
Preferred Stock shall be entitled to receive, at the same time the dividend is
paid on the Common Stock, out of the assets of the Corporation legally available
therefor, a dividend equal to the amount that would have been paid in respect of
the Common Stock issuable upon conversion of such share of Senior Preferred
Stock immediately prior to the close of business on the record date for
determining the holders entitled to receive such dividend on the Common Stock,
or, if no such record is taken, the date on which the record holders of Common
Stock entitled to such dividend is determined.
(e) Liquidation Preference.
(i) Preference upon Liquidation,
Dissolution or Winding Up. In the event of any dissolution or
winding up of the Corporation, whether voluntary or involuntary, and subject to
the rights of any series of Preferred Stock that may from time to time come into
existence, holders of each outstanding share of Series C Preferred Stock shall
be entitled to be paid first out of the assets of the Corporation available for
distribution to shareholders, whether such assets are capital, surplus or
earnings, before any payment shall be made to the holders of the Common Stock,
the Series A Preferred Stock, the Series B Preferred Stock or any other stock of
the Corporation ranking junior to the Series C Preferred Stock with regard to
any distribution of assets upon liquidation, dissolution or winding up of the
Corporation, an amount per share of Series C Preferred Stock equal to (x) the
Original Issue Price of such Series C Preferred Stock (as adjusted for any
stock splits, stock dividends or recapitalizations of the Series C Preferred
Stock) plus (y) any declared but unpaid dividends on such share. The
foregoing preferential amount shall be subject to increase as set forth in
Section 2(e)(vii) below. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets available to be distributed to the
holders of the Series C Preferred Stock shall be insufficient to permit payment
to such shareholders of the full preferential amounts aforesaid, then all of the
assets of the Corporation available for distribution to the holders of Series C
Preferred Stock shall be distributed to the holders of Series C Preferred Stock
on a pro rata basis. Each holder of the Series C Preferred Stock shall be
entitled to receive that portion of the assets available for distribution to the
holders of Series C Preferred Stock as the number of outstanding shares of
Series C Preferred Stock held by such holder bears to the total number of shares
of Series C Preferred Stock. Such payment shall constitute payment in
full to the holders of the Series C Preferred Stock upon the liquidation,
dissolution or winding up of the Corporation. After such payment
shall have been made in full, or funds necessary for such payment shall have
been set aside by the Corporation in trust for the account of the holders of
Series C Preferred Stock, so as to be available for such payment, such holders
of Series C Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Corporation.
(ii) Consolidation, Merger and Other
Corporate Events. Unless otherwise agreed by holders of at
least 60% of the Series C Preferred Stock of the Corporation then outstanding,
(A) a consolidation or merger of the Corporation (except into or with a
subsidiary corporation), (B) any reclassification of the stock of the
Corporation (other than a change in par value or from no par to par, or from par
to no par or as the result of an event described in subsection (v), (vi), (vii)
or (ix) of paragraph (g)), or (C) a sale, lease, exclusive license or other
disposition of all or substantially all of the assets of the Corporation
requiring approval of the Corporation’s stockholders shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this paragraph (e); provided, however, in the case
of a merger, if (a) the Corporation is the surviving entity, (b) the
Corporation’s shareholders retain, solely in respect of the shares of capital
stock of the Corporation held by them prior to the merger, a majority of the
shares of the surviving entity, and (c) the Corporation’s directors hold a
majority of the seats on the board of directors of the surviving entity, then
such merger shall not be regarded as a liquidation, dissolution or winding up
within the meaning of this paragraph (e). In no event shall the
issuance of new classes of stock, whether senior, junior or on a parity with the
Series C Preferred Stock, or any stock splits, be deemed a “reclassification”
under or otherwise limited by the terms hereof.
(iii) Change of Control. A “Change of
Control” of the Corporation means such time as (A) the Corporation shall
consummate a merger, consolidation or similar transaction approved by the Board
of Directors, or there shall occur the consummation of a tender offer for, or
other acquisition of, Common Stock, in which an individual, corporation,
partnership, limited liability company, joint venture, trust or unincorporated
organization or a government or agency or political subdivision thereof (a
“Person”)
or group (as such term is defined in Rule 13d-5 under the Exchange Act) of
Persons who are not stockholders of the Company immediately following the
initial issuance of the Series C Preferred Stock become the beneficial owners
(as determined pursuant to Rule 13d-3 under the Exchange Act), directly or
indirectly, of 45% or more of the voting power of the outstanding shares of
Common Stock, (B) the majority of the seats of the Board of Directors is
occupied by persons other than the directors occupying such seats as of the date
of the initial issuance of shares of Series C Preferred Stock (the “Current
Directors”) or persons nominated by Current Directors or their nominated
successors, or (C) there shall occur a change in the Chief Executive Officer of
the Corporation without the consent of holders of a majority of the outstanding
shares of Series C Preferred Stock. A Change of
Control will be treated as a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this paragraph (e), except
as otherwise agreed by holders of a majority of the then outstanding Series C
Preferred Stock.
(iv) Distribution of Cash and Other
Assets. In the event of a liquidation, dissolution or winding
up of the Corporation resulting in the availability of assets other than cash
for distribution to the holders of the Series C Preferred Stock, the holders of
the Series C Preferred Stock shall be entitled to a distribution of cash and/or
assets equal to the value of the liquidation preference stated in subsection (i)
of this paragraph (e), which valuation shall be determined in good faith by the
Board of Directors and shall be conclusive. Any securities shall be
valued as follows:
(A) Securities
not subject to investment letter or other similar restrictions on free
marketability covered by (B) below:
(1) If
traded on a securities exchange, the value shall be deemed to be the average of
the closing prices of the securities on such quotation system over the thirty
(30) day period ending three (3) days prior to the closing;
(2) If
actively traded over-the-counter, the value shall be deemed to be the average of
the closing bid or sale prices (whichever is applicable) over the thirty (30)
day period ending three (3) days prior to the closing; and
(3) If
there is no active public market, the value shall be the fair market value
thereof, as determined in good faith by the Board of Directors.
(B) The
method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder’s status as an affiliate or former affiliate) shall be
to make an appropriate discount from the market value determined as above in (A)
(1), (2) or (3) to reflect the approximate fair market value thereof, as
determined in good faith by the Board of Directors.
(v) Distribution to Junior Security
Holders. After the payment or distribution to the holders of
the Series C Preferred Stock of the full preferential amounts aforesaid, the
holders of the Series A Preferred Stock, Series B Preferred Stock and Common
Stock then outstanding, or any other stock of the Corporation ranking junior to
the Series C Preferred Stock as to assets upon liquidation, dissolution or
winding up of the Corporation, shall be entitled to receive the remaining assets
of the Corporation available for distribution.
(vi) Preference;
Priority. References to a stock that is “senior”
to, on a “parity”
with or “junior” to
other stock as to liquidation shall refer, respectively, to rights of priority
of one series or class of stock over another in the distribution of assets on
any liquidation, dissolution or winding up of the Corporation. The Series C
Preferred Stock shall be senior to the Series A Preferred Stock, the Series B
Preferred Stock and the Common Stock of the Corporation with regard to
liquidation, dissolution or winding up of the Corporation.
(vii) Greater-of
Treatment. Notwithstanding Section 2(e)(i) above, for purposes
of determining the amount each holder of Series C Preferred Stock is entitled to
receive with respect to a liquidation, dissolution or winding up of the
Corporation (including without limitation the events to be treated as a
liquidation, dissolution or winding up as set forth in Sections 2(e)(ii) and
2(e)(iii) above), the holders of Series C Preferred Stock shall receive at the
closing of such event (and at each date after the closing of such event on which
additional amounts, such as earn out payments, escrow amounts or other
contingent payments are paid to stockholders of the Corporation as a result of
the event, but only to the extent of such additional amount), an amount equal to
the greater of (A) the amount specified in Section 2(e)(i) above, and (B)
the amount that the holders of Series C Preferred Stock would have been entitled
to receive had the holders of all Senior Preferred Stock and, if any, all
convertible stock ranking junior to the Series C Preferred Stock with regard to
any distribution of assets upon liquidation, dissolution or winding up of the
Corporation, converted their shares into Common Stock immediately prior to such
event at the then applicable conversion price for such shares.
(f) Voting
Rights.
(i) Each
share of Series C Preferred Stock shall entitle the holder thereof to vote, in
person or by proxy, at a special or annual meeting of the stockholders of the
Corporation, on all matters except as required by law or as set forth herein,
voted on by holders of Common Stock, voting together as a single class with the
holders of the Common Stock and all other shares entitled to vote thereon as a
single class with the Common Stock. With respect to all such matters,
each issued and outstanding share of Series C Preferred Stock shall entitle the
holder thereof to cast that number of votes per share as is equal to the number
of votes that such holder would be entitled to cast had such holder converted
such holder’s Series C Preferred Stock into Common Stock on the record date for
determining the stockholders of the Corporation eligible to vote on any such
matters.
(ii) For
so long as any shares of Series C Preferred Stock remain outstanding, the
affirmative vote of at least 60% of the holders of the then outstanding shares
of Series C Preferred Stock, voting separately as a single class, shall be
necessary to take any of the following actions, however effected, whether by
amendment, merger, consolidation, recapitalization or otherwise:
(A) any
transactions with affiliates, except on an arms-length basis;
(B) authorize,
create or issue any class or classes of any now or hereafter authorized capital
stock of the Corporation ranking senior to, or on a parity with (as to rights
upon a liquidation, dissolution or winding up of the affairs of the Corporation
or upon a Change of Control, or dividend rights or rights of redemption) the
Series C Preferred Stock or any securities exercisable or exchangeable for, or
convertible into, any now or hereafter authorized capital stock of the
Corporation ranking senior to, or on a parity with (as to rights upon a
liquidation, dissolution or winding up of the affairs of the Corporation or upon
a Change of Control, or dividend rights or rights of redemption) the Series C
Preferred Stock (including, without limitation, the issuance of any shares of
Series C Preferred Stock (other than shares of Series C Preferred Stock issued
as a stock dividend or in a stock split) after the date the Series C Preferred
Stock is originally issued), or reclassify any existing security to be senior
to, or on a parity with, the Series C Preferred Stock as to such
rights;
(C) any
increase or decrease in the total authorized shares of Series A Preferred Stock,
Series B Preferred Stock, or Series C Preferred Stock;
(D) any
amendment to the rights, preferences or privileges of the Series C Preferred
Stock, Series B Preferred Stock or Series A Preferred Stock;
(E) any
bankruptcy filing or liquidation of the Corporation or any significant
subsidiary;
(F) any
payment of any dividend or distribution on any shares of capital stock of the
Corporation (other than dividends paid on the Preferred Stock); and
(G) the
purchase or redemption of any shares of now or hereafter authorized capital
stock (except for the purchase or redemption from service providers, employees,
directors and consultants, at a price not to exceed the original issue price
thereof, pursuant to agreements providing the Corporation with repurchase rights
upon termination of their services to the Corporation).
(g) Conversion
Rights. The holders of Series C Preferred Stock will have the
following conversion rights:
(i) Right to
Convert. Subject to and in compliance with the provisions of
this paragraph (g), any issued and outstanding shares of Series C Preferred
Stock may, at the option of the holder, be converted at any time or from time to
time into fully paid and non-assessable shares of Common Stock at the conversion
rate in effect at the time of conversion, determined as provided
herein.
(ii) Automatic
Conversion. Subject to and in compliance with the provisions
of this paragraph (g), upon election by holders of at least 60% of the then
outstanding shares of Series C Preferred Stock, all issued and outstanding
shares of Senior Preferred Stock shall be automatically converted into fully
paid and non-assessable shares of Common Stock at the conversion rate in effect
at the time of conversion.
(iii) Mechanics of
Conversion. Before any holder of Series C Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Common Stock, and shall give
written notice to the Corporation at such office that he elects to convert the
same and shall state therein the number of shares of Series C Preferred Stock
being converted. Thereupon, the Corporation shall promptly issue and
deliver at such office to such holder of Series C Preferred Stock a certificate
or certificates for the number of shares of Common Stock to which he shall be
entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series C Preferred Stock to be converted, and the Person or Persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date. Promptly following a conversion
pursuant to paragraph (g)(ii) above, the Corporation shall send each holder of
Series C Preferred Stock a written notice thereof. Thereafter, as
soon as practicable following the surrender of one or more certificates
representing the Series C Preferred Stock that is so converted, the Corporation
shall issue and deliver to such holder one or more certificates for the number
of whole shares of Common Stock issuable upon conversion in accordance with the
provisions hereof.
(iv) Conversion
Price. The number of shares into which one share of Series C
Preferred Stock shall be convertible shall be determined by dividing the
Original Issue Price of the Series C Preferred Stock by the then existing Series
C Conversion Price (as set forth below). The “Series
C Conversion Price” shall initially be equal to the Original
Issue Price of the Series C Preferred Stock, and the foregoing shall be subject
to adjustment upon the occurrence of any event in paragraph
(g)(v)-(vii).
(v) Adjustment for Stock Splits and
Combinations. If the Corporation shall at any time, or from
time to time after the date shares of the Series C Preferred Stock are first
issued (the “Original Issue
Date”), effect a subdivision of the outstanding Common Stock, the Series
C Conversion Price in effect immediately prior thereto shall be proportionately
decreased, and conversely, if the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Common
Stock, the Series C Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under
this paragraph (g)(v) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(vi) Adjustment for Certain Dividends and
Distributions. In the event the Corporation at any time, or
from time to time after the Original Issue Date, shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Series C Conversion Price then in effect
shall be decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such record
date, by multiplying the Series C Conversion Price then in effect by a
fraction:
(A) the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and
(B) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution; provided, however, if such
record date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Series C
Conversion Price shall be recomputed accordingly as of the close of business on
such record date and thereafter, the Series C Conversion Price shall be adjusted
pursuant to this paragraph (g)(vi) as of the time of actual payment of such
dividends or distributions.
(vii) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time or
from time to time after the Original Issue Date shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of such Series C Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had their Series C Preferred Stock been converted
into Common Stock on the date of such event and had thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period
giving application to all adjustments called for during such period under this
paragraph (g) with respect to the rights of the holders of the Series C
Preferred Stock.
(viii) Adjustment for
Reclassification Exchange or
Substitution. If the Common Stock issuable upon the conversion
of the Series C Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this paragraph
(g)), then and in each such event the holder of each share of Series C Preferred
Stock shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change, by holders of the number of
shares of Common Stock into which such shares of Series C Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(ix) Reorganization, Mergers,
Consolidations or Sales of Assets. If at any time or from time
to time there shall be a capital reorganization of the Common Stock (other than
a subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this paragraph (g)) or a merger or consolidation of the Corporation
with or into another corporation, or the sale of all or substantially all of the
Corporation’s properties and assets to any other Person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series C Preferred Stock shall thereafter be entitled to
receive upon conversion of such Series C Preferred Stock, the number of shares
of stock or other securities or property of the Corporation or of the successor
corporation resulting from such merger or consolidation or sale, to which a
holder of Common Stock deliverable upon conversion would have been entitled on
such capital reorganization, merger, consolidation or sale. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this paragraph (g) with respect to the rights of the holders of
the Series C Preferred Stock after the reorganization, merger, consolidation or
sale to the end that the provisions of this paragraph (g) (including adjustment
of the Series C Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series C Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(x) Certificate of
Adjustment. In each case of an adjustment or readjustment of
the Series C Conversion Price or the securities issuable upon conversion of the
Series C Preferred Stock, the Corporation shall compute such adjustment or
readjustment in accordance herewith and the Corporation’s Chief Financial
Officer shall prepare and sign a certificate showing such adjustment or
readjustment, and shall mail such certificate by first class mail, postage
prepaid, to each registered holder of the Series C Preferred Stock at the
holder’s address as shown in the Corporation’s books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based.
(xi) Notices of Record
Date. In the event of (A) any taking by the Corporation of a
record of the holders of any class or series of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution or (B) any reclassification or recapitalization of the
capital stock of the Corporation, any merger or consolidation of the Corporation
or any transfer of all or substantially all of the assets of the Corporation to
any other corporation, entity or Person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail, via facsimile, regular or electronic mail or nationally recognized
overnight courier service, to each holder of Series C Preferred Stock at least
10 days prior to the record date specified therein, a notice specifying (1) the
date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective
and (3) the time, if any is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares,
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
(xii) Fractional
Shares. No fractional shares of Common Stock shall be issued
upon conversion of the Series C Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series C Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall pay cash equal to the
product of such fraction multiplied by the fair market value of one share of the
Corporation’s Common Stock on the date of conversion, as determined in good
faith by the Board of Directors.
(xiii) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of the Series C
Preferred Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of Series
C Preferred Stock. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series C Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(xiv) Notices. Any notice required
by the provisions of this paragraph (g) to be given to the holders of shares of
Series C Preferred Stock shall be deemed given (A) if deposited in the United
States mail, postage prepaid, or (B) if given by any other reliable or generally
accepted means (including by facsimile, electronic mail or by a nationally
recognized overnight courier service), in each case addressed to each holder of
record at his address (or facsimile number) appearing on the books of the
Corporation.
(xv) Payment of
Taxes. The Corporation will pay all transfer taxes and other
governmental charges that may be imposed in respect of the issue or delivery of
shares of Common Stock upon conversion of shares of Series C Preferred
Stock.
(xvi) No Dilution or
Impairment. The Corporation shall not amend its Certificate of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, without the approval of at least 60% of the then outstanding Series
C Preferred Stock.
(h) No Reissuance of Preferred
Stock. Any shares of Series C Preferred Stock acquired by the
Corporation by reason of purchase, conversion or otherwise shall be canceled,
retired and eliminated from the shares of Series C Preferred Stock that the
Corporation shall be authorized to issue. All such shares shall upon
their cancellation become authorized but unissued shares of preferred stock and
may be reissued as part of a new series of preferred stock subject to the
conditions and restrictions on issuance set forth in the Certificate of
Incorporation or in any certificate of designations creating a series of
preferred stock or any similar stock or as otherwise required by
law.
(i) Not
Redeemable. The Series C Preferred Stock is not redeemable,
except that, in the event of a Change of Control that is deemed by the
Corporation to be a liquidation, dissolution or winding up of the Corporation
pursuant to Section 2(e)(iii) above, holders of at least 60% of the then
outstanding shares of Series C Preferred Stock can require redemption of
the Series C Preferred Stock at a redemption price
per share equal to the amount per share to which holders of Series C Preferred
Stock would be entitled upon a liquidation, dissolution or winding up pursuant
to Section 2(e)(i) or 2(e)(vii) above, as applicable (the “Redemption
Price”), and any
such shares of Series C Preferred Stock so requested to be redeemed, but not
repurchased on the designated repurchase date, will begin to accrue dividends at
an annual rate equal to 6% of the Redemption Price per share of Series C
Preferred Stock held, compounded semiannually from the date originally set for
redemption, and will at all times until actual redemption remain convertible
into Common Stock.
(j) Severability. If
any right, preference or limitation of the Series C Preferred Stock set forth
herein is invalid, unlawful or incapable of being enforced by reason of any
rule, law or public policy, all other rights, preferences and limitations set
forth herein that can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall nevertheless remain in full
force and effect, and no right, preference or limitation herein shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
3. The
number of authorized shares of preferred stock of the Corporation is [seven
hundred million (700,000,000)]. The number of shares of Series C
Preferred Stock, none of which has been issued, is 400,000,000.
|
|
1
Note: if this certificate of designations is filed after amending the
Certificate of Incorporation, this number will be adjusted accordingly, to
1,700,000,000 shares of authorized preferred
stock.
|
The
undersigned declares under penalty of perjury that the matters set out in the
foregoing Certificate are true of his own knowledge. Executed at San
Francisco, California, on [_______], 2008.
Name: ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
Title: Chief
Executive Officer and Secretary
Exhibit
D
Form of
Legal Opinion
(To be
Delivered to Purchasers at the Closing)
1. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with corporate power to own
its properties and to conduct its business. The Company is qualified
to do business and is in good standing in the State of California.
2. The
Company has the corporate power to execute, deliver and perform each of the
Agreement, the Notes, the Warrants and the Security Agreement (collectively, the
“Transaction Documents”). Each of the Transaction Documents has been
duly authorized by all requisite corporate action of the Company and has been
duly executed and delivered by the Company. Each of the Transaction
Documents constitutes the legally valid and binding obligation of the Company,
enforceable in accordance with its terms (subject to bankruptcy, equitable
principles and other customary exceptions).
(a) As of the
date hereof, in accordance with its certificate of incorporation on file with
the Secretary of State of Delaware, the authorized capital stock of the Company
consists of 1,500,000,000 shares of Common Stock and 700,000,000 shares of
Preferred Stock, of which 152,843,414 shares are Series A Stock, 336,240,039
shares are Series B-1 Stock and 10,916,547 shares are Series B-2 Stock.
(b) The shares of the Company’s Series C Convertible
Preferred Stock (and the shares of the Company’s
Common Stock issuable upon conversion thereof (the “Series C Conversion
Shares”)) initially issuable upon conversion of the Notes shall be duly
authorized and reserved for issuance and, upon issuance and delivery upon
conversion of the Notes in accordance with the terms of the Notes and the
Agreement, shall be validly issued, fully paid and nonassessable and issued free
of preemptive rights or similar contractual rights against the
Company.
(c) The
shares of the Company’s Common Stock initially issuable upon exercise of the
Warrants have been duly authorized and reserved for issuance and, upon issuance,
delivery and payment therefor in accordance with the Warrants (the “Warrant
Conversion Shares,” and together with the Series C Conversion Shares, the
“Conversion Shares”), will be validly issued, fully paid and nonassessable and
issued free of preemptive rights or similar contractual rights against the
Company.
3. The
execution and delivery of each of the Transaction Documents, the issuance and
sale of the Notes and the Warrants by the Company to the Purchasers pursuant to
the Agreement and the performance of the Company’s obligations under the
Transaction Documents will not: (a) violate the Company’s certificate
of incorporation or bylaws; (b) violate any federal or California statute, rule
or regulation applicable to the Company, or the Delaware General Corporation Law
(“the DGCL”); (c) require any consents, approvals, or authorizations to be
obtained by the Company from, or any registrations, declarations or filings to
be made by the Company with, any governmental authority under any federal or
California statute, rule or regulation applicable to the Company or the DGCL; or
(d) result in the breach of or a default under any of the Company’s material
agreements (which agreements shall include, without limitation, all instruments,
documents and agreements filed as exhibits to the Company’s most recently filed
Form 10-K, as well as any subsequently filed Exchange Act reports).
4. No
consent, approval, order or authorization of, and no notice to or filing with,
any governmental agency or body or any court is required to be obtained or made
by the Company for the issuance and sale of the Notes and the Warrants pursuant
to the Transaction Documents, except such as have been obtained or made and such
as may be required under applicable securities laws.
5. On the
assumption that the representations of the Company and the Purchasers in the
Agreement are correct and complete, (a) the offer and sale of the Notes and the
Warrants pursuant to the terms of the Agreement are exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended, (b) the
issuance of the Company’s Series C Convertible Preferred Stock, when designated,
upon conversion of the Notes would also be exempt from such registration, and
(c) the issuance of the Conversion Shares would also be exempt from such
registration.
6. To such
counsel’s knowledge, there is no action, suit, proceeding or governmental
investigation pending, or threatened in writing, against the Company with
respect to the transactions contemplated by the Transaction Documents or which
questions the right of the Company to enter into the Transaction
Documents.
7. The
Series C Certificate of Designations will be duly filed in the State of Delaware
and, when filed, will be in full force and effect.
8. The
rights, preferences, privileges, designations powers and limitations of the
Series C Convertible Preferred Stock included in the Series C Certificate of
Designations, when filed with the state of Delaware, and the Company’s
certificate of incorporation are permitted by, and will be made in accordance
with, the DGCL.
9. The
Company is not, and immediately after giving effect to the issuance and sale of
the Notes and the Warrants in accordance with Agreement, will not be, required
to register as an “investment company” or a company “controlled by” an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.
Exhibit
E
Amended
and Restated Security Agreement
September
2, 2008
This
Amended and Restated Security Agreement is dated as of September 2, 2008
(the “Effective
Date”), by and among ECO2 Plastics
Inc., a Delaware corporation (the “Company”), the
parties listed in Schedule A attached
hereto (each an “Investor”) and
Trident Capital, Inc. as collateral agent for the Investors (in such capacity as
collateral agent, the “Collateral
Agent”).
WHEREAS,
on August 22, 2008 and on August 28, 2008, the Company borrowed funds from
certain Investors pursuant to the issuance to such Investors of the Company’s
Convertible Secured Promissory Notes issued on August 22, 2008 and August 28,
2008, respectively (each, an “Aug08 Note” and
collectively, the “Aug08
Notes”);
WHEREAS,
in connection with the issuance of the Aug08 Notes, the Company entered into
that certain Security Agreement dated as of August 22, 2008, by and among
the Company, certain of the Investors (as listed in Schedule A attached
thereto) and the Collateral Agent, and that certain First Amendment to Security
Agreement dated as of August 28, 2008, by and among the Company and the
Collateral Agent (together, the “Existing Security
Agreement”);
WHEREAS,
on the date hereof, the Company borrowed funds from certain Investors pursuant
to the issuance to such Investors of convertible secured promissory notes (the
“Sept08 Notes”)
under a Convertible Note and Warrant Purchase Agreement dated as of the date
hereof (the “Purchase
Agreement”), by and among the Company and the parties named
therein;
WHEREAS,
it is a condition precedent to the Investors’ making any loans under the
Purchase Agreement that the Company execute and deliver this Amended and
Restated Security Agreement to grant to the Investors a security interest in all
of the Company’s assets to secure the borrowings and other obligations pursuant
to the Notes (as defined in Section 1 below); and
WHEREAS,
it is the intent of the parties hereto that this Amended and Restated Security
Agreement amend and restate in its entirety the Existing Security Agreement in
order to secure the Company’s obligations pursuant to the Notes, and that, from
and after the Effective Date, all references to “Security Agreement” contained
in the Financing Documents (as defined in Section 1 below) shall be deemed
to refer to this Amended and Restated Security Agreement.
NOW,
THEREFORE, for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Defined
Terms. The following terms shall have the following meanings,
unless the context otherwise requires:
“Code” shall mean the
Uniform Commercial Code as in effect in the State of California on the Closing
Date (as defined in the Purchase Agreement).
“Encumbrance” shall
mean any security interest, mortgage, pledge, lien, claim, charge, encumbrance,
title retention agreement, lessor’s interest under a financing lease or any
analogous arrangements in any of properties or assets of the Company, intended
as, or having the effect of, security.
“Event of Default”
shall have the meaning assigned in each Note.
“Financing Documents”
shall mean the Notes, the Purchase Agreement and all other documents,
instruments or agreements between the Investors and the Company relating to the
financing transactions contemplated by the Purchase Agreement.
“Note” and “Notes” means the
convertible secured promissory notes issued pursuant to the Purchase Agreement,
including, for the avoidance of doubt, the Aug08 Notes and the Sept08
Notes.
“Obligations” shall
mean the obligations of the Company under the Notes, this Security Agreement and
other Financing Documents, including all costs of collection.
“Person” shall mean an
individual, partnership, corporation, limited liability company, business trust,
joint stock company, trust, unincorporated association, joint venture or other
entity, whether public or private.
“Security Agreement”
means this Amended and Restated Security Agreement, as amended, supplemented,
restated or otherwise modified from time to time.
“Senior Debt” shall
mean all indebtedness for all principal, fees, expenses, interest, penalties,
post-bankruptcy petition interest, and all other amounts payable for money
borrowed in connection with (i) the $2,000,000 loan from the California
Integrated Waste Management Board (the “CIWMB Loan”) and (ii)
such other indebtedness for money borrowed from banks or other financial
institutions (including any extensions or renewals thereof for equal or lesser
principal amount) as shall be approved in writing by the Collateral
Agent.
2. Grant of Security
Interest. As collateral security for the prompt and complete
payment and performance when due of all the Obligations, the Company grants to
the Investor a security interest in all of the Company's right, title and
interest in, to and under the following, whether now existing or hereafter
acquired (all of which collateral being hereinafter collectively called the
“Collateral”);
provided, however, that the security
interest hereunder shall be subordinate to any perfected security interest
granted by the Company in connection with the Senior Debt. The
Investors are entitled to a security interest in the following:
ACCOUNTS
All
present and future accounts owned by the Company, including accounts receivable,
including and together with any and all contract rights, security deposits
(where not otherwise prohibited by law or agreement), together with agreements,
customer lists, client lists, and accounts, invoices, agings, verification
reports and other records relating in any way to such accounts;
CONTRACTS
All
contracts, contract rights, royalties, license rights, leases, instruments,
undertakings, documents or other agreements in or under which the Company may
now or hereafter have any right, title or interest whether now existing or
hereinafter created and all forms of obligations owing to the Company arising
out of the sale or lease of goods, the licensing of technology or the rendering
of services by the Company, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefore, as well as all
merchandise returned to or reclaimed by the Company;
EQUIPMENT, FURNISHINGS AND
MISCELLANEOUS PERSONAL PROPERTY
All
presently owned and hereafter acquired furniture, furnishings, equipment,
machinery, inventory, vehicles (including motor vehicles and trailers) computer
hardware and software, accounting or bookkeeping systems, client or customer
lists and information, data sheets and other records of any kind, wherever
located, stored or inventoried, which are used or which may be used in the
Company’s business;
FIXTURES
All
materials used by the Company in connection with its business operations,
including, but not limited to, supplies, trade equipment, appliances, apparatus
and any other items, now owned or hereafter acquired by the Company, and now or
hereafter attached to, or installed in (temporarily or permanently) any real
property now or in the future owned or leased by the Company;
GENERAL
INTANGIBLES
All
general intangibles and other personal property of the Company, now owned or
hereinafter acquired, including, without limitation, the
following: (a) permits, authorizations and approvals presently and
hereafter issued by any federal, state, municipal or local governmental or
regulatory authority in favor of the Company; (b) all plans, specifications,
renderings and other similar materials presently owned or hereafter acquired by
the Company; (c) all presently existing and hereafter created contracts, leases,
licenses and agreements to which the Company is a party; (d) all presently and
hereafter existing policies and agreements of insurance in favor of the Company;
(e) all presently and hereafter existing equity contribution agreements and
other equity financing arrangements in favor of the Company; (f) all copyrights,
chattel paper, electronic chattel paper, licenses, money, insurance proceeds,
contract rights, subscription lists, mailing lists, licensing agreements,
patents, trademarks, service marks, trade styles, patents, patent applications,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, infringements, claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, design rights, income tax refunds,
payments of insurance and rights to payment of any kinds, trade names,
refundable, returnable or reimbursable fees, deposits or other funds or
evidences of credit or indebtedness deposited by or on behalf of the Company
with any governmental agencies, boards, corporations, providers of utility
services, public or private; (g) all presently existing and hereafter acquired
computer programs, computer software and other electronic systems and materials
of any kind of the Company; (h) goodwill; and (i) all other presently existing
and hereafter acquired documents, accounts, general intangibles and intangible
personal property of any kind;
DOCUMENTS
All
documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments, chattel paper, and electronic chattel
paper now owned or hereafter acquired and the Company’s books relating to the
foregoing;
INTELLECTUAL
PROPERTY
All
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all rights in and to
issued patents and patents pending; all trade secret rights, including all
rights to unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; all
mask work or similar rights available for the protection of semiconductor chips,
now owned or hereafter acquired; all trade marks and trade names and associated
goodwill; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
PROCEEDS
All of
the Company’s books and records relating to the foregoing and any and all
present and future accounts, general intangibles, chattel paper, electronic
chattel paper, products, accessions, replacements, betterments and substitutions
for any of the foregoing described property, and all proceeds arising from or by
virtue of, or from the sale or disposition of, or collections with respect to,
or insurance proceeds payable with respect to, or claims against any other
Person with respect to, all or any part of the foregoing described property and
interests.
3. Pro Rata Distributions Among
Investors. It is expressly agreed by each Investor that all
payments received by the Company under or in connection with the sale or
liquidation of the Collateral, subject to any Senior Debt, shall be divided
among all holders of Notes pari passu on a pro rata
basis equal to the principal amount of Notes held by each Investor. Each Investor further
agrees that if the Investor shall obtain payment in respect of any principal of
or interest on any of its Notes resulting in such Investor’s receiving payment
greater than its pro rata share, then the Investor receiving such greater
proportion shall (i) notify the Collateral Agent of such fact and (ii) hold the
amount exceeding its pro rata share for the benefit of the other Investors and
promptly pay such amount to the Collateral Agent for distribution to the other
Investors, or make such other adjustments as shall be equitable so that the
benefit of all such payments shall be shared by the Investors ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Notes.
4. Collateral
Agent.
a. Appointment and
Authority. Trident Capital, Inc. is appointed Collateral Agent hereunder,
and each Investor authorizes Collateral Agent to act as its agent in accordance
with the terms hereof. Each Investor authorizes Collateral Agent to
take such actions on its behalf and to exercise such powers as are delegated to
Collateral Agent by the terms hereof, together with such actions and powers as
are reasonably incidental thereto.
b. Exculpatory
Provisions. Collateral Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting
the generality of the foregoing, Collateral Agent:
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i.
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shall
not be subject to any fiduciary or other implied duties, regardless of
whether an Event of Default has occurred and is
continuing,
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ii.
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shall
not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby that Collateral Agent is required to exercise as
directed in writing (as shall be expressly provided for herein); provided that
Collateral Agent shall not be required to take any action that, in its
opinion or the opinion of its counsel, may expose Collateral Agent to
liability or that is contrary to this Security Agreement, any Financing
Document or applicable law,
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iii.
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shall
not, except as expressly set forth herein, have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating
to the Company or any of its affiliates that is communicated to or
obtained by Collateral Agent or any of its affiliates in any
capacity,
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iv.
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shall
not be liable for any action taken or not taken by it with the consent or
at the request of the holders of at least 60% of the aggregate principal
amount of Notes then outstanding,
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v.
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shall
not be liable for any action taken or not taken by it in accordance with
the advice of any legal counsel (who may be counsel for the Company),
independent accountants and other experts selected by
it,
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vi.
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shall
not be liable for any action taken or not taken by it in accordance with
an order from a court of competent
jurisdiction,
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vii.
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shall
not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made in or in
connection with this Security Agreement or any Financing Document, (ii)
the contents of any certificate, report or other document delivered
hereunder or thereunder or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other
terms or conditions set forth herein or therein or the occurrence of any
Event of Default, or (iv) the validity, enforceability, effectiveness or
genuineness of this Security Agreement, any Financing Document or any
other agreement, instrument or document,
and
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viii.
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shall
be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument,
document or other writing (including any electronic message, Internet or
intranet website posting or other distribution) believed by it to be
genuine and to have been signed, sent or otherwise authenticated by the
proper Person. Collateral Agent also may rely upon any
statement made to it orally or by telephone and believed by it to have
been made by the proper Person, and shall not incur any liability for
relying thereon.
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c. Replacement of Collateral
Agent. With the consent or at the request of the holders of at
least 60% of the aggregate principal amount of Notes then outstanding,
Collateral Agent shall be replaced with a successor to be appointed by such
holders. Upon the acceptance of a successor’s appointment as
Collateral Agent hereunder, such successor shall succeed to and become vested
with all of the rights, powers, privileges and duties of the retiring Collateral
Agent, and the retiring Collateral Agent shall be discharged from all of its
duties and obligations hereunder or under the Financing Documents.
5. Rights of the Investors;
Limitations on the Investor’s Obligations. It is expressly
agreed by the Company that, anything herein to the contrary notwithstanding, the
Company shall remain liable under each of its contracts and documents to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder, all in accordance with and pursuant to the terms and provisions
of its contracts and documents. The Investors shall have no
obligation or liability under any of the Company’s contracts and documents by
reason of or arising out of this Security Agreement or the granting to the
Investors of a security interest therein or the receipt by any Investor of any
payment relating to any of the Company’s contracts and documents pursuant
hereto, nor shall any Investor be required or obligated in any manner to perform
or fulfill any of the obligations of the Company under or pursuant to any of its
contracts and documents, or to make any payment, or to make any inquiry as to
the nature or the sufficiency of any payment received by it or the sufficiency
of any performance by any party under any of its contracts and documents, or to
present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
6. Representations and
Warranties. The Company hereby represents and warrants that
the chief executive office and chief place of business of the Company is ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and the Company will not
change such chief executive office and chief place of business or remove such
records unless the Company shall have given the Investor at least 10 days prior
written notice thereof.
7. Covenants. The
Company covenants and agrees with the Investors that from and after the date of
this Security Agreement and until the Obligations are fully
satisfied:
a. Further
Documentation. At any time and from time to time, upon the
written request of the Collateral Agent, and at the sole expense of the Company,
the Company will promptly and duly execute and deliver any and all such further
documents and take such further action as the Investors may reasonably request
in carrying out the terms and conditions of this Security Agreement and the
rights and powers herein granted, including, without limitation, the filing of
any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests granted
hereby.
b. Continuous
Perfection. The Company will not change its name, identity or
corporate structure in any manner unless the Company shall have given the
Investors at least 10 days' prior written notice thereof and shall have taken
all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by the Investor to amend any
financing statement or continuation statement filed with respect to the
Collateral so that it is not misleading.
c. Insurance. The
Company will insure the Collateral against such risks and hazards as other
companies similarly situated insure against, in amounts and under policies which
it currently holds and under such additional or substituted amounts or policies
as it may from time to time determine, which shall be reasonably acceptable to
the Collateral Agent (providing that no cancellation of such insurance shall be
effective without 30 days written notice to the Investor and containing loss
payable clauses to the Investor as their interest may appear) and all premiums
thereon shall be paid by the Company.
d. Limitation on Encumbrances
on Collateral. The Company will not create, incur or permit to exist,
will defend the Collateral against, and will take such other action as is
necessary to remove, any Encumbrance or claim on or to the Collateral, other
than the Encumbrances created hereby, and will defend the right, title and
interest of the Investors in and to any of the Collateral against other claims
and demands of all Persons whomsoever.
e. Limitations on Dispositions
of Collateral. The Company will not sell, transfer, lease or otherwise
dispose of any of the Collateral, or attempt, offer or contract to do so except
for (x) sales of inventory in the ordinary course of its business and
(y) so long as no Event of Default has occurred, the disposition in the
ordinary course of business of property not material to the conduct of its
business.
8. Remedies, Event of
Default. If any dissolution, liquidation, winding up of the affairs of
the Company or other Event of Default shall occur and be continuing and subject
to the subordination provisions of the preceding Section 2, the Collateral Agent
may, on behalf of the Investors, exercise in addition to all other rights and
remedies granted in this Security Agreement or in any other instrument or
agreement securing, evidencing or relating to the Obligations or at law or in
equity, all rights and remedies of the Investor under the
Code. Collateral Agent shall be deemed not to have knowledge of any
Event of Default unless and until notice thereof is given to Collateral Agent by
the Company or an Investor. Without limiting the generality of the
foregoing, the Company expressly agrees that in any such event, the Investor,
without demand of performance or other demand (except the notice specified below
of time and place of public or private sale) to or upon the Company or any other
Person may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange broker's board or at any of
the Investor offices or elsewhere at such prices as it may deem best, for cash
or on credit or for future delivery without assumption of any credit
risk. The Investors shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of said Collateral so sold, free of any right
or equity of redemption, which equity of redemption the Company hereby
releases. The Company further agrees, at the Collateral Agent’s
request, to assemble the Collateral, make it available to the Collateral Agent
at places which the Collateral Agent shall reasonably select, whether at the
Company's premises or elsewhere. The Collateral Agent shall apply the
net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care, safe keeping or otherwise of
any or all of the Collateral or in any way relating to the rights of the
Investor hereunder, including reasonable attorneys' fees and legal expenses, to
the payment in whole or in part of the Obligations, the Company remaining liable
for any deficiency remaining unpaid after the application, and only after so
paying over such net proceeds and after the payment by the Investor of any other
amount required by any provision of law. To the extent permitted by
applicable law, the Company waives all claims, damages, and demands against the
Investor arising out of the repossession, retention or sale of the
Collateral. The Company agrees that the Collateral Agent need not
give more than 10 days notice of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. The Company shall remain
liable for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all amounts to which the Investors are
entitled.
The
Company hereby waives presentment, demand, protest or any notice (to the extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any collateral.
9. Application of
Proceeds. Subject to the subordination provisions contained in
the preceding Section 2, the Proceeds of all sales and collections in respect of
any Collateral shall be applied as follows:
First, to
the payment of the costs and expenses of such sales and collections, the
expenses of the Collateral Agent and the reasonable fees and expenses of counsel
to the Collateral Agent;
Second,
any surplus then remaining to the payment of the Obligations in such order and
manner consistent with the provisions of Section 3 above as the Collateral Agent
may in its sole discretion determine; and
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Third,
any surplus then remaining shall be paid to the
Company.
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10. Limitation on the Collateral
Agent’s and Investors’ Duty in Respect of Collateral. Beyond
the use of reasonable care in the custody thereof, the Collateral Agent and the
Investors shall have no duty as to any Collateral in their possession or control
or in the possession or control of any agent or nominee of it or any income
thereon or as to the preservation of rights against prior secured parties or any
other rights pertaining thereto.
11. Notices. Any
notice, request or other communication required or permitted hereunder shall be
in writing and shall be delivered personally or by facsimile (receipt confirmed
electronically) or shall be sent by a reputable express delivery service or by
certified mail, postage prepaid with return receipt requested, addressed as
follows:
if to the Company,
to:
ECO2 Plastics,
Inc.
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
with a copy to:
The ▇▇▇▇ Law Group, PLLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇
▇. ▇▇▇▇
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
if to the Collateral Agent,
to:
Trident Capital, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, Chief Administrative Officer and General Counsel
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
if to the Investor,
to:
the name and corresponding address
listed on the signature page hereof
All such
notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered;
(ii) five business days after being deposited in the mail, postage prepaid,
if mailed certified mail, return receipt requested; (iii) one business day
after being timely delivered to a next-day air courier guaranteeing overnight
delivery; (iv) the date of transmission if sent via facsimile to the
facsimile number as set forth in this Section prior to 5:00 pm in the time zone
of the recipient on a business day, with confirmation of successful transmission
or (v) the business day following the date of transmission if sent via
facsimile to the facsimile number as set forth in this Section after 5:00 p.m.
in the time zone of the recipient or on a date that is not a business
day. Change of a party’s address, facsimile number or specified
recipient may be designated hereunder by giving notice to all of the other
parties hereto in accordance with this Section.
12. Severability. Any
provision of this Security Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13. No Waiver; Cumulative
Remedies. Neither the Collateral Agent nor any Investor shall,
by any act, delay, omission or otherwise, be deemed to have waived any of their
rights or remedies hereunder and no waiver shall be valid unless in writing,
signed by the Collateral Agent, and then only to the extent therein set
forth. A waiver by an Investor (or the Collateral Agent on behalf of
such Investor) shall not be construed as a bar to any right or remedy which the
Investor would otherwise have had on any future occasion and shall not apply to
any other Investor. No failure to exercise nor any delay by an
Investor or the Collateral Agent in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise or any other right, power or
privilege. The rights and remedies hereunder provided are cumulative
and may be exercised singly or concurrently, and are not exclusive of any rights
and remedies provided by law.
14. Successors and
Assigns. This Security Agreement and all obligations of the
Company hereunder shall be binding upon the successors and permitted assigns of
the Company, and shall, together with the rights and remedies of the Investor
hereunder, inure to the benefit of each Investor and their successors and
permitted assigns; provided that the Company may
not assign any of its rights or obligations hereunder without the prior written
consent of the Investor.
15. Waiver and
Amendment. None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by the Company and the Investor against whom such waiver,
alteration, modification or amendment is sought to be enforced; provided, however, that the terms or
provisions of this Security Agreement may be altered, modified or amended, and
any obligations of the Company and the rights of the Investor may be waived, in
each case upon the written consent of the Company and the Collateral Agent;
provided, further, that additional
Investors acquiring Notes under the Purchase Agreement may be added as parties
to this Security Agreement, and Schedule A updated
accordingly, with only the consent of the Company and the Collateral Agent and
the signature of the additional party on the signature page hereto (upon any
such addition of a party, the Company shall provide written notice thereof to
all Investors, which notice shall include a copy of the revised Schedule
A). Any amendment or waiver effected in accordance with this
Section 15 shall be binding upon each Investor, each future Investor, and the
Company.
16. Governing
Law. This Security Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
17. Counterparts. This
Security Agreement may be executed in separate counterparts each of which will
be an original and all of which taken together will constitute one and the same
agreement.
18 Facsimile. This
Security Agreement may be executed using facsimiles of signatures, and a
facsimile of a signature shall be deemed to be the same, and equally
enforceable, as an original of such signature.
19. Termination. At
such time as either (i) all Obligations have been fully satisfied or
(ii) the Notes are converted by the Investors into capital stock of the
Company, the security interest created hereby shall automatically
terminate. The Collateral Agent and Investors shall take all such
actions as may be requested by the Company to evidence such termination and to
release the liens created hereby, at the Company's expense.