STRATOS RENEWABLES CORPORATION NOTE PURCHASE FACILITY AGREEMENT
STRATOS
RENEWABLES CORPORATION
This Note
Purchase Facility Agreement (this “Agreement”) is made as of
March 4, 2010, by and among Stratos Renewables Corporation, a Nevada corporation
(the “Company”), I2BF
Biodiesel, Ltd. (“I2BF”)
and BlueDay Limited, a business company existing under the laws of the British
Virgin Islands (“BlueDay”) (each, an “Investor” and collectively,
the “Investors”).
RECITALS
A. On
the terms and subject to the conditions set forth herein, and in order to
establish a credit facility for the Company, each Investor is willing to
purchase from the Company, and the Company is willing to sell to such Investor,
one or more secured promissory notes, up to the aggregate principal amount set
forth opposite such Investor’s name on Schedule I hereto (such
amount, the Investor’s “Committed
Amount”).
B. Capitalized
terms not otherwise defined herein shall have the meaning set forth in the form
of Note (as defined below) attached hereto as Exhibit A.
AGREEMENT
NOW
THEREFORE, in consideration of the foregoing, and the representations,
warranties, and conditions set forth below, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. The Notes and
Warrants.
(a) Issuance of Notes and
Warrants.
(i) Sale of
Notes. From time to time during the term of this Agreement and
in accordance with the terms hereof, the Company shall, subject to all of the
terms and conditions hereof, issue to each Investor and, subject to all of the
terms and conditions hereof, each Investor severally agrees to purchase, secured
promissory notes in the form of Exhibit A hereto (each, a
“Note” and,
collectively, the “Notes”) in an aggregate
principal amount up to such Investor’s Committed Amount. For the
avoidance of doubt, no Investor shall be required to purchase Notes, whether in
a single sale (each, a “Closing” and the date thereof
a “Closing Date”) or
over the course of multiple Closings, with an aggregate principal amount in
excess of such Investor’s Committed Amount.
(ii) Timing of
Closings. Notes shall be issued pursuant to the terms of this
Agreement in a series of installments as described in Section 1(a)(iii)(A)
hereof, in each case, subject to the terms and conditions of this Agreement and
during the term of this Agreement.
(iii) Funding Process.
(A) Funding at Closing. On the
date hereof and in connection with the initial Closing (the “Initial Closing”) hereunder,
the Investors shall fund and disburse on behalf of the Company an aggregate
amount of US$885,077, against issuance to the Investors of Notes in such
aggregate principal amount, as allocated between them and in the manner set
forth on Exhibit B (such
amount, as disbursed, the “Initial Closing
Disbursement”).
(B) Budget Submission and
Approval.
(1)
On or prior to the fifth (5th)
Business Day preceding each “Anticipated Closing Date” set
forth on Exhibit B, the
Company shall provide to the Investors (i) a budget and operating plan for the
Company (in each case, a “Proposed Budget”) for the
month following such Anticipated Closing Date (the “Succeeding
Month”). Such Proposed Budget shall in no event exceed (but
may be less than) the “Total
Anticipated Disbursement” for the Succeeding Month as set forth on Exhibit B.
(2) The
Investors shall promptly review each Proposed Budget and disapprove, approve or
approve in part such Proposed Budget, each Investor in its sole and absolute
discretion. As soon as practicable following a mutual approval in
writing of the Proposed Budget by the Investors (for which electronic mail shall
suffice), with such changes and amendments as the Investors and each of them
shall require and subject to the fulfillment of the applicable Funding
Milestones set forth on Exhibit
C to the satisfaction of the Investors, each in its reasonable
discretion, the
Investors shall cause to be wired to the Company in immediately available same
day funds the amount of the Proposed Budget so approved against issuance to the
Investors of Notes in such aggregate principal amount, as allocated and in the
manner set forth on Exhibit
B.
(3) In
the event that the amount approved for a Proposed Budget (the “Actual Amount”) is less than
the Total Anticipated Disbursement for such period, the Actual Amount so
approved shall be allocated between the Investors in the same proportion as was
the Total Anticipated Disbursement on Exhibit B. The
Actual Amount approved and the allocation of such Actual Amount shall be set
forth on Exhibit B-1,
which shall be amended from time to time.
(C) Disbursement from Trust
Account. Prior to each Closing pursuant to this Agreement, the
Investors will deposit funds equal to their portion of the Actual Amount for
such Closing in the client trust account of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, Professional Corporation (“WSGR”). After the
satisfaction of Funding Milestones 4, 5 and 6 set forth on Exhibit C and the consummation
of the Closing with respect to I2BF’s funding of the April 2010 Proposed Budget
(with the Anticipated Closing Date of March 31, 2010), I2BF and BlueDay will
deposit the balance of their Total Anticipated Disbursement amounts in the Trust
Account. Amounts to be paid, disbursed or paid by the Investors
pursuant to the terms hereof shall be paid by WSGR from such account in the
manner and in such amounts as directed by the Company and both Investors in
writing, in the form of a Payment Certificate as set forth at Exhibit D. To the
extent that amounts deposited in the trust account exceed Actual Amounts
disbursed at Closings, WSGR will return funds to the Investors in such amounts
as directed by the Investors in writing, in the form of a Payment Certificate as
set forth at Exhibit
D.
(1) If
and only if WSGR receives either (i) a Payment Certificate for the disbursement
of funds from the trust account, or (ii) a copy of a judgment, decree or order
of a court not subject to appeal and so directing WSGR, WSGR shall promptly
disburse such funds in accordance with such Payment Certificate or judgment,
decree or order, as applicable.
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(2) Prior
to the disbursement of funds in accordance with this Agreement, all such funds
shall remain the property of the Investor who deposited them. WSGR is
an intended third party beneficiary of this Agreement, including, without
limitation, the provisions of this Section 1(a)(iii)(C).
(3) WSGR
(i) shall not be responsible for any of the agreements referred to or described
herein, or for determining or compelling compliance therewith, and shall not
otherwise be bound thereby, (ii) shall perform only such duties as are expressly
and specifically set forth in this Agreement on its part to be performed, each
of which is ministerial (and shall not be construed to be fiduciary) in nature,
and no implied duties or obligations of any kind shall be read into this
Agreement against or on the part of WSGR, and WSGR may discontinue such duties
at any time, (iii) shall not be obligated to take any legal or other action
hereunder which might in its judgment involve or cause it to incur any expense
or liability, (iv) may rely on and shall be protected in acting or refraining
from acting upon any written notice, instruction (including, without limitation,
Payment Certificate, wire transfer instructions, whether incorporated herein or
provided in a separate written instruction), instrument, statement, certificate,
request or other document furnished to it hereunder and believed by it to be
genuine and to have been signed or presented by the proper person, and shall
have no responsibility to make inquiry as to or to determine the genuineness,
accuracy or validity thereof (or any signature appearing thereon), or of the
authority of the person signing or presenting the same, and (v) may consult
counsel satisfactory to it, including in-house counsel, and the opinion or
advice of such counsel in any instance shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or advice of such
counsel.
(4) The
Company and Investors agree to jointly and severally indemnify and hold WSGR
harmless against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on WSGR or
incurred by WSGR in connection with the performance of its duties under this
Agreement, including but not limited to any litigation arising from this
Agreement or involving its subject matter, except to the extent such loss,
liability, damage, cost and expense shall be caused by WSGR’s willful
misconduct. WSGR shall have a first lien on the property held under
this Agreement for such compensation and expenses. The parties agree
as among themselves that any such indemnification liability shall be allocated
among them on a fair and equitable basis reflecting the merits of their
respective positions and the responsibility of each of them for the controversy
or other circumstances with respect to which indemnification is
required.
(5) Promptly
following notice from WSGR that it is no longer willing to hold funds in
accordance with this Section 1(a)(iii)(C), the Investors shall tender to WSGR a
Payment Certificate signed by both of them instructing the disbursement of funds
remaining in the custody of WSGR, if any.
(b) Registered
Notes. Each of the Notes will be registered in such Investor’s
name in the Company’s records.
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(c) Use of Proceeds. The proceeds
of the sale and issuance of the Notes shall be used (i) with respect to the
Initial Closing Disbursement, solely for the purposes described on Exhibit B-2 and for general
corporate purposes and (ii) otherwise, as described in the Proposed Budgets, as
approved.
(d) Payments Due Under Notes. The
Company will make all cash payments due under the Notes in immediately available
funds by 11:00 a.m. California time on the date such payment is due in the
manner and at the address for such purpose specified below each Investor’s name
on Schedule I
hereto, or at such other address as a Investor or other registered holder
of a Note may from time to time direct in writing.
(e) Term.
(i) This
Agreement shall terminate on the earliest to occur of (i) the Maturity Date of
any Note issued hereunder, (ii) the twentieth (20th) day following any
Anticipated Closing Date if the Proposed Budget for the Succeeding Month shall
not have been approved in accordance with the terms of Section 1(a)(iii)(B),
(iii) the closing of the currently contemplated $7.4 million equity financing of
the Company by PanAmerican Securities, LLC (“PAC”) or a financing upon
similar terms with PAC or another third party (in any case, as approved by the
Special Finance Committee and the Company’s board of directors) (the “PAC Financing”) or (iii) the
date on which the balance of the Investors’ commitments have been disbursed in
accordance with the terms of the Note Purchase Facility.
(ii) Upon
the termination of this Agreement, (i) the Investors’ commitments to fund with
respect to future periods shall immediately become null and void and shall be of
no further force and effect, and (ii) the Investors shall tender to WSGR a
Payment Certificate signed by both of them instructing the disbursement of funds
remaining in the custody of WSGR, if any. WSGR shall be entitled to
rely on such a Payment Certificate for all purposes (and shall be held harmless
in accordance with the terms of this Agreement).
(iii) For
the avoidance of doubt, the termination of this Agreement will not affect
outstanding Notes.
(f) Issuance of Company Common
Stock.
(i) In
consideration for the extension of credit represented by this Agreement, the
Company shall and hereby does issue to each Investor concurrent with the Initial
Closing that number of shares of common stock, par value $0.001 per share of the
Company (the “Common
Stock”) set forth opposite such Investor’s name on Schedule I hereto, which
Common Stock, when aggregated with the Common Stock issued to the Investors
pursuant to the Secured Note and Common Stock Purchase Agreement, dated as of
July 15, 2009, by and between the Company, I2BF and Blue Day SC Ventures (the
“July 2009 Purchase
Agreement”) and after the issuance of Adjustment Shares (as defined in
the July 2009 Purchase Agreement), shall equal 40.61% and 34.52% of the Common
Stock of the Company on a fully diluted, as converted and as exercised basis,
with respect to I2BF Biodiesel Ltd. and BlueDay (together with Blue Day SC
Ventures), respectively; provided, however, that no more shares of Common Stock
shall be issued at the Initial Closing than would, together with other
outstanding shares of Common Stock or shares of Common Stock reserved for
issuance pursuant to the exercise or conversion of securities outstanding
immediately prior to the Initial Closing (other than options pursuant to the
Incentive Option Plan (as defined below)) and shares of Common Stock reserved
for issuance pursuant to the Rights Offering, exceed the authorized Common Stock
of the Company. As soon as possible following the amendment of the
Company’s Amended and Restated Articles of Incorporation pursuant to Section
6(b) below, the Company shall issue the remaining shares (the “Balance
Shares”).
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(ii) For
the avoidance of doubt, from and after the date of this Agreement, the
provisions of Section 6 of the July 2009 Purchase Agreement shall apply to
maintain the percentage ownership of Investors at the levels described in the
preceding Section 1(f)(i) provided, however, that the Investors
agree to and hereby do waive the provisions of Section 6 of the July 2009
Purchase Agreement with respect to (i) shares issued in the Rights Offering (as
described in Section 6(h)), (ii) shares issued to PanAmerican Securities, LLC
(or such other third party investor, as applicable) in the PAC Financing and
(iii) shares reserved for issuance pursuant to the Additional Pool (as defined
in Section 6(f)), but not with respect to shares reserved for issuance pursuant
to the Incentive Option Plan (as defined in Section
6(e)). Furthermore, if in the PAC Financing, PanAmerican Securities,
LLC (or such other third party investor, as applicable) is issued shares in the
equity capital Company (rather than investing into a Company subsidiary) without
antidilution rights, the Investors agree to waive antidilution rights with
respect to their shares of Company capital stock from and after the closing of
the PAC Financing.
2. Representations
and Warranties of the Company. The Company hereby represents and warrants
to Investors and each of them that, except as set forth on the Disclosure
Schedule attached as Exhibit F to this
Agreement, the following representations are true and complete as of the date
hereof and as of each Closing performed hereunder. The Disclosure
Schedule shall be delivered separately to Investors and each of them and shall
be arranged in sections corresponding to the numbered and lettered sections and
subsections contained in this Section 2, and
the disclosures in any section or subsection of the Disclosure Schedule shall
qualify other sections and subsections in this Section 2 if and
only to the extent that it is reasonably apparent to someone unfamiliar with the
Company and its business from the face of such disclosure that such disclosure
is applicable to such other sections and subsections.
(a) Due
Incorporation, Qualification, etc. The Company (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation; (b) has the power and authority to own,
lease and operate its properties and carry on its business as now conducted and
as proposed to be conducted by the Company in the SEC Documents (as defined
below); and (c) is duly qualified, licensed to do business and in good
standing as a foreign corporation in each jurisdiction where it does business
except where the failure to be so qualified or licensed could reasonably be
expected to have a Material Adverse Effect. For the purposes of this
Agreement, “Material Adverse
Effect” shall mean a material adverse effect on (i) the business,
assets, operations, prospects or financial or other condition of the Company and
its Subsidiaries (as defined below) considered together; (ii) the ability
or authority of the Company to pay or perform its obligations under this
Agreement in accordance with the terms of this Agreement and the other
Transaction Documents (as defined below) and to avoid an event of default, or an
event which, with the giving of notice or the passage of time or both, would
constitute an event of default, under any Transaction Document; or
(iii) the rights and remedies of an Investor under this Agreement, the
other Transaction Documents or any related document, instrument or
agreement.
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(b) Subsidiaries. The
Company has no direct or indirect Subsidiaries other than those listed in Section 2(b) of
the Disclosure Schedule. Except as disclosed in Section 2(b) of
the Disclosure Schedule, the Company owns, directly or indirectly, all of the
capital stock or comparable equity interests of each Subsidiary free and clear
of any and all liens, charges, claims, security interests, encumbrances, rights
of first refusal or other restrictions other than the liens created by the
Security Agreement (as defined below) (collectively, “Liens”) and all the issued and
outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights. Each Subsidiary (a) is a duly
formed and organized entity, validly existing and in good standing under the
laws of its state or country of formation; (b) has the power and authority
to own, lease and operate its properties and carry on its business as now
conducted and as proposed to be conducted by the Company in the SEC Documents;
and (c) is duly qualified, licensed to do business and in good standing as
an entity in each jurisdiction where it does business except where the failure
to be so qualified or licensed could reasonably be expected to have a Material
Adverse Effect. For the purposes of this Agreement, “Subsidiary” shall mean, with
respect to any Person, each corporation or other entity of which (a) such
Person or any other Subsidiary of such Person is a general partner or a manager
(b) or at least 50% of the securities or other ownership interests having
by their terms ordinary voting power to elect at least 50% of the board of
directors or other Persons performing similar functions is directly or
indirectly owned or controlled by such Person, by any one or more of its
Subsidiaries or by such Person and one or more of its
Subsidiaries. For the purposes of this Agreement, “Person” shall mean and include
an individual, a partnership, a corporation (including a business trust), a
joint stock company, a limited liability company, an unincorporated association,
a joint venture or other entity or a governmental authority.
(c) Authority. The
execution, delivery and performance by the Company of this Agreement, the Notes
and all such other documents required by the terms of this Agreement to be
executed by the Company (collectively, the “Transaction Documents”), the
consummation of the transactions contemplated hereby and thereby and the
issuance of the Notes and the Common Stock and the reservation and issuance of
the Common Stock, (a) are within the power of the Company and (b) have
been duly authorized by all necessary actions on the part of the Company and no
further filing, consent or authorization is required by the Company, its board
of directors or its stockholders in connection with any of the
foregoing.
(d) Enforceability. Each
Transaction Document has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally and general principles
of equity.
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(e) Non-Contravention. The
execution and delivery by the Company of the Transaction Documents and the
performance and consummation of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Notes and the Common Stock
and the reservation for issuance and issuance of the Common Stock) do not and
will not (a) violate the Company’s Articles of Incorporation or Bylaws, as
amended, as the case may be (“Charter Documents”), or any
material judgment, order, writ, decree, statute, rule or regulation applicable
to the Company or any of its Subsidiaries; (b) violate any provision of, or
result in the termination, amendment, cancellation or breach or the acceleration
of, or entitle any other Person to accelerate (whether after the giving of
notice or lapse of time or both), any material mortgage, indenture, agreement,
instrument or contract to which the Company or any of its Subsidiaries is a
party or by which it is bound; or (c) result in the creation or imposition
of any lien upon any property, asset or revenue of the Company or any of its
Subsidiaries (except as contemplated by the Security Agreement) or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization or approval applicable to the Company or any of
its Subsidiaries, their respective businesses or operations, or any of their
respective assets or properties.
(f) Approvals. Neither
the Company nor any of the Subsidiaries is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof other than such as have been made or obtained
and except for the filing of Form D pursuant to Regulation D or any “blue
sky” filing.
(g) Title to
Assets. The Company and its Subsidiaries have good and
marketable title to all real property owned by them that is material to the
business of the Company and the Company and its Subsidiaries have good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens that do not, individually or in the aggregate, have or
result in a Material Adverse Effect. Real property and facilities
held under lease by the Company and the Subsidiaries are held by them under
valid and subsisting leases of which the Company and the Subsidiaries are in
compliance.
(h) No Violation or
Default. Each of the Company and its Subsidiaries, as
applicable, is not in violation of or in default with respect to (i) its
Charter Documents or any material judgment, order, writ, decree, statute, rule
or regulation applicable to it; (ii) any material mortgage, indenture,
agreement, instrument or contract to which it is a party or by which it is bound
(nor is there any waiver in effect which, if not in effect, would result in such
a violation or default), (iii) any order of any court, arbitrator or
governmental body or (iv) any material statute, rule or regulation of any
governmental authority, where, in each case, such violation or default,
individually, or together with all such violations or defaults, could reasonably
be expected to have a Material Adverse Effect.
(i) Litigation. No
actions (including, without limitation, derivative actions), suits, proceedings
or investigations are pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries at law or in equity
in any court or before any other governmental authority that if adversely
determined (a) would (alone or in the aggregate) reasonably be expected to
have a Material Adverse Effect or (b) seeks to enjoin, either directly or
indirectly, the execution, delivery or performance by the Company of the
Transaction Documents or the transactions contemplated thereby.
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(j) Taxes. Within
the times and in the manner prescribed by law, the Company and each of its
Subsidiaries (i) has filed all foreign, federal, state and local income and
all other material tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes, assessments
and penalties due and payable that are material in amount, shown or determined
to be due on such returns, reports and declarations, except those being
contested in good faith or those set forth in Section 2(j) of
the Disclosure Schedule and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. Except
those disclosed in Section 2(j) of the
Disclosure Schedule, there are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and, to the knowledge of the
Company, there is no basis for any such claim.
(k) OTCBB
Compliance. Immediately prior to the delisting of its Common
Stock, the Company was in compliance with all requirements for, and its Common
Stock was quoted on the Electronic Over-the-Counter Bulletin Board
system.
(l) SEC
Documents. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the “Exchange
Act”). Such reports, schedules, forms, statements and other
documents together with any materials filed or furnished by the Company under
the Exchange Act, whether or not any such reports were required, are
collectively referred to herein as the “SEC Documents.” As
of their respective dates, the SEC Reports filed by the Company complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the SEC promulgated thereunder, and none of
the SEC Documents, when filed by the Company, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods involved (except
(a) as may be otherwise indicated in such financial statements or the notes
thereto, or (b) in the case of unaudited interim statements, to the extent
they may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit
adjustments). All material agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject are included as part of or identified in the SEC
Documents, to the extent such agreements are required to be included or
identified pursuant to the rules and regulations of the SEC.
(m) Absence of
Certain Changes. Since September 30, 2009, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations or prospects of the Company and its Subsidiaries, considered
together. Since September 30, 2009, the Company has not declared or
paid any dividends. Neither the Company nor any of its Subsidiaries
have taken any steps to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact that would reasonably lead a creditor to do
so.
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(n) Internal
Accounting Controls. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(o) ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act. The Company is in compliance with applicable requirements
of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and applicable rules and regulations
promulgated by the SEC thereunder.
(p) Disclosure
Controls and Procedures. The Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15 of the
General Rules and Regulations under the Exchange Act) that comply with the
requirements of the Exchange Act; such disclosure controls and procedures have
been designed to provide reasonable assurance that information required to be
disclosed by the Company and its Subsidiaries is accumulated and communicated to
the Company’s management, including the Company’s principal executive officer
and principal financial officer by others within those entities, and such
disclosure controls and procedures are effective.
(q) Capitalization. The
authorized capital stock of the Company currently consists of 250,000,000 shares
of Common Stock of which 129,195,547 shares are issued and outstanding and
50,000,000 shares of Preferred Stock, $.001 par value (the “Preferred Stock”) of which no
shares are issued and outstanding. All outstanding shares of capital
stock of the Company have been duly authorized, validly issued, and are fully
paid and non assessable.
(i) Except
as set forth in Section 2(q)(i)
of the Disclosure Schedule, there are no outstanding shares of Common Stock,
Preferred Stock, options, rights, warrants, debentures, instruments, convertible
securities or other agreements or commitments obligating the Company to issue
any additional shares of its capital stock of any class. As of the
date of this Agreement, the Company’s Preferred Stock is convertible in Common
Stock at a ratio of one share of Preferred Stock for one share of Common
Stock.
(ii) Except
as set forth in Section 2(q)(ii)
of the Disclosure Schedule, there are no (i) outstanding debt securities,
notes, credit agreements, credit facilities or other agreements, documents or
instruments evidencing indebtedness of the Company or by which the Company is or
may become bound; (ii) financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company; (iii) agreements or arrangements under which the Company is
obligated to register the sale of any of its securities under the Securities
Act; (iv) there are no outstanding securities or instruments of the Company
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to redeem a security of the Company
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(iii) Except
as set forth on Section 2(q)(iii)
of the Disclosure Schedule, and except for customary adjustments as a result of
stock dividends, stock splits, combinations of shares, reorganizations,
recapitalizations, reclassifications or other similar events, (or in any
agreement providing rights to security holders) and the issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Investors) and will not result in
a right of any holder of securities to adjust the exercise, conversion, exchange
or reset price under such securities. To the knowledge of the
Company, except as disclosed in the SEC Documents and any Schedules filed with
the SEC pursuant to Rule 13d-1 of the Exchange Act by reporting persons or
in Section 2(q) of
the Disclosure Schedule, no Person or group of related Persons beneficially owns
(as determined pursuant to Rule 13d-3 under the Exchange Act), or has the
right to acquire, by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the outstanding Common
Stock.
(r) Issuance of
Notes, Common Stock and Adjustment Shares. The Notes are duly
authorized and, upon issuance in accordance with the terms hereof, shall be
validly issued and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof. The Common Stock issued
pursuant to this Agreement is validly issued, fully paid and nonassessable and
free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The issuance by the Company of
the Notes and the Common Stock is exempt from registration under the Securities
Act.
(s) Related Party
Transactions. No affiliate, officer, director, or any Related
Party is a party to any agreement with the Company. No employee of
the Company or any Related Party is indebted in any amount to the Company and,
except for accrued payroll obligations, the Company is not indebted to any of
its employees or any Related Party. For purposes of this Agreement,
“Related Party” shall
mean with respect to any specified Person (i) each Person who, together
with its affiliates, owns of record or beneficially at least five percent (5%)
of the outstanding capital stock of the specified Person as of the date of this
Agreement; (ii) each individual who is, or who has at any time been, an
officer or director of the specified Person; (iii) each affiliate of the
Persons referred to in clauses (i) and (ii) above; (iv) any trust or
other entity (other than the specified Person) in which any one of the Persons
referred to in clauses (i), (ii) and (iii) above holds (or in which more
than one of such Persons collectively hold), beneficially or otherwise, a
voting, proprietary or equity interest; and (v) any trust or other entity
(other than the specified Person) with which any of such Persons is
affiliated.
(t) Off Balance Sheet
Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its Exchange Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.
-10-
(u) Patents and
Trademarks. The Company and its Subsidiaries own, or possess
adequate rights or licenses to use, all trademarks, trade names, service marks,
service ▇▇▇▇ registrations, service names, patents, patent applications, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights (“Intellectual Property Rights”)
necessary to conduct their respective businesses as now
conducted. There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company, being threatened, against the
Company or its Subsidiaries regarding its Intellectual Property
Rights.
(v) Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses and location in which the Company and the
Subsidiaries are engaged. Neither the Company nor any of its
subsidiaries has sustained since the date of the latest unaudited financial
statements included in the SEC Documents any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the SEC Documents
Prospectus that would individually or in the aggregate result in a Material
Adverse Effect.
(w) Regulatory
Permits. To the Company’s knowledge, the Company and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Documents (“Material Permits” and, such
business, the “Business”), except where the
failure to possess such permits does not, individually or in the aggregate, have
or reasonably be expected to materially affect the Business, and neither the
Company nor any Subsidiary has received any written notice of proceedings
relating to the revocation or modification of any Material Permit.
(x) Employee
Relations. Neither the Company nor any of its Subsidiaries is
a party to any collective bargaining agreement or, to the Company’s knowledge,
employs any member of a union. No current executive officer of the
Company or any of its Subsidiaries has notified in writing the Company or any
such Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the Company or
any such Subsidiary. To the knowledge of the Company or any such
Subsidiary, no executive officer of the Company or any of its Subsidiaries is in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any
such Subsidiary to any liability with respect to any of the foregoing
matters.
(y) Labor
Matters. The Company and its Subsidiaries are in compliance in
all material respects with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to materially affect the Business.
-11-
(z) Environmental
Laws. To the Company’s knowledge, the Company and its
Subsidiaries (i) are in compliance in all material respects with any and
all Environmental Laws (as hereinafter defined), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance in all material respects with all terms and conditions of any such
permit, license or approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. The term
“Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
(aa) Foreign Corrupt
Practices. Neither the Company nor any of its Subsidiaries
nor, to the knowledge of the Company, any director, officer, agent, employee or
other Person acting on behalf of the Company or any of its Subsidiaries has, in
the course of its actions for, or on behalf of, the Company (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made or offered to
make any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or (iv) made or offered to make any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee. The Company and its
subsidiaries maintain books and records sufficient to ensure compliance with
applicable anti-bribery and anti-corruption laws.
(bb) Application of
Takeover Protections. Except as described in Section 2(bb) of
the Disclosure Schedule, there is no 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 or could become
applicable to any of the Investors as a result of the Investors 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 Investors’ ownership of the Securities.
(cc) Regulation M
Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any Person any compensation for soliciting another to purchase any other
securities of the Company.
(dd) General
Solicitation. Neither the Company, nor any of its affiliates,
nor any Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D
promulgated under the Securities Act) in connection with the offer or sale of
the Notes.
-12-
(ee) No
Integration. Neither the Company nor any of its affiliates
nor, any Person acting on the Company’s behalf has, directly or indirectly, at
any time within the past six months, made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances that would
(i) eliminate the availability of the exemption from registration under
Regulation D under the Securities Act in connection with the offer and sale
by the Company of the Securities as contemplated hereby or (ii) cause the
offering of the Securities pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any applicable
stockholder approval provisions. The Company is not required to be
registered as, and is not an affiliate of, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended. The
Company is not required to be registered as a United States real property
holding corporation within the meaning of the Foreign Investment in Real
Property Tax Act of 1980.
(ff) Private
Placement. Assuming the accuracy of the representations and
warranties of Investors contained in this Agreement and the compliance by
Investors with the provisions set forth herein, it is not necessary, in
connection with the issuance and sale of any Securities, in the manner
contemplated by the Transaction Documents, to register any Securities under the
Securities Act.
(gg) Registration
Rights. Except as described in Section 2(gg) of
the Disclosure Schedule, the Company has not granted or agreed to grant to any
Person any rights (including “piggy-back” registration rights) to have any
securities of the Company registered with the SEC or any other governmental
authority that have not been satisfied or waived.
(hh) Disclosure;
Accuracy of Information Furnished. The Company confirms that
neither it nor any officers, directors or affiliates, has provided any of the
Investor or its agents or counsel with any information that constitutes or might
constitute material, nonpublic information (other than the existence and terms
of the issuance of Securities, as contemplated by this
Agreement). The Company understands and confirms that the Investor
may rely on the foregoing representations in effecting transactions in
securities of the Company. None of the Transaction Documents and none
of the other certificates, statements or information furnished to the Investor
by or on behalf of the Company in connection with the Transaction Documents or
the transactions contemplated thereby contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company acknowledges and
agrees that Investor makes or has made no representations or warranties with
respect to the transactions contemplated hereby other than those set forth in
the Transaction Documents.
(ii) Undisclosed
Liabilities. The Company has not undertaken or incurred any
liability or obligation, direct or contingent, except for liabilities or
obligations disclosed in the SEC Documents.
3. Representations
and Warranties of Investors. Each Investor, for that Investor alone,
represents and warrants to the Company upon the acquisition of the Notes and
shares of Common Stock as follows:
-13-
(a) Binding Obligation. Such
Investor has full legal capacity, power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement is a
valid and binding obligation of the Investor, enforceable in accordance with its
terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditors’ rights
generally and general principles of equity.
(b) Securities Law Compliance.
Such Investor has been advised that the Notes and shares of Common Stock have
not been registered under the Securities Act, or any state securities laws and,
therefore, cannot be resold unless they are registered under the Securities Act
and applicable state securities laws or unless an exemption from such
registration requirements is available. Such Investor is aware that the Company
is under no obligation to effect any such registration with respect to the Notes
or the shares of Common Stock or to file for or comply with any exemption from
registration. Such Investor has not been formed solely for the purpose of making
this investment and is purchasing the Notes or the shares of Common Stock to be
acquired by such Investor hereunder for its own account for investment, not as a
nominee or agent, and not with a view to, or for resale in connection with, the
distribution thereof. Such Investor has such knowledge and experience in
financial and business matters that such Investor is capable of evaluating the
merits and risks of such investment, is able to incur a complete loss of such
investment and is able to bear the economic risk of such investment for an
indefinite period of time. Such Investor is an accredited investor as such term
is defined in Rule 501 of Regulation D under the Securities
Act.
(c) Access to Information. Such
Investor acknowledges that the Company has given such Investor access to the
corporate records and accounts of the Company and to all information in its
possession relating to the Company, has made its officers and representatives
available for interview by such Investor, and has furnished such Investor with
all documents and other information required for such Investor to make an
informed decision with respect to the purchase of the Notes and the shares of
Common Stock.
(d) No Governmental
Review. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Notes or the shares
of Common Stock or the fairness or suitability of the investment in the Notes or
the shares of Common Stock nor have such authorities passed upon or endorsed the
merits of the offering of the Notes or the shares of Common Stock.
(e) Residency. Such Investor is a
resident of that jurisdiction specified below its address on Schedule I
hereto.
(f) Broker-Dealer
Status. Investor is a not a registered
broker-dealer.
(g) Foreign
Investors. If such Investor is not a United States person (as
defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended (the “Code”)),
such Investor hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the Notes and shares of Common Stock or any use of this Agreement,
including (a) the legal requirements within its jurisdiction for the
purchase of the Notes and shares of Common Stock, (b) any foreign exchange
restrictions applicable to such purchase, (c) any governmental or other
consents that may need to be obtained, and (d) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Notes and shares of Common Stock. Such
Investor’s subscription and payment for and continued beneficial ownership of
the Notes and shares of Common Stock will not violate any applicable securities
or other laws of the Investor’s jurisdiction.
-14-
4. Conditions to
Closing of the Investors. Each Investor’s obligations at Closing are
subject to the fulfillment, on or prior to the Closing Date, of all of the
following conditions, any of which may be waived in whole or in part by all of
the Investors:
(a) Representations and
Warranties. The representations and warranties made by the Company in
Section 2 hereof
shall have been true and correct when made, and shall be true and correct on the
Closing Date.
(b) Governmental Approvals and
Filings. Except for any notices required or permitted to be filed after
the Closing Date with certain federal and state securities commissions, the
Company shall have obtained all governmental approvals required in connection
with the lawful sale and issuance of the Notes and the shares of Common
Stock.
(c) Legal Requirements. At the
Closing, the sale and issuance by the Company, and the purchase by the
Investors, of the Notes and shares of Common Stock shall be legally permitted by
all laws and regulations to which the Investors or the Company are
subject.
(d) Board of
Directors. The board of directors at Closing shall consist of:
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and Foo
Katan. The board of directors shall have established a Special
Finance Committee consisting of ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and Foo Katan and
adopted for the governing document of such Special Finance Committee the charter
set forth at Exhibit
I.
(e) Proceedings and Documents.
All corporate and other proceedings in connection with the transactions
contemplated at the Closing and all documents and instruments incident to such
transactions shall be reasonably satisfactory in substance and form to the
Investors.
(f) Transaction Documents. The
Company shall have duly executed and delivered to the Investors the following
documents (the “Transaction
Documents”):
(i) This
Agreement;
(ii) Each
Note to be issued hereunder with respect to such Closing;
(iii) Share
certificates evidencing the Common Stock to be issued on or prior to such
Closing hereunder;
(iv) The
Consent and Waiver and Amendment No. 2 to Security Agreement in the form of
Exhibit E hereto
(the “Security Agreement
Amendment”); and
-15-
(v) All
UCC-1 financing statements and other documents and instruments which the
Investor may reasonably request to perfect its security interest in the
collateral described in the Security Agreement Amendment and the underlying
security agreement.
(g) Corporate Documents. With
respect to the Initial Closing, the Company shall have delivered to the
Investors each of the following:
(i) The
Amended and Restated Articles of Incorporation of the Company, certified as of a
recent date prior to the date of the Initial Closing by the Secretary of State
of Nevada;
(ii) A
Certificate of Good Standing or comparable certificate as to the Company,
certified as of a recent date prior to the Closing Date by the Secretary of
State of Nevada and a Certificate of Good Standing certified as of a recent date
prior to the Closing Date by the Secretary of the State of California;
and
(iii) A
certificate of the Secretary of the Company, dated the Closing Date and in the
form set forth on Exhibit
G, certifying (a) that the Amended and Restated Articles of
Incorporation of the Company, delivered to Investors pursuant to Section 4(f)(i) hereof,
is in full force and effect and has not been amended, supplemented, revoked or
repealed since the date of such certification; (b) that attached thereto is
a true and correct copy of the Bylaws of the Company as in effect on the Closing
Date; (c) that attached thereto are true and correct copies of resolutions
duly adopted by the board of directors of the Company and continuing in effect,
which authorize the execution, delivery and performance by the Company of this
Agreement and the Notes and the consummation of the transactions contemplated
hereby and thereby; and (d) that there are no proceedings for the
dissolution or liquidation of the Company (commenced or
threatened).
(h) Compliance
Certificate. The Company shall deliver at each Closing a
Compliance Certificate in the form set forth at Exhibit H;
(i) Bonus Plans. The
boards of directors of the Company and Arena Verde S.A.C. shall have adopted the
terms of a U.S. Make-Whole Compensation Plan and a Peru Incentive Compensation
Plan as set forth on Exhibit
J and Exhibit K,
respectively (collectively, the “Bonus Plans”), and the Company
any each such participant in the Bonus Plan shall have executed definitive
documentation with respect to such Bonus Plans in form acceptable to
the Investors (“Participant
Agreements”).
(j) Salary. The total
compensation payable to management employees (exclusive of non-cash fringe
benefits and amounts payable pursuant to the Bonus Plans, if any) of the Company
and Arena Verde S.A.C. shall have been set at the levels and shall be subject to
the terms set forth on Exhibit
L. In the case of employees whose compensation is the subject
of an employment agreement, such employment agreement shall have been
amended.
5. Conditions to
Obligations of the Company. The Company’s obligation to issue and sell
the Notes and shares of Common Stock at each Closing is subject to the
fulfillment, on or prior to the Closing Date, of the following conditions, any
of which may be waived in whole or in part by the Company:
-16-
(a) Representations and
Warranties. The representations and warranties made by the Investors in
Section 3 hereof
shall be true and correct when made, and shall be true and correct on the
Closing Date.
(b) Performance. Investors
shall have performed and complied with all covenants, agreements, obligations
and conditions contained in this Agreement that are required to be performed or
complied with by them on or before the Initial Closing.
(c) Governmental Approvals and
Filings. Except for any notices required or permitted to be filed after
the Closing Date with certain federal and state securities commissions, the
Company shall have obtained all governmental approvals required in connection
with the lawful sale and issuance of the Notes and the Common
Stock.
(d) Legal Requirements. At the
Closing, the sale and issuance by the Company, and the purchase by the
Investors, of the Notes and Common Stock issued hereunder shall be legally
permitted by all laws and regulations to which the Investors or the Company are
subject.
6. Certain
Agreements of the Company and the Investors.
(a) Covenants Relating to the Operation
of the Company. So
long as any Notes issued pursuant to this Agreement are outstanding and until
such Notes have been repaid in full:
(i) The
Company shall operate its business in accordance with the business plan and
budget presented to the Investors and, in any event, with monthly expenditures
no greater than $155,000 without the consent of the Investors.
(ii) Without
limiting the foregoing, the Company shall obtain the consent of the Investors
prior to undertaking any material expenditures or any disposition of material
assets.
(iii) The
Company shall
(A) continue
in good faith negotiations with Banco Internacional del Perú S.A.A. (“Interbank”) to obtain a credit
facility of not less than $24,000,000 upon terms substantially as set forth in
that certain term sheet/proposal of October 18, 2009 provided by Interbank to
the Company (such facility, the “Interbank Facility”),
and
(B) after
the closing on and initial funding of the Interbank Facility, continue to
operate under and with respect to the project budget, timeline and deliverables
contemplated thereby, subject to such cure periods, accommodations, waivers and
amendments granted by Interbank.
(iv) The
Company shall deliver to the Investors (under appropriate confidentiality
restrictions) (i) unaudited monthly financial reports, and (ii) a weekly
accounting of the Company’s cash balance in a format reasonably acceptable to
the Investors.
-17-
(v) Until
the closing and initial funding of the earlier of the PAC Financing or the
Interbank Facility, the Company shall not incur or agree to incur any
indebtedness for borrowed money or financed equipment, or any sort of trade debt
in excess of $5,000 individually or $10,000 in the aggregate without the consent
of the Investors.
(vi) Except
with respect to the Interbank Facility, the Company shall not pledge, encumber
or grant any security interest in any assets of the Company or any of its
subsidiaries to any third party without obtaining the consent of the
Investors.
(vii) The
Company shall not undertake any future equity or debt financing other than the
closing of the Interbank Facility or the PAC Financing without the consent of
the Investors.
(viii) Prior
to the closing of the earlier of the PAC Financing or the Interbank Facility,
the Company shall not increase the compensation, benefits or other remuneration
payable to any employee or contractor or hire any new employee or contractor
without the consent of the Investors.
(ix) Until
dissolution in accordance with its charter, maintain in existence the Special
Finance Committee of the board of directors of the Company and not alter or
amend the charter therefor or the delegation of authority to such committee
without the consent of the Investors.
(b) Reservation and Authorization of
Shares; Amendment of Charter Documents; Assurance on Share
Percentages. As soon as practicable following the 90-day
period following the Company’s filing of a Form 15, the Company shall take such
actions and the Investors in their capacities as stockholders shall take such
actions as within their power to amend the Company’s Charter Documents to
authorize sufficient additional share of Common Stock as required to issue the
Balance Shares and for the issuance upon exercise of the Common Stock underlying
those stock options issued under the Incentive Option Plan (as defined
below). The parties hereto agree and acknowledge that Investors and
the Company have agreed to the issuance of Common Stock based on negotiated
percentage ownership stakes in the Company. In the event that the
representations and warranties of the Company are incorrect or in the event
that, as a result of inconsistencies, errors in this Agreement or the records of
the Company or otherwise, the grants of Common Stock to Investors do not
represent the percentage stakes set out in this Agreement for each such
Investor, the Company will take any and all such actions, including, but not
limited to reserving and authorizing (through amendment of the Company’s Charter
Documents, as required) and issuing additional shares to Investor(s), as
required to provide the Investors with the percentage ownership agreed upon,
subject to dilution, if any and as applicable, for subsequent transactions and
issuances.
(c) Repayment of the Notes from Project
Excess Cash Flows. From and after December 31, 2012, the
Company shall direct ninety percent (90%) of the monthly Excess Cash Flow (as
defined below) of the Company’s ethanol projects in Peru to the repayment of the
Notes and, to the extent not by then repaid, those notes issued to Investors
pursuant to the July 2009 Purchase Agreement and the note issued to I2BF by the
Company on November 6, 2009 in the principal amount of
US$500,000. All such repayments of the shall be made monthly in
arrears no later than ten (10) days after the end of each month and pro rata in
accordance with the principal amounts of such notes to be repaid. The
calculation of “Excess Cash
Flow” for the purposes of this Section 6(c) shall be performed consistent
with the calculation of such term in the July 2009 Purchase Agreement, with such
adjustments as required and as otherwise determined by the parties hereto
mutually and in good faith.
-18-
(d) Further Assurances on Perfection of
Security Interests. The Company and its Subsidiaries agree to
execute such further documents and instruments and to take such further actions
that Investors or either of them might reasonably request to carry out the
purposes and intent of this Agreement and the Security Agreement Amendment in
creating first priority security interests in favor of Investors over all of the
assets of the Company and its Subsidiaries, including taking such actions as
required to perfect the security interests of Investors in the assets of the
Company and its direct and indirect Subsidiaries; provided, however that the
Investors agree to subordinate their security interests to Interbank if and when
the Interbank Facility closes. In addition, the Company, on its own
behalf and on behalf of its Subsidiaries, hereby designates and appoints
Investors and each of them as duly authorized agents and attorneys-in-fact to
act for and on behalf of the Company and its Subsidiaries and to execute and
file any document and to do all other lawfully permitted acts necessary to
perfect Investors’ rights under this Agreement and the Security Agreement
Amendment with the same legal force and effect as if executed by the Company or
such Subsidiary(ies) as applicable. In addition to and not in
limitation of the foregoing, the Company and its direct and indirect
Subsidiaries shall take such actions as required to (i) create valid and
perfected security interests in favor of Investors in all assets in which
Interbank takes a security interest in connection with the Interbank Facility,
such security interests in favor of Investors to be of second rank and priority,
subject only to the first ranking security interests created in favor of
Interbank, (ii) to extinguish or subordinate to the security interests of
Investors (and Interbank, as applicable) security interests existing as of the
date of this Agreement, including that security interest held by Grey K LP,
a Delaware limited partnership, Grey K Offshore Fund, Ltd., a Cayman Island
exempt company, and Grey K Offshore Leveraged Fund, Ltd., a Cayman Island
exempt company (collectively, “Grey K”) in the
environmental attributes of the Company and its Subsidiaries and (iii) to
provide notice to Investors prior to the formation of any new Company direct or
indirect Subsidiaries, to have such Subsidiaries assume the obligations of the
Transaction Documents as if an original party thereto and to provide such
documents, instruments and agreements to permit the perfection of the Investors’
security interests over the assets of such Subsidiaries.
(e) Incentive Option
Plan. The Company shall establish and allocate an Incentive
Option Plan equal to 19% of the fully-diluted equity of the Company (including
the unallocated pool) (“Incentive Option Plan”)
immediately following the Initial Closing or as soon as practicable
thereafter. Options shall be granted by the Company from the
Incentive Option Plan to members of Company Management in the amounts and
subject to the vesting provisions set forth on Exhibit M hereto.
(f) Participant Agreements; Amendment of
Employment Agreements. Any Participant Agreements which are
the subject to the condition set forth in Section 4(j) and with respect to which
such condition is waived for the purposes of the Initial Closing shall be so
executed as soon as practicable following the Initial Closing. Any
employee agreements which are the subject to the condition set forth in Section
4(k) and with respect to which such condition is waived for the purposes of the
Initial Closing shall be so amended as soon as practicable following the Initial
Closing.
-19-
(g) Additional
Pool. The parties hereto agree that a future incentive option
plan equal to at least 3.5% of fully-diluted equity of the Company, with the
final size of such incentive option plan to be mutually agreed to by the Company
and the Investors, will be established upon the closing and initial funding of
the Interbank Facility to incentivize certain employees for the future phases of
the Company’s business plan (the “Additional
Pool”). The allocation of such future incentive options shall
be determined by the board of directors of the Company on the recommendation of
the compensation committee.
(h) Deregistration of
Securities. On or prior to March 19, 2010, the Company shall
file a Form 15 to deregister its common stock for purposes of Sections 12(g) and
15(d) of the Exchange Act so as to no longer be subject to reporting obligations
under Section 13(a) of the Exchange Act.
(i) Rights Offering.
(i) For
a period of forty-five (45) days from the Initial Closing and ending at 12:01
a.m. California time on the date that is forty-six (46) days from the Initial
Closing (the “Rights Offering
Closing Date”), the Company shall offer to other record holders of the
Company’s capital stock as of the Initial Closing Date, which record holders (i)
shall be “Accredited Investors” as defined in Rule 501(a) of Regulation D under
the Securities Act of 1933, as amended and (ii) shall not have participated in
the Initial Closing (each, a “Rights Offeree” and
collectively, the “Rights
Offerees”), the opportunity to purchase his, her or its Pro Rata Share
(as defined below) of an aggregate of US$250,000 in principal amount of
additional Notes, along with shares of Company Common Stock representing up to
3.75% of the fully diluted equity of the Company (attaching proportionally to
the principal amount of Notes so sold and issued) at a closing (the “Rights Offering Closing”) to
be held on or before the Rights Offering Closing Date (the “Rights
Offering”). This Agreement, including without limitation the
Schedule of Investors at Schedule I hereto, may be amended by the Company
without the consent of Investors to include any Rights Offeree upon the
execution and delivery by such Rights Offeree of a counterpart signature page
hereto. Notes and shares of Company Common Stock so sold shall be
“Notes” and “Common Stock” for the purposes hereof and, solely with respect to
pecuniary interests in the Notes (and not for purposes of approval and consent
rights granted to the “Investors” hereunder and pursuant to the terms of the
Notes (including, for the avoidance of doubt, approval of Proposed Budgets)
which shall be reserved solely for the Investors participating at the Initial
Closing), Rights Offerees participating at the Rights Offering Closing shall be
“Investors” for the purposes of this Agreement.
(ii) “Pro Rata Share” shall mean,
with respect to any Rights Offeree, a fraction, the numerator of which is the
aggregate number of shares of Company Common Stock held by such Rights Offeree
on an as-if-converted basis and the denominator of which is the total number of
shares of Company Common Stock outstanding on an as-if-converted basis held by
all Rights Offerees.
-20-
(iii) With
respect to the Rights Offering, except as otherwise provided
herein: (a) all sales and issuances of securities shall be made on
the same terms as offered in the Initial Closing and on the terms and conditions
as set forth in this Agreement; (b) each Rights Offeree shall become a party to
this Agreement as an Investor and shall have the same rights and obligations
hereunder and thereunder; (c) the representations, warranties and covenants of
the Company as set forth in Section 2 hereof (and the Schedule of Exceptions
thereto) shall speak as of the Initial Closing, and the Company shall have no
obligation to update any such disclosure; and (d) the representations,
warranties and covenants of the Rights Offerees as Investors set forth in
Section 3 hereof shall speak as of the Rights Offering Closing
Date. The Rights Offering Closing shall take place at the offices of
the Company on or before the Rights Offering Closing Date or, subject to the
provisions of this section, at such other time and place as the Company and a
majority in interest of the Rights Offerees participating in such Rights
Offering Closing may agree upon orally or in writing.
(iv) It
is mutually agreed and understood that, notwithstanding anything to the contrary
in this Agreement or the Notes, the Investors in the Initial Closing and the
Company may (but shall not be obligated to) agree to use proceeds from the
Rights Offering to repay Notes issued at the Initial Closing.
(j) D&O
Insurance. Following the Initial Closing, the Company shall
maintain Directors & Officers insurance in the same amounts and scope as
maintained by the Company prior to the Initial Closing (or such other reasonable
amounts as determined by the Board) for as long as the current directors and
officers of the Company (including, for the avoidance of doubt, those appointed
to the Board in connection with the Initial Closing) shall serve in their
respective positions as directors or officers of the Company, and thereafter so
long as such directors or officers shall be subject to any claim, suit or
proceeding for which they are contractually or statutorily entitled to
indemnification from the Company.
7. Miscellaneous.
(a) Cost and Expense
Reimbursements.
(i) Legal
Expenses. The Company and the Investors shall each pay their
own expenses in connection with the transactions contemplated by this Agreement;
provided, however, that
the Company shall reimburse the documented fees of counsel for the Investors,
such amount not to exceed US$25,000 in aggregate. As described on
Exhibit B, $20,000 of
the Initial Closing Disbursement shall be applied towards partial payment of
outstanding amounts due to the Company’s legal counsel, and $5,000 of the
Initial Closing Disbursement shall be applied towards payment to ▇▇▇▇▇▇, Song
& ▇▇▇▇▇▇▇ (counsel to independent director, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇).
(ii) Reimbursement for Land Lease
Advance. Upon the earlier of closing of the PAC Financing or
another Financing Event (as defined below), I2BF and BlueDay shall be entitled
to receive reimbursement in the amounts of US$150,000 and US$100,000,
respectively, for the Reimburseable Land Lease Advance paid by them at the
Initial Closing as set forth on Exhibit B-2. A
“Financing Event” shall
mean one or more bona fide equity financings of the Company other than the PAC
Financing pursuant to which the Company raises at least $5,000,000 in gross
proceeds.
-21-
(iii) Management
Expenses. Certain members of management will be reimbursed
concurrent with the Initial Closing reasonable, documented personal expenses
incurred on behalf of the Company, in the aggregate amount of up to US$52,000,
as documented to Investors. All future expenses shall only be
reimbursable to the extent set forth in or reserved in a Proposed Budget as
ultimately approved or as separately approved by the Investors. It
shall be mutually agreed and acknowledged that expenses fluctuate and such
amounts shall be budgeted and accommodated in Proposed Budgets by the Investors
and the Company in good faith as practicable and as mutually agreeable amongst
the parties.
(iv) Monitoring
Expenses. Each Investor will be entitled to receive a monthly
monitoring fee of US$10,000 for each full month from the Initial Closing through
December 2010 to cover costs of ensuring the Company’s compliance with the terms
of this Agreement and the transactions contemplated hereby. It shall
be mutually agreed and acknowledged that the monitoring fee shall be
accommodated in Proposed Budgets by the Investors and the Company in good faith
as practicable and as mutually agreeable amongst the parties.
(b) Waivers and Amendments. Any
provision of this Agreement may be amended, waived or modified only upon the
written consent of the Company and both Investors.
(c) Governing Law. This Agreement
and all actions arising out of or in connection with this Agreement shall be
governed by and construed in accordance with the laws of the State of
California, without regard to the conflicts of law provisions of the State of
California or of any other state.
(d) Survival. The
representations, warranties, covenants and agreements made herein shall survive
the execution and delivery of this Agreement.
(e) Successors and Assigns.
Subject to the restrictions on transfer described in Sections 7(e)
and 7(f) below, the rights
and obligations of the Company and the Investors shall be binding upon and
benefit the successors, assigns, heirs, administrators and transferees of the
parties.
(f) Transfer and Replacement of the
Notes. Prior to presentation of any Note for transfer, the Company shall
treat the Person in whose name such Note is issued as the owner and holder of
such Note for all purposes whatsoever, whether or not such Note shall be
overdue, and the Company shall not be affected by notice to the contrary.
Subject to any restrictions on or conditions to transfer set forth in any Note,
the holder of any Note, at its option, may in person or by duly authorized
attorney surrender the same for exchange at the Company’s chief executive
office, and promptly thereafter and at the Company’s expense, except as provided
below, receive in exchange therefor one or more new Note(s), each in the
principal requested by such holder, dated the date to which interest shall have
been paid on the Note so surrendered or, if no interest shall have yet been so
paid, dated the date of the Note so surrendered as shall have been designated in
writing by such holder or its attorney for the same principal amount as the then
unpaid principal amount of the Note so surrendered. Upon receipt by the Company
of evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any Note and (a) in the case of loss,
theft or destruction, of indemnity reasonably satisfactory to it; or (b) in
the case of mutilation, upon surrender thereof, the Company, at its expense,
will execute and deliver in lieu thereof a new Note executed in the same manner
as the Note being replaced, in the same principal amount as the unpaid principal
amount of such Note and dated the date to which interest shall have been paid on
such Note or, if no interest shall have yet been so paid, dated the date of such
Note.
-22-
(g) Assignment. The rights,
interests or obligations under this Agreement may not be assigned, by operation
of law or otherwise, in whole or in part, by (i) the Company without the prior
written consent of the Investors or (ii) any Investor without the prior written
consent of the Company; provided that the Investors may assign its rights and
obligations under this Agreement and the Notes to an affiliate of such Investor
without consent of the Company.
(h) Entire Agreement. This
Agreement together with the other Transaction Documents constitute and contain
the entire agreement among the Company and Investors and supersede any and all
prior agreements, negotiations, correspondence, understandings and
communications among the parties, whether written or oral, respecting the
subject matter hereof.
(i) Notices. All notices,
requests, demands, consents, instructions or other communications required or
permitted hereunder shall in writing and faxed or delivered to each party as
follows: (i) if to a Investor, at such Investor’s address or facsimile
number set forth in the Schedule of Investors attached as Schedule I, or at such
other address as such Investor shall have furnished the Company in writing, or
(ii) if to the Company, at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇, or at such other address or facsimile number as the Company
shall have furnished to the Investors in writing. All such notices and
communications will 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
business day after being deposited inside the United States with an overnight
courier service of recognized standing for delivery within the United States,
(v) three business day after being deposited within the United States with an
express courier service of recognized standing for delivery outside of the
United States or vice versa or (v) four days after being deposited in the U.S.
mail, first class with postage prepaid, provided that first class mail shall not
be used for the delivery of notice outside of the United States.
(j) Separability of Agreements;
Severability of this Agreement. The Company’s agreement with each of the
Investors is a separate agreement and the sale of the Notes and Common Stock to
each of the Investors is a separate sale. Unless otherwise expressly provided
herein, the rights of each Investor hereunder are several rights, not rights
jointly held with any of the other Investors. Any invalidity, illegality or
limitation on the enforceability of the Agreement or any part thereof, by any
Investor whether arising by reason of the law of the respective Investor’s
domicile or otherwise, shall in no way affect or impair the validity, legality
or enforceability of this Agreement with respect to other Investors. If any
provision of this Agreement shall be judicially determined to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
-23-
(k) Counterparts. This Agreement
may be executed in one or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same agreement.
Facsimile copies of signed signature pages will be deemed binding
originals.
(Signature
Page Follows)
-24-
IN
WITNESS WHEREOF, Investor and the Company have caused their respective signature
pages to this Note Purchase Facility Agreement to be duly executed as of the
date first written above.
COMPANY:
STRATOS
RENEWABLES
CORPORATION
|
By:
|
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
|
|
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
||
|
President
and Chief Executive
Officer
|
||
|
INVESTORS:
|
||
|
I2BF
BIODIESEL LIMITED
|
||
|
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
|
||
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇
|
||
|
Director
|
||
|
BLUEDAY
LIMITED
|
||
|
A
British Virgin Island Company
|
||
|
By:
|
/s/ ▇▇▇▇▇▇ El-▇▇▇▇▇▇
|
|
|
Name:
|
▇▇▇▇▇▇ El-▇▇▇▇▇▇
|
|
|
Title:
|
||
SCHEDULE
I
SCHEDULE
OF INVESTORS
|
Name and Address
|
Committed
Amount
|
Shares of Common Stock
|
|||
|
I2BF
BioDiesel Limited
|
US$1,250,000
|
Issued
at Initial Closing
|
|||
|
▇/▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
|
||||
|
▇▇▇▇▇
▇▇▇,
|
63,240,120
|
||||
|
One
▇▇▇▇▇▇ ▇▇▇▇▇▇
|
|
||||
|
▇▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇ ▇▇▇
|
Balance
Shares
|
||||
|
United
Kingdom
|
|
||||
|
|
23,877,445
|
||||
|
All
payments on account of the Notes shall be made by bank wire transfer of
immediately available funds
to:
|
|||||
|
|
|||||
|
Beneficiary:
|
|||||
|
I2BF
BioDiesel Limited
|
|||||
|
Commonwealth
Trust Limited, Drake
Chambers,
Tortola, BVI
|
|||||
|
Beneficiary
Account No:
|
|||||
|
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇
|
|||||
|
Bank
Beneficiary:
|
|||||
|
UKIO
Bankas, Kaunas, Lithuania
|
|||||
|
SWIFT:
|
|||||
|
UKIO
LT 2X
|
|||||
|
Correspondent
bank:
|
|||||
|
VTB
Bank (Deutschland) AG,
|
|||||
|
Germany,
Frankfurt/Main
|
|||||
|
Account
No: 0104138417
|
|||||
|
SWIFT:
▇▇▇▇▇▇▇▇
|
|||||
|
BlueDay
Limited
|
US$600,000 |
Issued
at Initial Closing
|
|||
|
▇▇▇
▇▇▇▇▇
|
|||||
|
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
|
48,189,333
|
||||
|
▇▇
▇▇▇ ▇▇▇▇
|
|||||
|
▇▇▇▇
▇▇▇▇
|
▇▇▇▇▇▇▇
Shares
|
||||
|
Tortola
|
|||||
|
British
Virgin Islands
|
18,194,749
|
||||
|
With
a copy to:
|
|||||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
|||||
|
Senior
Private Banker
|
|||||
|
SG
Hambros Bank (Channel Islands) Limited
|
|||||
|
St.
Julian’s Avenue, St ▇▇▇▇▇ Port,
|
|||||
|
Guernsey,
GY1 3AE
|
I-1
|
All
payments on account of the Notes shall be made by bank wire transfer of
immediately available funds to:
|
|||||
|
[Bank
name]
|
|||||
|
[City,
State]
|
|||||
|
ABA
No.: __________________
|
|||||
|
Account
No.: _______________
|
|||||
|
Account
Holder: _____________
|
|||||
|
Reference:
|
I-2
EXHIBIT
B
SCHEDULE
OF ANTICIPATED CLOSINGS
|
Anticipated
Closing Date
|
Anticipated
I2BF Disbursement
|
Anticipated
Blue Day
Disbursement
|
Anticipated
Total Disbursement
|
Subject
to Funding
Milestones
|
|||||||||||||
|
Initial
Closing
|
US$
|
585,077 |
US$
|
300,000 |
US$
|
885,077 | - | ||||||||||
|
March
15, 2010
|
US$
|
298,447 |
US$
|
- |
US$
|
298,447 | 1,2,3 | ||||||||||
|
March
31, 2010
|
US$
|
185,114 |
US$
|
- |
US$
|
185,114 | 4,5,6 | ||||||||||
|
April
30, 2010
|
US$
|
- |
US$
|
193,382 |
US$
|
193,382 | 7 | ||||||||||
|
May
31, 2010
|
US$
|
76,765 |
US$
|
106,618 |
US$
|
183,382 | 8 | ||||||||||
|
June
30, 2010
|
US$
|
104,598 |
US$
|
- |
US$
|
104,598 | |||||||||||
|
Total:
|
US$
|
1,250,000 |
US$
|
600,000 |
US$
|
1,850,000 | - | ||||||||||
EXHIBIT
C
FUNDING
MILESTONES
1. Legal
and business due diligence shall have commenced in connection with the credit
facility currently under negotiation between the Company and Banco Internacional
del Perú S.A.A. (“Interbank”) and evidenced by
that certain term sheet dated October 18, 2009 (the “Interbank Facility”), and
costs and expenses of Interbank required to be paid by the Company for Interbank
to commence such due diligence shall have been fully paid, each as certified to
the Investors by Interbank.
2. The
Company shall have commenced drilling and development of at least one (1) water
well on the land subject to that certain Agreement of Constitution of Surface
Right, dated as of May 3, 2008 between Comunidad Campesina San ▇▇▇▇▇ de
Morrope (“Grantor”) and
the Company (the “Peru
Lease”).
3. Grantor
shall have accepted payment in full satisfaction of all indebtedness,
liabilities, obligations and all other amounts owing to Grantor through calendar
year 2010 with respect to the Peru Lease (as evidenced in writing).
4. The
security interests of the Investors with respect to the Notes and the notes
issued pursuant to the July 2009 Purchase Agreement shall have been perfected
with respect to all the assets and properties of the Company and its
subsidiaries, to the satisfaction of the Investors.
5. The
Company shall have successfully drilled and developed to commercial use at least
one (1) water well on the land subject to the Peru Lease and shall have
presented to Investors an independent engineers report certifying to the
same.
6. All
legal and business due diligence shall have been completed in connection with
the Interbank Facility, as shall have been certified to the Investors by
Interbank.
7. The
Company shall have received a commitment letter with respect to the Interbank
Facility, which shall provide for an extension of credit to the Company and its
subsidiaries (i) of not less than US$24,000,000, (ii) containing such acceptable
objective conditions that reasonably assure funding within thirty (30) days and
(iii) otherwise upon terms and conditions as set forth in that certain term
sheet dated October 18, 2009.
8. The
Company shall have closed on and received the initial funding with respect to
the Interbank Facility and shall have at least US$24,000,000 of immediately
available credit from the Interbank Facility.
4