NOTE AND WARRANT PURCHASE AGREEMENT DATED MAY 16, 2008 AMONG THIRD EYE CAPITAL CORPORATION, AS AGENT, THE PURCHASERS FROM TIME TO TIME PARTY HERETO AND AE BIOFUELS, INC., AS THE COMPANY

 

Exhibit A - Form of Note

Exhibit B - Form of Warrants

 

Disclosure Schedule

Schedule A - Purchasers

THIS NOTE AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made as of May 16, 2008 among AE BIOFUELS, INC., a Nevada corporation (the “Company”), THIRD EYE CAPITAL CORPORATION, an Ontario corporation, as agent (“Agent”) and the PURCHASERS from time to time parties hereto.

 

The parties hereto agree as follows:

 

 

 

1.1 Definitions. For the purposes of this Agreement, the following terms have the meanings set forth below (such meanings to be applicable to both the singular and plural forms of the terms defined):

“Affiliate” of any particular Person means any other Person directly or indirectly controlling, controlled by or under common control with such particular Person. The term “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, by contract or otherwise.

“Business Day” means any day other than a Saturday, Sunday or public holiday under the laws of the Toronto, Canada or the State of New York or other day on which banking institutions are authorized or obligated to close in Toronto, Canada or New York, New York.

“Change in Control’’ means an event or series of events by which any of the following occurs:

(a) Eric McAfee ceases to be employed as Chief Executive Officer or Chairman of the Company;

 

(b) any Person is or becomes the beneficial owner, directly or indirectly, of more than 50% of the total voting power of all outstanding classes of voting capital stock of the Company;

 

(c) the adoption of a plan relating to the liquidation or dissolution of the Company;

 

(d) on any date, a majority of the Company’s Board of Directors does not consist of Persons (i) who were directors on the Closing Date (“Continuing Directors”) or (ii) whose election or nomination as directors was approved by at least 2/3 of the directors then in office who are Continuing Directors or whose election or nomination was previously so approved;

(e) the Company fails to own, directly or indirectly, 100% of each of the Significant Subsidiaries (other than Energy Enzymes, Inc.);

(f) any sale of all or substantially all of the Company’s assets or common stock; or

(g) the execution by the Company or any of its Subsidiaries or Affiliates of any agreement or letter of intent with respect to any proposed transaction or event or series of transactions or events that, individually or in the aggregate, may reasonably be expected to result in any of the events in (a) through (f) above or the execution of any written agreement that, when fully performed by the parties thereto, would result in any of the events in (a) through (f) above.

 

 

“Collateral” means collectively, all real, personal or mixed property and all types of tangible or intangible property and all other collateral and/or security granted and/or securities pledged to Agent, any Purchaser or any other Person pursuant to the Transaction Documents.

“Common Stock” means, collectively, the Voting Common Stock and any capital stock of any class of stock hereafter authorized that is not limited to a fixed sum or percentage of par or stated value in respect of the rights of the holders thereof to participate in dividends in the distribution of assets upon any liquidation, dissolution or winding up of the Company.

“Default Rate” means that rate of interest per annum equal to 800 basis points per annum over the Interest Rate applicable to the Note.

 

“Dividend” means any distribution by a corporation, limited liability company or other entity with respect to its capital stock, membership interests or other ownership interests whether in cash, securities or other property.

“Environmental Laws” means any Law, including any common law, which relates to or otherwise imposes liability or standards of conduct concerning discharges, emissions, releases or threatened releases of noises, odors or any pollutants, contaminants or hazardous or toxic wastes, substances or materials, into air, water or groundwater, or land, or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, cleanup, transport or handling of pollutants, contaminants, or hazardous or toxic wastes, substances or materials, including, but not limited to CERCLA as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Toxic Substances Control Act of 1976, as amended, the Federal Water Pollution Control Act Amendments of 1972, the Clean Water Act of 1977, as amended, the Oil Pollution Act of 1990, as amended, any so-called “Superlien” law, and any other similar Federal, state or local statutes.

“Environmental Lien” means any Lien, whether recorded or unrecorded, in favor of any Governmental Authority, relating to any liability of the Company or any of its Subsidiaries arising under any Environmental Laws.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“GAAP” means generally accepted accounting principles accepted in the United States of America as promulgated by the Financial Accounting Standards Board, as in effect from time to time.

“Governmental Authority(ies)” means any international, Federal, state, interstate, provincial, local, foreign court or governmental agency, authority, instrumentality, agency, bureau, board, commission, department or regulatory body.

“Guarantee” means any guarantee of the payment or per-formance of any Indebtedness or other obligation and any other arrangement whereby credit is extended to one obligor on the basis of any promise of another Person, whether that promise is expressed in terms of an obligation to (i) pay the Indebtedness or other liabilities of such obligor, (ii) purchase an obligation owed by such obligor, (iii) purchase goods and services from such obligor pursuant to a take-or-pay contract, (iv) maintain the capital, working capital, solvency or general financial condition of such obligor, or (v) otherwise assure any creditor of such obligor against loss (including by way of an agreement to repurchase or reimburse), whether or not any such arrangement is listed on the balance sheet of such other Person or referred to in a footnote thereto, but shall not include endorsements of items for collection in the ordinary course of business. The amount of any Guarantee shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed or determined amount, the maximum amount guaranteed or supported.

“Hazardous Material” means any substances or materials that are, on the Closing Date, regulated under the Environmental Laws.

 

“Indebtedness” means at a particular time, without duplication, (i) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture or other debt security, (iii) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business), (iv) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (v) any obligations for which a Person is obligated pursuant to a Guarantee, (vi) any obligations under capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or with respect to which obligations a Person assures a creditor against loss, (vii) any indebtedness secured by a Lien on a Person’s assets and (viii) any unsatisfied obligation for “with-drawal liability” to a “multiemployer plan” as such terms are defined under ERISA.

“Investment” as applied to any Person means (i) any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, stock, securities or ownership interest (including partnership interests, limited liability company membership interests and joint venture inter-ests) of any other Person or (ii) any capital contribution by such Person to any other Person.

“IRC” means the Internal Revenue Code of 1986, as amended, and any reference to any particular IRC section shall be interpreted to include any revision of or successor to that section regardless of how numbered or classified.

“IRS’’ means the United States Internal Revenue Service.

“Law” means any federal, state, local or other law, rule, regulation or governmental requirement of any kind, and the rules, regulations, written interpretations and orders promulgated thereunder.

“Lien” or “Liens” mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limita-tion, any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against the Company or any Significant Subsidiary or Affiliate of the Company, or any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute other than to reflect ownership by a third party of property leased to the Company or any of its direct or indirect Significant Subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement, or any subordination arrangement in favor of another Person (other than any subordination arising in the ordinary course of business).

“Material Adverse Effect” means (a) a material adverse effect upon the business, operations, properties, assets or financial condition of the Company and its Significant Subsidiaries, taken as a whole or (b) the impairment of the ability of the Company to perform any of its material obligations under any Transaction Document to which the Company or any Significant Subsidiary or Affiliate is a party or of Agent’s or any Purchaser’s to enforce any Transaction Document or collect any of the Indebtedness due Agent or any Purchaser. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event does not of itself have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect.

“McAfee Capital Guaranty” means the Guaranty from McAfee Capital LLC in favor of Agent for the benefit of Purchaser.

“Most Recent Balance Sheet” means a true and complete copy of the balance sheets of Borrower and its Significant Subsidiaries as at March 31, 2008 prepared in accordance with GAAP.

“Mortgage” means a mortgage, deed of trust, deed to secure debt or similar instrument creating a Lien on real property of the Company or any Significant Subsidiary in favor of Agent or Purchaser, as the same be amended, modified, supplemented or restated from time to time.

 

“Officer’s Certificate” means a certificate signed by the Company’s duly authorized officer on behalf of the Company.

“Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56, as amended.

“Permit” shall mean any license, lease, power, permit, franchise, certificate, authorization or approval issued by a Governmental Authority.

“Permitted Indebtedness” means (i) any Indebtedness incurred or permitted pursuant to the terms of this Agreement, (ii) trade payables and other accounts payable of the Company and its Significant Subsidiaries incurred in the ordinary course of business, (iii) lease obligations and purchase money indebtedness, (iv) Indebtedness existing on the date hereof and set forth on the Most Recent Balance Sheet and (v) unsecured Indebtedness to Laird Q. Cagan.

“Permitted Liens” means:

i.

liens for taxes, assessments or governmental charges that are not yet due and payable or which are being contested in good faith by appropriate proceedings and for which appropriate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP consistently applied;

ii.

deposits or pledges made in connection with, or to secure payment of, utilities or similar services, workers’ compensation, unemployment insurance, old age pensions or other social security obligations;

iii.

purchase money mortgages or liens on any property purchased after the date of this Agreement to be used by the Company in the normal course of its business and created or incurred simultaneously with the acquisition of such property, if such mortgages or liens are limited to the property so acquired;

iv.

interests or title of a lessor under any lease permitted by this Agreement;

v.

liens imposed by law which were incurred in the ordinary course of business, such as carriers’, mechanics’, materialmen’s or contractors’ liens or encumbrances or any similar lien or restriction and which (x) do not individually or in the aggregate materially detract from the value of the Collateral or (y) are being contested in good faith by appropriate proceedings;

vi.

leases, subleases, easements, rights-of-way, restrictions and other similar charges and encumbrances not interfering with the ordinary conduct of the business of the Company and its Significant Subsidiaries or materially detracting from the value of the Collateral;

vii.

Liens outstanding on the date hereof (and renewals and extensions thereof) which secure Permitted Indebtedness and which are described in the attached “Indebtedness Schedule;” and

viii.

banker’s liens, rights of setoff and liens of securities intermediaries with respect to deposit accounts maintained in the ordinary course of business.

“Person” means an individual, a partnership, a corpora-tion, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

 

 

“Purchaser” means any of the Persons from time to time named on Schedule A and their respective successors and permitted assigns, and “Purchasers” shall mean all of them collectively.

“Qualified Holder” means Purchaser as long as it holds any portion of the Notes or Underlying Common Stock and each other Person holding (i) at least 10% of the aggregate principal amount of the Notes then outstanding or (ii) at least 10% of the Underlying Common Stock then in existence.

“Release” has the meaning set forth in CERCLA.

“Restricted Securities means (i) the Securities issued hereunder, (ii) the Underlying Common Stock and (iii) any securities issued with respect to the securities referred to in clauses (i) or (ii) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have (a) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) become eligible for sale pursuant to Rule 144(k) (or any similar provision then in force) under the Securities Act or (c) been otherwise transferred and new certificates for them not bearing the Securities Act legend set forth in Section 8.3 have been delivered by the Company in accordance with Section 5. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing a Securities Act legend of the character set forth in Section 8.3.

“Security Agreement” means any security executed by a Person in favor of Agent or any Purchaser to secure the Indebtedness under the Notes, as the same be amended, modified, supplemented or restated from time to time.

“Securities” has the meaning set forth in Section 2.1 hereof.

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal law then in force.

“Securities and Exchange Commission” includes any governmental body or agency succeeding to the functions thereof.

“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force.

“Significant Subsidiaries” mean, collectively, American Ethanol, Inc., a Nevada corporation, Energy Enzymes, Inc., a Delaware corporation, Sutton Ethanol, LLC, a Nebraska limited liability company, Biofuels Marketing, Inc., a Delaware corporation, Danville Ethanol, Inc., an Illinois corporation and AE Biofuels, Inc., a Delaware corporation.

“Subordinated Debt” means any Indebtedness of the Company or any of its Significant Subsidiaries that is unsecured and subordinated by written contract in right of payment, liens, security and remedies to the Indebtedness evidenced by the Note.

 

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, part-nership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity.

“Transaction Documents” means this Agreement, the Note, the Warrants, the McAfee Capital Guaranty, all Mortgages, any Security Agreement, any environmental indemnity agreements, any fee letter and all other documents executed and delivered in connection with any of the foregoing.

“Underlying Common Stock” means (i) the stock issued or issuable upon exercise of the Warrants originally issued to Purchaser, or (ii) any Common Stock issued or issuable with respect to the securities referred to in clause (i) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement and the Warrant, any Person who holds Warrants shall be deemed to be the holder of the Underlying Common Stock obtainable upon exercise of the Warrants in connection with the transfer thereof or otherwise regardless of any restric-tion or limitation on the exercise of the Warrants, such Underlying Common Stock shall be deemed to be in existence, and such Person shall be entitled to exercise the rights of a holder of Underlying Common Stock hereunder. As to any particular shares of Underlying Common Stock, such shares shall cease to be Underlying Common Stock when they have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or any similar provision then in force) or (c) repurchased by the Company or any of its Subsidiaries.

“Voting Common Stock” means the Company’s Common Stock, par value $0.001 per share.

“Wholly-Owned Subsidiary” means, with respect to any Person, a Subsidiary of which all of the outstanding capital stock, membership interests or other ownership interests are owned by such Person or another Wholly-Owned Subsidiary of such Person.

1.2 Accounting Principles. The classification, character and amount of all assets, liabilities, capital accounts and reserves and of all items of income and expense to be determined, and any consolidation or other accounting computation to be made, and the interpretation of any definition containing any financial term, pursuant to this Agreement shall be determined and made in accordance with GAAP consistently applied, unless such principles are inconsistent with the express requirements of this Agreement; provided that if because of a change in GAAP after the date of this Agreement the Company would be required to alter a previously utilized accounting principle, method or policy in order to remain in compliance with GAAP, such determination shall continue to be made in accordance with the Company’s previous accounting principles, methods and policies.

 

 

 

2.1

Authorization of the Note and Warrant. (A) the Company has authorized the issuance and sale to Purchaser of its 10% Senior Secured Notes in an aggregate principal amount of $5,000,000, in form and substance as set forth in Exhibit A attached hereto (collectively, if more than one, the “Notes”, and individually, the “Note”), and (B) the Company has authorized the issuance and sale of its Warrants to acquire an aggregate of 250,000 shares of Common Stock of the Company in form and substance as set forth in Exhibit B attached hereto (collectively, the “Warrants”, and individually, a “Warrant”). The Notes and the Warrants are sometimes collectively referred to herein as the “Securities.”

 

2.2

-Purchase and Sale of the Note and Warrant. At the Closing, (A) the Company shall sell to Purchaser and, subject to the terms and conditions set forth herein, Purchaser shall purchase from the Company one or more Notes in the aggregate principal amount of $5,000,000 at a price equal to $5,000,000, and (B) the Company shall sell to Purchaser one or more Warrants to purchase 250,000 shares of Common Stock for a purchase price equal to $3.

 

2.3

-The Closing. The closing of the purchase and sale of the Note and the Warrants (the “Closing”) shall take place on May 16, 2008 (the “Closing Date”). At the Closing, the Company shall deliver to Purchaser one or more instruments evidencing the Notes and Warrants to be purchased by Purchaser, issued in the name of Purchaser or its nominee, upon payment of the purchase price thereof by wire transfer of immediately available funds as directed by the Company, in the aggregate amount equal to $5,000,000.

 

 

The obligation of Purchaser to purchase and pay for the Securities at the Closing is subject to the fulfillment as of the Closing of the following conditions to Agent’s and Purchaser’s satisfaction in their sole discretion:

 

3.1

-Representations and Warranties; Covenants; No Event of Default. The representations and warranties contained in Section 6 hereof shall be true and correct at and as of the Closing as though then made, the Company shall have performed all of the covenants required to be performed by it hereunder and under the other documents, agreements and instruments executed in connection herewith that are to be complied with or performed by the Company and/or any of its Significant Subsidiaries on or prior to the Closing and there does not exist any state of facts that would constitute an Event of Default.

 

3.2

Securities Law Compliance. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Note and Warrants pursuant to this Agreement.

 

3.3

-Opinions of Counsel. Agent shall have received from counsel for the Company an opinion, dated the date of the Closing and in form and substance reasonably satisfactory to Agent.

 

3.4

-Closing Documents. The Company shall have delivered or caused to be delivered to Agent and Purchaser all of the following documents:

 

i.

a Note in the principal amount of $5,000,000, duly completed and executed by the Company;

 

ii.

the Warrants to purchase 250,000 shares of Common Stock, duly completed and executed by the Company;

 

iii.

the McAfee Capital Guaranty, Mortgages for certain real property located in Nebraska and Illinois, a Security Agreement covering certain machinery and equipment of Energy Enzyme, Inc.’s cellulosic ethanol demonstration facility in Montana and an Environmental Indemnity Agreement.

 

 

iv.

an Officer’s Certificate, dated the date of the Closing, stating that the conditions specified in this Section 3 have been fully satisfied;

 

v.

certified copies of the resolutions duly adopted by the Company’s and each other Significant Subsidiary’s and McAfee Capital LLC’s board of directors or board of managers, as applicable, authorizing the execution, delivery and performance of the Transaction Documents to which such entity is a party and each of the other agreements contemplated hereby and thereby, the issuance and sale of the Securities, the reservation for issuance upon exercise of the Warrants, and the consummation of all other transactions contemplated by this Agreement, as applicable;

 

vi.

a certificate of the secretary or manager of the Company and/or each Significant Subsidiary and/or McAfee Capital LLC, as the case may be, certifying the names and the signatures of the officers of such entity authorized to sign this Agreement, the Note, the Warrants, the Guaranty and each of the other agreements, documents and instruments contemplated hereby to which such entity is a party;

 

vii.

certified copies of the Certificate of Incorporation, Certificate of Formation, Limited Liability Company Agreement or Operating Agreement and bylaws, as applicable, of the Company and each Significant Subsidiary and McAfee Capital LLC, as applicable, each as in effect at the Closing;

 

viii.

a certificate of good standing of the Company and each Significant Subsidiary and McAfee Capital LLC, dated not more than ten days prior to the Closing, issued by from each such entity’s state of incorporation or organization;

 

ix.

copies of all third party and governmental consents, approvals and filings required in connection with the consummation of the transactions hereunder (including, without limitation, all blue sky law filings and waivers of all preemptive rights (except for preemptive rights granted in the Transaction Documents) and rights of first refusal);

 

x.

insurance certificates naming Agent and Purchaser as additional insured and first loss payee on all property and liability insurance policies of the Company and its Significant Subsidiaries pertaining to the Collateral;

 

xi.

such other documents relating to the transactions contemplated by this Agreement or any other Transaction Documents as Agent or its special counsel may reasonably request.

 

3.5

-Proceedings. All corporate and other proceedings taken or required to be taken by the Company in connection with the transactions contemplated hereby to be consummated at or prior to the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Agent and its special counsel.

 

3.6

Closing Fees and Expenses. The Company shall have (i) paid to Agent and Purchaser the fees set forth in a fee letter of even date herewith from Agent to the Company, and (ii) reimbursed Purchaser for fees and expenses as provided in Section 8.1 hereof.

 

3.7

-Compliance with Applicable Laws. The purchase of the Note and Warrants by Purchaser hereunder shall not be prohibited by any applicable law or governmental rule or regulation and shall not subject Purchaser to any penalty, liability or, in Purchaser’s sole judgment, other onerous condition under or pursuant to any applicable law or governmental rule or regulation, and the purchase of the Note and Warrants by Purchaser hereunder shall be permitted by laws, rules and regulations of the jurisdictions and Governmental Authorities and agencies to which Purchaser is subject.

 

 

 

 

4.1

Interest Rate. The interest rate on the principal balance of the Note outstanding from time to time shall accrue at the rate of ten percent (10%) per annum or (if less) at the highest rate then permitted under applicable law (computed on the basis of a 365-day year and the actual number of days elapsed in any year) (the “Interest Rate”) on the unpaid principal amount of the Note outstanding from time to time from and including the Closing Date until the date paid.

 

4.2

Payment of Interest. The Company shall pay to the holder of the Note accrued interest on the first Business Day of each calendar quarter (each an “Interest Payment Date”), beginning June 1, 2008, at the Interest Rate. On the Maturity Date (defined below) interest on the principal balance of the Note outstanding from the immediately preceding Interest Payment Date through and including the Maturity Date shall be payable at the Interest Rate. Interest shall accrue on any principal payment due under this Note and, to the extent permitted by applicable law, on any interest that has not been paid on the date on which it is due and payable until such time as payment therefor is actually delivered to the holder of the Note.

 

4.3	Payment at Maturity. On May 15, 2009 (the “Maturity Date”), the Company will pay the entire then outstanding principal amount of the Notes together with all accrued and unpaid interest thereon.

 

4.4

Optional Prepayments. The Company may, at any time and from time to time upon not less than 120 days’ prior written notice to Agent, prepay all or any portion (in whole number multiples of $100,000 only) of the outstanding principal amount of the Note (if more than one Note is outstanding, pro rata among the holders of the Notes on the basis of the outstanding principal amount of the Note held by each holder). In connection with each prepayment of principal under the Note, the Company shall also pay all accrued and unpaid interest on the principal amount of the Note being repaid.

 

 

 

 

 

 

 

(i) create, incur, assume or suffer to exist, or permit any Significant Subsidiary to create, incur, assume or suffer to exist, any Indebtedness other than Permitted Indebtedness;

 

(ii) sell, lease or otherwise dispose of, or permit any of its Significant Subsidiaries to sell, lease or otherwise dispose of, in any way, any Collateral;

 

(iii) permit any Liens on any Collateral other than Liens in favor of Purchaser and Permitted Liens;

 

(iv) change or alter the use of the Collateral or permit the Collateral to waste or permit any Collateral or portion thereof to be leased or to assign or permit the assignment of any of the Company’s or any Significant Subsidiary’s right, title or interest in and to any rents or profits arising, directly or indirectly, from the Collateral;

 

(v) directly or indirectly declare or pay any Dividends by the Significant Subsidiaries;

 

(vi) directly or indirectly make, or permit the Company to directly or indirectly redeem, purchase or make, or permit any of its Significant Subsidiaries to redeem, purchase or make, any payments with respect to any stock appreciation rights, phantom stock plans or similar rights or plans or set aside funds for any of the foregoing;

 

(vii) make any loans or advances to, or Guarantees for the benefit of, any Person, except for (i) reasonable advances to employees and reasonable extensions of credit to suppliers and other trade creditors, in each case only in the ordinary course of business and consistent with past practices, (ii) Permitted Indebtedness, (iii) Investments having a stated maturity no greater than one year from the date the Company makes such Investment in (1) obligations of the United States government or any agency thereof or obligations guaranteed by the United States government, (2) certificates of deposit of commercial banks having combined capital and surplus of at least $50 million, (3) commercial paper with a rating of at least “Prime-1” by Moody’s Investors Service, Inc., (4) U.S. Treasury Bills subject to repurchase agreements, (5) short-term obligations issued by or guaranteed by the U.S. Government or an agency thereof, (6) investments in open-end diversified investment Company of recognized financial standing investing solely in short-term money market instruments consisting of securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, time deposits and certificates of deposit issued by domestic banks or London branches of domestic banks, bankers’ acceptances, repurchase agreements, high grade commercial paper and the like, or (7) accounts, chattel paper and notes receivable created by the Company in the ordinary course of business;

 

(viii) merge or consolidate with any Person, permit any of its Significant Subsidiaries to merge or consolidate with any Person, except that any Wholly-Owned Subsidiary may be merged or consolidated with or into the Company or another Wholly-Owned Subsidiary; or acquire, or permit any of its Significant Subsidiaries to acquire, all or any substantial part of the assets or properties of any Person; or otherwise alter, or permit any of its Significant Subsidiaries to alter, its legal status;

 

 

(ix) liquidate, dissolve or effect a recapitalization or reorganization in any form of transaction (including, without limitation, any reorganization after which the Company becomes a Subsidiary of another Person);

 

(x) enter into, become subject to, amend, modify or waive any agreement or instrument which by its terms would (under any circumstances) restrict (i) the repayment of any Indebtedness evidenced by the Note or (ii) the Company’s or any Significant Subsidiary’s right to perform the provisions of any of the Transaction Documents or the Securities;

 

(xi) change its fiscal year;

 

(xii) prepay any principal or interest on any Indebtedness other than the Indebtedness evidenced by the Notes.

(xiii) issue or sell any membership interests or other equity interests, or rights to acquire shares of the capital stock or other equity interests, of any of its Significant Subsidiaries to any Person other than the Company or a Wholly-Owned Subsidiary;

 

(xiv) make any amendment to its Articles or Certificate of Incorporation, or bylaws, as applicable, which violate or breach any of the provisions thereof.

 

 

a) Preservation of Existence, etc. Cause to be done all things reasonably necessary to maintain, preserve and renew its corporate or limited liability company existence, rights, franchises, privileges and qualifications and all material licenses, authorizations and permits necessary to the conduct of its businesses, except that any Wholly-Owned Subsidiary may be merged or consolidated with or liquidated into the Company or another Wholly-Owned Subsidiary.

 

b) -Maintenance of Properties. Maintain and keep its material properties, including without limitation all Collateral, in good repair, working order and condition (ordinary wear, tear and obsolescence excepted), and from time to time make all necessary or desirable repairs, renewals and replacements, so that its businesses may be properly and advantageously conducted in all material respects at all times.

 

c) -Payment of Taxes. Pay and discharge when payable all taxes, assessments and governmental charges imposed upon its properties or upon it or its income or profits (in each case before the same becomes delinquent and before penalties accrue thereon) and all material claims for labor, materials or supplies which if unpaid would by law become a Lien upon any of its property, unless and to the extent that the same are being contested in good faith and by appropriate proceedings and adequate reserves (as determined in accordance with GAAP consistently applied) have been established on its books with respect thereto and such contest acts to suspend collection of same.

 

d) -Compliance with Obligations. Comply with all other material obligations which it incurs pursuant to any contract or agreement, whether oral or written, express or implied, as such obligations become due, unless and to the extent that the same are being contested in good faith and by appropriate proceedings and adequate reserves (as determined in accordance with GAAP consistently applied) have been established on its books with respect thereto or except to the extent that such failure to comply could not reasonably be expected to result in a Material Adverse Effect.

 

 

e) Compliance with Laws; Permits. Comply with all applicable laws, rules and regulations of all Governmental Authorities, including, without limitation, maintaining and preserving in full force and effect all Permits, the violation of which would reasonably be expected to have a Material Adverse Effect. 

 

f) -Environmental Matters. Comply in all material respects with all Environmental Laws and all permits, licenses or other authorizations issued thereunder; respond immediately to any unlawful Release or threatened Release of any Hazardous Material, substance or waste in a manner which complies in all material respects with all applicable Environmental Laws and reasonably mitigates any risk to human health or the environment: and provide such documents or information, or conduct at its own cost such studies or assessments, relating to matters arising under the Environmental Laws as any Purchaser may reasonably request.

 

g) -Maintenance of Insurance: Payment of Proceeds. Apply for and continue in force with good and responsible insurance Company adequate insurance covering risks of such types and covering casualties, risks and contingencies of such types and in such amounts as are customary for prudent corporations of similar size engaged in similar lines of business, but in no event less than such amounts that were maintained as of the Closing.

 

h) -Books and Records. Maintain proper books of record and account which present fairly in all material respects its financial condition and results of operations and make provisions on its financial statements for all such proper reserves as in each case are required in accordance with GAAP consistently applied.

 

 

a) Current Ratio. The Company shall at all times maintain on a consolidated basis a ratio of current assets to current liabilities (exclusive of any Indebtedness under the Notes) of at least 1.10:1 as of the end of each month.

 

b) Stock Market Capitalization. The Company shall at all times maintain an aggregate dollar market value of all of the Company's outstanding shares of at least $100,000,000 as of the end of each month.

 

(i) liquidate, dissolve or effect a recapitalization or reorganization in any form of transaction (including, without limitation, any reorganization into a limited liability company, a partnership or any other non-corporate entity that is treated as a partnership for federal income tax purposes and any reorganization after which the Company becomes a Subsidiary of another Person); or

 

(ii) make any amendment to the Certificate or Articles of Incorporation or bylaws, violate or breach any of the provisions thereof that would adversely affect in any respect any rights or remedies of Agent or Purchaser or any relative rights and priorities of the Common Stock.

 

5.8 Compliance with Agreements. The Company shall perform and observe all of its obligations, and shall cause each of its Significant Subsidiaries to perform and observe all of its respective obligations (i) to each holder of the Notes, (ii) to each holder of the Warrants and Underlying Common Stock set forth herein and therein and (iii) under each of the agreements contemplated hereby.

 

 

5.9 Use of Proceeds. The Company shall not permit any of its Subsidiaries to, use any proceeds from the sale of the Note hereunder, directly or indirectly, for the purposes of purchasing or carrying any “margin securities” within the meaning of Regulation T promulgated by the Board of Governors of the Federal Reserve Board or for the purpose of arranging for the extension of credit secured, directly or indi-rectly, in whole or in part by collateral that includes any “margin securities.”

 

 

 

As a material inducement to Agent and Purchaser to enter into this Agreement and for Purchaser to purchase the Note, the Company hereby represents and warrants that except as set forth in the Disclosure Schedule to be made part of this Agreement upon delivery thereof to Purchaser on or prior to the Closing (“Disclosure Schedule”) which exceptions shall be deemed part of the representations and warranties made hereunder, the Company represents and warrants to Agent and Purchaser the following as of the date of this Agreement (which representations and warranties shall survive the execution and delivery of this Agreement):

 

6.1 Organization, Corporate Power and Licenses. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to qualify, except for jurisdictions in which the failure to so qualify has not had and could not have a Material Adverse Effect. The Company possesses all requisite corporate power and authority and all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and presently proposed to be conducted and to carry out the transactions contemplated by this Agreement. The copies of the Company’s and its Significant Subsidiaries’ charter documents and bylaws or applicable constituent documents which have been furnished to Agent’s special counsel reflect all amendments made thereto at any time prior to the date of this Agreement and are correct and complete.

 

6.2 Capitalization and Related Matters. 

 

(i)  Capitalization. The authorized capital stock of the Company, immediately prior to the Closing, is as set forth on the Disclosure Schedule. Except as set forth on the Disclosure Schedule, as of the date hereof and immediately prior to the Closing, neither the Company nor any of its Significant Subsidiaries has outstanding any stock or securities convertible or exchangeable for any shares of its capital stock or containing any profit participation features, or any rights or options to subscribe for or to purchase its capital stock or any stock or securities convertible into or exchangeable for its capital stock or any stock appreciation rights or phantom stock plans, except for the Warrants. As of the Closing, neither the Company nor any of its Significant Subsidiaries shall be subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any warrants, options or other rights to acquire its capital stock, except as set forth on the Capitalization Schedule. All of the outstanding shares of the Company’s capital stock have been validly issued, are fully paid and nonassessable and the Common Stock of the Company issuable upon exercise of the Warrants will, when issued, be duly authorized and validly issued, fully paid and nonassessable.

 

(ii)  There are no statutory or contractual preemptive rights or rights of refusal with respect to the issuance of the Securities hereunder or the issuance of the Common Stock upon exercise of the Warrants. The Company has not violated any applicable federal or state securities laws in connection with the offer, sale or issuance of any of its capital stock, and the offer, sale and issuance of the Securities hereunder and the issuance of the Common Stock upon the exercise of the Warrants do not require registra-tion under the Securities Act or any applicable state securities laws.

 

(iii)  To the Company’s knowledge, there are no agreements between the Company’s equity holders with respect to the voting or transfer of such Company’s capital stock or with respect to any other aspect of such Company’s affairs, except for the Company’s Articles of Incorporation and Bylaws.

 

6.3 Subsidiaries; Investments. The Disclosure Schedule correctly sets forth the name of each Significant Subsidiary of the Company and the jurisdiction of its organization or incorporation. Each Significant Subsidiary of the Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization or incorporation, possesses all requisite limited liability company or corporate, as the case may be, power and authority and all material licenses, permits and authorizations necessary to own its properties and to carry on its businesses as now being conducted and as presently proposed to be conducted and is qualified to do business in every jurisdiction in which its ownership of property or the conduct of business requires it to qualify, except for jurisdictions in which the failure to so qualify has not had and could not have a Material Adverse Effect. All of the outstanding membership interests or shares of capital stock, as the case may be, of each Significant Subsidiary of the Company are validly issued, fully paid and nonassessable, and all such membership interests or shares are owned by the Company or another Significant Subsidiary of the Company free and clear of any Lien other than Permitted Liens and not subject to any option or right to purchase any such membership interests. Except as set forth on the Disclosure Schedule, neither the Company nor any Significant Subsidiary of such Company owns or holds the right to acquire any membership interests or shares of stock or any other security or interest in any other Person.

 

6.4 Authorization; No Breach. The execution, delivery and performance of each of the Transaction Documents and all other agreements and instruments contemplated hereby to which the Company is a party have been duly authorized by the Company. Each of the Transaction Documents and all other agreements and instruments contemplated hereby to which the Company is a party each constitutes a valid and binding obligation of the Company enforceable in accordance with its terms, except (i) to the extent rights to indemnity and contribution may be limited by applicable state or federal securities laws or other public policy underlying such laws, (ii) enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting creditors’ rights generally and (iii) enforceability may be limited by general principles of equity. The execution and delivery by the Company of each of the Transaction Documents and all other agreements and instruments contemplated hereby to which the Company is a party, the offering, sale and issuance of the Securities hereunder, the issuance by the Company of the Common Stock upon exercise of the Warrants, and the consummation of the transactions contemplated thereby and the fulfillment of and compliance with the respective terms hereof and thereof by the Company, as applicable, do not and shall not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in the creation of any Lien, security interest, charge or encumbrance upon the Company’s capital stock or assets pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or governmental body or agency pursuant to, the articles of incorporation, bylaws or other charter documents of the Company, or any law, statute, rule or regulation to which the Company or any of its Significant Subsidiaries is subject (including, without limitation, any usury laws applicable to the Note), or any material agreement or instrument or any order, judgment or decree to which Company or any of its Significant Subsidiaries is subject.  

 

6.5 Absence of Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries have any material obligation or liability (whether accrued, absolute, contingent, unliquidated or otherwise, whether or not known to the Company or any of its Subsidiaries, whether due or to become due and regardless of when asserted) arising out of transactions entered into at or prior to the Closing, or any action or inaction at or prior to the Closing, or any state of facts existing at or prior to the Closing except for (i) liabilities and obligations shown on the Most Recent Balance Sheet, (ii) liabilities under any agreements, contracts, commitments, licenses or leases which have arisen prior to the date of the Most Recent Balance Sheet and which are not required under GAAP to be reflected in a balance sheet or the notes thereto, (iii) liabilities incurred in the ordinary course of business since the Most Recent Balance Sheet and/pr (iv) other liabilities that are, individually or in the aggregate, immaterial.

 

 

6.6 No Material Adverse Change. Since March 31, 2008, there has been no material adverse change in the financial condition, operating results, assets, liabilities, operations, business, employee relations or customer or supplier relations of the Company and its Significant Subsidiaries taken as a whole.

 

6.7 Assets. The Company and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, and valid title to, all Collateral owned by them, located on their premises or shown on their most recent balance sheet delivered to Agent or Purchaser or acquired thereafter, free and clear of all Liens except Permitted Liens.

 

6.8 Litigation, Etc. Except as set forth on the Disclosure Schedule, there are no actions, suits, pro-ceedings, orders, investigations or claims pending or, to the Company’s knowledge, threatened against or affecting the Company or any of its Significant Subsidiaries (or to the Company’s knowledge, pending or threatened against or affecting any of the officers, directors or employees of the Company and its Significant Subsidiaries with respect to their respective businesses or proposed business activities), or pending or threatened by the Company or any of its Significant Subsidiaries against any third party, at law or in equity, or before or by any Governmental Authority (including, without limitation, any actions, suit, proceedings or investigations with respect to the transactions contemplated by this Agreement). Neither the Company nor any of its Significant Subsidiaries is subject to any judgment, order or decree of any court or other Governmental Authority.

6.9 Brokers. Except as set forth on the Disclosure Schedule there are no claims for brokerage commis-sions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement. The Company shall pay, and hold Agent and Purchaser harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any such claim.

 

6.10 Governmental Consent, etc. No permit, consent, approval or authorization of, or declaration to or filing with, any Governmental Authority is required in connection with the execu-tion, delivery and performance by the Company of this Agreement or the other agreements contemplated hereby, or the consummation by the Company of any other transactions contemplated hereby or thereby, except as may have been made or obtained prior to the date of this Agreement or obtained after the Closing in accordance with the terms of the Transaction Documents.

 

6.11 Insurance. Neither the Company nor any of its Significant Subsidiaries is in default with respect to its obligations under any insurance policy maintained by it, and neither the Company nor any of its Significant Subsidiaries has been denied coverage. The insurance coverage of the Company and its Subsidiaries is customary for prudent corporations of similar size engaged in similar lines of business.

 

6.12 Employees. The Company is not aware that any executive or key employee of such Company or any of its Significant Subsidiaries or any group of employees of such Company or any of its Significant Subsidiaries has any plans to terminate employment with such Company or any of its Significant Subsidiaries. The Company and its Significant Subsidiaries has complied in all material respects with all laws relating to the employment of labor (including, without limitation, provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and other taxes), and the Company is not aware that it or any of its Significant Subsidiaries has any material labor relations problems (including, without limitation, any union organization activities, threatened or actual strikes or work stoppages or material grievances). Neither the Company, its Significant Subsidiaries nor, to the Company’s knowledge, any of its employees is subject to any noncompete, nondisclosure, confidentiality, employment, consulting or similar agreements relating to, affecting or in conflict with the present or proposed business activities of the Company and its Significant Subsidiaries, except for agreements between the Company and its present and former employees. 

 

 

6.13 Compliance with Laws. Neither the Company nor any of its Significant Subsidiaries has violated any law or any governmental regulation or requirement which violation has had or would reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its Significant Subsidiaries has received notice of any such violation.

 

6.14 Environmental and Safety Matters. To the Company’s knowledge: (a) the Company and its Significant Subsidiaries have in all material respects complied with and are currently in com-pliance in all material respects with all Environmental Laws, and neither the Company nor its Significant Subsidiaries have received any oral or written notice, report or information regarding any liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) or any corrective, investigatory response or remedial obligations arising under Environmental Laws which relate to the Company or its Significant Subsidiaries or any of their properties or facilities. (b) Without limiting the generality of the fore-going, the Company and its Significant Subsidiaries have obtained and complied in all material respects, and are currently in compliance in all material respects, with all permits, licenses and other authorizations that may be required pursuant to any Environmental Laws for the occupancy of their properties or facilities or the operation of their businesses. (c) No Environmental Lien has attached to any property owned, leased or operated by the Company or any of its Significant Subsidiaries.

 

6.15 Affiliated Transactions. No officer, director, stockholder or Affiliate of the Company or any of its Significant Subsidiaries or any individual known to be related by blood, marriage or adoption to any such individual or any entity in which any such Person or individual owns any beneficial interest, is a party to any agreement, contract, commitment, transaction or arrangement with the Company or any of its Significant Subsidiaries or has any material interest in any material property used by the Company or any of its Significant Subsidiaries.

 

6.16 Solvency, etc. The Company is not “insolvent,” nor will the Company’s incurrence of obligations, direct or contingent, to repay the Indebtedness evidenced by the Note render the Company or any Significant Subsidiary “insolvent.”

 

6.17 Investment Company. The Company is not an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended. The purchase of the Securities, the application of the proceeds and repayment thereof by the Company and the consummation of the transactions contemplated by this Agreement will not violate any provision of such act or any rule, regulation or order issued by the Securities and Exchange Commission thereunder.

6.18 Margin Regulations. The Company does not own any “margin security”, as the term is defined in Regulation U of the Federal Reserve Board, and the proceeds of the Note will be used only for the purposes contemplated hereunder. None of the proceeds of the Note will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the securities purchased under this Agreement to be considered “purpose credit” within the meaning of Regulations T, U or X of the Federal Reserve Board. The purchase of the Note will not constitute a violation of such Regulations T, U or X.

 

6.19 Disclosure. Neither this Agreement nor any of the exhibits, schedules, attachments, written statements, documents, certificates or other items prepared or supplied to Agent or any Purchaser by or on behalf of the Company or any Significant Subsidiary with respect to the transactions contemplated hereby contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein not misleading. There is no fact which the Company or any Significant Subsidiary has not disclosed to Agent or Purchaser in writing and of which any of its officers, directors or executive employees is aware (other than general economic conditions) and which has had or would reasonably be expected to have a Material Adverse Effect.

 

 

 

 

 

7.1 Definitions. An Event of Default shall be deemed to have occurred if:

 

(i)	the Company fails to pay when due and payable (whether at maturity or otherwise) the full amount of interest then accrued on the Note or the full amount of any principal payment (together with any applicable premium) on the Note;

 

(ii)

The Company or any Significant Subsidiary fail to perform or observe any affirmative covenant contained herein, in the Note or any other agreement between or among Agent and/or Purchaser and the Company and/or such Significant Subsidiary and such failure continues for a period of 10 days; or the Company or any Significant Subsidiary breaches or fails to abide by any negative covenant contained herein, in the Note, or any other agreement between or among Agent, Purchaser and the Company and/or such Significant Subsidiary;

 

(iii)

any representation, warranty or information con-tained herein or required to be furnished to any holder of the Note pursuant to or in connection with this Agreement, or any writing furnished by the Company to any holder of the Note, is false or misleading in any material respect on the date made or furnished;

 

(iv)

The Company or any of its Significant Subsidiaries makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment, decree or injunction is entered adjudicating the Company or any of its Significant Subsidiaries bankrupt or insolvent; or an order, judgment, decree or injunction is entered against the Company or any of its Significant Subsidiaries requiring the dissolution or split up of the Company or any of its Significant Subsidiaries or preventing the Company or any of its Significant Subsidiaries from conducting all or any material part of its or their business; or any order for relief with respect to the Company or any of its Significant Subsidiaries is entered under federal bankruptcy laws; or the Company or any of its Significant Subsidiaries petitions or applies to any tribunal for the appointment of a custodian, trustee, assignee, receiver, liquidator or sequestrator (or similar official) of the Company or any of its Significant Subsidiaries, of any substantial part of the assets of the Company or any of its Significant Subsidiaries, or for the winding up or liquidation of the Company’s or any of its Significant ubsidiaries’ affairs, or commences any proceeding (other than a proceeding for the voluntary liquidation and dissolution of any of the Company’s Significant Subsidiaries) relating to the Company or any of its Significant Subsidiaries under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or similar law of any jurisdiction now or hereafter in effect; or any such petition or application is filed, or any such proceeding is commenced, against the Company or any of its Significant Subsidiaries and either (i)  the Company or any of its Significant Subsidiaries by any act indicates its approval thereof, consent thereto or acquies-cence therein or (ii) such petition, application or proceeding is not dismissed within 45 days;

 

(v)

a final judgment in excess of $250,000 is rendered against the Company or any of its Significant Subsidiaries and, within 60 days after entry thereof, such judgment is not discharged in full or fully bonded over or execution thereof stayed pending appeal, or within 60 days after the expiration of any such stay, such judgment is not discharged in full;

 

(vi)

the Company or any of its Significant Subsidiaries defaults (i) in payment of any amounts under any indenture, loan agreement or other instrument under which any evidence of Indebtedness of the Company or any of its Significant Subsidiaries exceeding $100,000 in principal amount has been or hereafter may be issued, (ii) in compliance with the terms, covenants or other provisions of any such indenture, loan agreement or other instrument and the effect of such default in compliance is to permit the acceleration of the stated maturity of such Indebtedness (whether or not actually accelerated) or (in the case of demand obligations) results in demand for payment of such Indebtedness;

 

(vii)

the Company or any of its Significant Subsidiaries shall default in the performance or observance of any provision of any agreement or commitment (other than those relating to Indebtedness) and such default has or might have a Material Adverse Effect;

 

(viii)

a Change in Control shall occur;

 

(ix)

any of this Agreement, the Note, the Warrants, the McAfee Capital Guaranty, the Security Agreement, the Mortgages or any other Transaction Documents shall cease to be in full force and effect or declared to be null and void by a court of competent jurisdiction or there shall occur any default or event of default under any of the Transaction Documents;

 

(x)	McAfee Capital LLC shall fail to observe or perform any covenant, condition or agreement in the McAfee Capital Guaranty or the McAfee Capital Guaranty shall be revoked by McAfee Capital LLC.

 

The foregoing shall constitute Events of Default whatever the reason or cause for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

 

7.2 Consequences of Events of Default.

 

(i)

Upon the occurrence and during the continuance of an Event of Default, the interest rate on the Note shall increase to the Default Rate. Any increase of the interest rate resulting from the operation of this subparagraph shall terminate as of the close of business on the date on which no Events of Default exist (subject to subsequent increases pursuant to this subparagraph).

 

(ii)

Upon the occurrence and during the continuance of an Event of Default, Agent may (and at the request of Purchaser shall) (i) declare all Indebtedness evidenced by the Note to be immediately due and payable (including all accrued and unpaid interest and any interest at the Default Rate), whereupon all such Indebtedness shall become due and payable, without presentment, demand, protest or further notice of any kind, all of which are expressly waived by the Company, and (ii) exercise all rights and remedies available under this Agreement, any other Transaction Documents and applicable law and Agent or Purchaser may proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained in any Transaction Document, or for an injunction against a violation of any of the terms thereof, or in aid of the exercise of any power granted thereby or by law or otherwise. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Note free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of an interest premium by the Company in the event that the Note is prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.

 

7.3  Right of Setoff. To the extent permitted by law, 

 

(i)

in the case an Event of Default shall occur and be continuing or shall exist, Purchaser shall have the right, in addition to all other rights and remedies available to it, without notice to the Company, to setoff against and to appropriate and apply to the unpaid balance of the Note, all accrued interest thereon and all other obligations of the Company hereunder and under the Note and the Warrants, any debt owing to, and any other funds held in any manner for the account of the Company by Agent or Purchaser, including, without limitation, all funds in all deposit accounts (general or special) now or hereafter maintained by the Company for its own account with Agent or Purchaser and Agent and Purchaser are hereby granted a security interest in and lien on all such debts (including, without limitation, all such deposit accounts) for such purpose; and

 

(ii)	such right shall exist whether or not Agent or Purchaser shall have made any demand under this Agreement, the Note or the Warrants and whether or not the Note, the Warrants and such other obligations are matured or unmatured.

 

 

 

8.1 Expenses. The Company shall pay, and hold Agent and each Purchaser and all other holders of the Note and the Warrants harmless against liability for the payment of, and reimburse on demand as and when incurred from and against, (i) (x) all reasonable costs and expenses incurred by each of them in connection with their due diligence review of the Company and its Subsidiaries, (y) all reasonable costs and expenses incurred by each of them in connection with the preparation, negotiation, execution and interpretation of this Agreement, the Note, the Warrants, the Transaction Documents and the other agreements contemplated hereby and thereby, and the consummation of all of the transactions contemplated hereby and thereby (including, without limitation, all fees and expenses of environmental consultants and accountants and all reasonable fees and expenses of legal counsel) and (z) all UCC searches, title searches, recording, registration and filing fees, stamp and other taxes which may be payable in respect of the execution and delivery of this Agreement or the issuance, delivery or acquisition of the Note, the Warrants, any shares of Common Stock issuable upon the exercise of the Warrants or any of the Transaction Documents, which costs and expenses shall be payable at the Closing or, if the Closing does not occur, payable upon demand, up to a maximum not to exceed $30,000, (ii) all reasonable fees and expenses (including, without limitation, all reasonable fees and expenses of legal counsel) incurred with respect to any amendments or waivers (whether or not the same become effective) under or in respect of each of the Transaction Documents and the other agreements and instruments contemplated hereby and thereby, (including, without limitation, in connection with any proposed merger, sale or recapitalization of any of the Company or its Significant Subsidiaries) and (iii) the reasonable fees and expenses (including, without limitation, all reasonable fees and expenses of legal counsel) incurred with respect to the interpretation and enforcement of the rights granted under each of the Transaction Documents and the agreements or instrument contemplated hereby and thereby (including costs of collection). If the Company fails to pay when due any amounts due Agent and Purchaser or fail to comply with any of its obligations pursuant to this Agreement or any other agreement, document or instrument executed or delivered in connection herewith, the Company shall, upon demand by Agent and Purchaser, pay to Purchaser such further amounts as shall be sufficient to cover the cost and expense (including, but not limited to reasonable attorneys’ fees) incurred by or on behalf of Agent or Purchaser in collecting all such amounts due or in otherwise enforcing Agent’s and Purchaser’s rights and remedies hereunder. The Company also agrees to pay to Agent and Purchaser all costs and expenses incurred by them, including reasonable compensation to its attorneys for all services rendered, in connection with the investigation of any Event of Default and enforcement of its rights hereunder or under any Transaction Documents.

8.2 Remedies. Each holder of the Note and the Warrants shall have all rights and remedies set forth in this Agreement, the Note, the Warrants, the other Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights such holders have under any law or in equity. No remedy hereunder or thereunder conferred is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or otherwise. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law.

 

8.3 Purchaser’s Representations. Purchaser hereby represents and warrants to the Company that:

 

 

a)

It is not a “U.S. Person” (as defined in Rule 902 of Regulation S under the Securities Act) and it understands that no action has been or will be taken in any jurisdiction by the Company that would permit a public offering of the Securities in any country or jurisdiction where action for that purpose is required. It is not acquiring the Securities for the account or benefit of any U.S. persons except in accordance with exemption from registration requirements of the Securities Act or in a transaction not subject thereto.

 

b)	It is not acquiring the Securities with a view to any distribution thereof that would violate the Securities Act or the securities laws of any state of the United States of America or any other applicable jurisdiction.

 

c)

It (A) agrees that it will not offer, sell or otherwise transfer any of the Securities nor, unless in compliance with the Securities Act, engage in hedging transactions involving such securities, on or prior to (x) the date which is 40 days (in the case of the Notes) or one year (in the case of the Warrants) after the later of the date of the commencement of the offering and the date of original issuance (or of any predecessor of any Securities proposed to be transferred by the Purchaser) and (y) such later date, if any, as may be required by applicable law, except (a) to the Company, (b) pursuant to a registration statement that has been declared effective under the Securities Act, (c) for so long as any Securities are eligible for resale pursuant to Rule 144A under the Securities Act, to a person it reasonably believes is a “qualified institutional buyer” as defined in Rule 144A that purchases for its own account or for the account of another qualified institutional buyer to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales to Persons who are not “U.S. Persons” (within the meaning of Regulation S) that occur outside the United States of America within the meaning of Regulation S or (e) pursuant to any other available exemption from the registration requirements of the Securities Act, and (B) agrees that it will give to each person to whom such Securities are transferred a notice substantially to the effect of this paragraph.

 

d)	The Purchaser acknowledges that the Securities are “restricted securities” as defined in Rule 144 under the Securities Act and subject to resale restrictions during the period set forth in Rule 144.

 

e)

No form of “directed selling efforts” (as defined in Rule 902 of Regulation S under the Securities Act), general solicitation or general advertising in violation of the Securities Act has been or will be used nor will any offers by means of any directed selling efforts in the United States of America be made by the Purchaser or any of its representatives in connection with the offer and sale of any of the Notes.

f)

The Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. The Purchaser does not presently have any contract, undertaking, agreement or arrangement with any Person, directly or indirectly, to sell, transfer, distribute or grant participations to such Person or to any third Person, with respect to any of the Securities.

 

g)

The execution, delivery and performance by it of this Agreement and the consummation by it of the transactions contemplated by the Transaction Documents, including, without limitation, the purchase of the Securities: (a) is within its power and authority and has been duly authorized by all necessary action; (b) does not contravene the terms of its constitutional documents or any amendment thereof; and (c) shall not violate, constitute a breach of or a default (with the passage of time or otherwise) under, or require the consent of any person or a Governmental Authority (other than consents already obtained which are in full force and effect) under or pursuant to (i) any bond, debenture, note or other evidence of indebtedness, indenture, mortgage, deed of trust, lease or any other agreement or instrument to which the Purchaser is a party or by which the Purchaser or its property is bound, or (ii) any statute, rule, regulation, law or ordinance, or any judgment, decree or order applicable to the Purchaser or any of its properties, other than in each of clause (i) and (ii) such violations, breaches or defaults that would not, individually or in aggregate, have a Material Adverse Effect on the ability of the Purchaser to perform its obligations hereunder.

 

 

h)

This Agreement and the other Transaction Documents to which it is a party have been duly executed and delivered by it and assuming that it is binding on and enforceable against the Company, this Agreement constitutes the Purchaser’s legal, valid and binding obligation enforceable against the Purchaser in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

i)	Each certificate or instrument representing Restricted Securities shall be imprinted with a legend in substantially the following form:

“The securities represented by this certificate may not be offered, sold, pledged or otherwise transferred or assigned to any US Person and every purchaser of the securities represented by this certificate will be required to certify that it is not a US Person and is not acquiring the securities for the account or benefit of any US Person.

The securities represented by this certificate were originally issued on May ____, 2008 and have not been registered under the Securities Act of 1933, as amended. The transfer of the securities represented by this certificate is subject to the conditions specified in the Note and Warrant Purchase Agreement, dated as of May ___, 2008 and as amended and modified from time to time, between the Company named therein and certain investors, and the Company reserves the right to refuse the transfer of such securities until such conditions have been fulfilled with respect to such transfer. A copy of such conditions shall be furnished by the Company to the holder hereof upon written request and without charge.”

8.4  Amendments and Waivers. Except as otherwise expressly provided herein, the provisions of this Agreement and the Note may be amended or waived and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of Agent and the holders of a majority of the outstanding principal amount of the Note; provided that no such action shall change (i) the rate at which or the manner in which interest accrues on the Note or the time at which such interest becomes payable or (ii) any provision relating to the scheduled payments or prepayments of principal on the Note, without the written consent of the holders of the outstanding principal amount of the Note. No other course of dealing between the Company and the holder of any Warrant or Underlying Common Stock or any delay in exercising any rights hereunder or under the Note, the Warrants or otherwise shall operate as a waiver of any rights of any such holders.

 

8.5 Survival of Agreement; Indemnities. All covenants, agreements, representations and warranties contained in this Agreement or the Note or made in writing by the Company in connection herewith or therewith shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, regardless of any investigation made by Agent or Purchaser or on their behalf. In addition, notwithstanding the repayment of all amounts pursuant to this Agreement or the Note, the obligations of the Company pursuant to Sections 8.1, 8.14, 8.17, 8.18 and 8.19 shall survive the repayment of the Note, and the obligations of the Company pursuant to Sections 8.1, 8.17, 8.18 and 8.19 shall survive indefinitely. 

 

8.6 No Setoffs, etc. All payments hereunder and under the Note shall be made by the Company without setoff, offset, deduction or counterclaim, free and clear of all taxes, levies, imports, duties, fees and charges, and without any withholding, restriction or conditions imposed by any Governmental Authority. If the Company shall be required by any law to deduct, setoff or withhold any amount from or in respect of any payment to Agent or Purchaser hereunder or under the Note or the Warrants, then the amount so payable to Agent or Purchaser shall be increased as may be necessary so that, after making all required deductions, setoffs and withholdings, Agent or Purchaser shall receive an amount equal to the sum it would have received had no such deductions, setoffs or withholding been made.

8.7 Successors and Assigns; Purchaser’s Syndication Rights. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether or not so expressed or not; provided that the Company shall not assign any of its rights or obligations under this Agreement or the Note or the Warrants without the prior written consent of Purchaser or any holder of the Note; provided further, that Purchaser may sell, transfer, assign or syndicate all or any portion of the Note or Warrants to a non-US Person upon the prior written consent of the Company (which consent shall not be unreasonably withheld), except that Purchaser shall not be restricted in any way from selling all or a portion of the Note or the Warrants (and shall not be required to obtain any such consent) if such sale (i) is to any of its Affiliates or (ii) is required or requested by any Governmental Authority. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for Purchaser’s benefit as a purchaser or holder of the Note or the Warrants or the Underlying Common Stock are also for the benefit of, and enforceable by, any subsequent holder of such Note, Warrants and Underlying Common Stock.

 

 

8.8 Aggregation. For purposes of this Agreement and any registration agreement, all holdings of any portion of the Note by Persons who are Affiliates of each other shall be aggregated for purposes of meeting any threshold tests under this Agreement and any such registration agreement.

 

8.9 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effec-tive and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

 

8.10 Counterparts. This Agreement may be executed in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement.

 

8.11 Descriptive Headings; Interpretation. The descrip-tive headings of this Agreement, the Note and the Warrants are inserted for convenience only and do not constitute a substantive part of this Agreement. The use of the word “including” in this Agreement, the Note and the Warrants shall be by way of example rather than by limitation.

 

8.12 Governing Law.THIS AGREEMENT AND THE NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTE HAVE BEEN DELIVERED IN AND IN ALL RESPECTS, EXCEPT AS SET FORTH BELOW, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ALL OTHER CONFLICTS OF LAWS PRINCIPLES AND CHOICE OF LAW RULES OF THE STATE OF NEW YORK.

 

8.13 Notices. All notices, demands or other communica-tions to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable overnight courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to Agent and to the Company at the address indicated below:

 

or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.

8.14 [Intentionally Omitted].

 

8.15 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

 

8.16 Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith, embody the complete agreement and understanding among the parties and supersede any prior agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

 

8.17 Indemnification. In consideration of Agent’s and Purchaser’s execution and delivery of this Agreement and Purchaser’s acquiring the Note and the Warrants hereunder and in addition to all of the Company’ other obligations under this Agreement and in addition to all other rights and remedies available at law or in equity, the Company and its Significant Subsidiaries shall defend, protect and indemnify Agent, Purchaser and each other holder of the Note, the Warrants or the Underlying Common Stock and all of their respective officers, directors, managers, members, shareholders, partners, affiliates, employees, agents, attorneys, representatives, successors and assigns (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”), and save and hold each of them harmless against, and pay on behalf of or reimburse such party on demand as and when incurred from and against any and all actions, causes of action, suits, claims, losses (including diminutions in value and consequential damages), costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), including reasonable attorneys’ fees and disbursements interest and penalties and all amounts paid in investigation, defense or settlement of any of the foregoing and claims relating to any of the foregoing (the “Indemnified Liabilities”) incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (i) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Note or the Warrants or (ii) the execution, delivery, performance or enforcement of this Agreement, the Transaction Documents and any other instrument, document or agreement executed pursuant hereto or thereto by any of the Indemnitees, except and solely to the extent that any such Indemnified Liabilities are caused by the particular Indemnitee’s gross negli-gence or willful misconduct. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

 

 

8.18 Payment Set Aside. To the extent that the Company makes a payment or payments to Agent or Purchaser hereunder or under the Note or Agent or Purchaser enforce any rights or exercise any right of setoff hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

8.19  Jurisdiction and Venue. Each of the parties (i) submits to the jurisdiction of any state or Federal court sitting in New York, New York in any legal suit, action or proceeding arising out of or relating to this Agreement, the Note or the Warrants, (ii) agrees that all claims in respect of the action or proceeding may be heard or determined in any such court and (iii) agrees not to bring any action or proceeding arising out of or relating to this Agreement, the Note or the Warrants in any other court. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto. Any party may make service on any other party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 8.13. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Agent, Purchaser or holders of Underlying Common Stock to bring proceedings against the Company in the courts of any other jurisdiction and the exclusive choice of forum set forth in this Section shall not be deemed to preclude the enforcement by Agent, Purchaser or any holder of the Note, the Warrants or the Underlying Common Stock of any judgment obtained in any other forum or the taking by Agent, Purchaser or any holder of the Note, the Warrants or the Underlying Common Stock of any action to enforce the same in any other appropriate jurisdiction, and the Company hereby waives the right to collaterally attack any such judgment or action.

8.20 Acknowledgements. The Company hereby acknowledges that:

 

a)

Neither Agent nor Purchaser have any fiduciary relationship with or duty to the Company arising out of or in connection with this Agreement or any of the other Transaction Documents, and the relationship between Agent and Purchaser, on one hand, and the Company, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

 

b)

no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the transactions contemplated hereby.

 

8.21 Waiver of Right to Jury Trial. THE COMPANY, AGENT AND EACH HOLDER OF THE NOTE AND THE WARRANTS HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE NOTE OR THE WARRANTS OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. THE COMPANY AGREES THAT THIS SECTION 8.21 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT PURCHASER WOULD NOT PURCHASE THE NOTE OR THE WARRANTS HEREUNDER IF THIS SECTION 8.21 WERE NOT PART OF THIS AGREEMENT.

 

8.22 Agent. Purchaser hereby designates and appoints Third Eye Capital Corporation as the administrative agent, payment agent and collateral agent under this Agreement and the other Transaction Documents and Purchaser hereby irrevocably authorizes Third Eye Capital Corporation, as Agent for Purchaser, to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the other Transaction Documents and to exercise such powers and perform such duties as are delegated to Agent by the terms of this Agreement and the other Transaction Documents, together with such other powers as are reasonably incidental thereto. Agent may perform any of its duties hereunder, or under the Transaction Documents, by or through its agents, employees or sub-agents. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the other Transaction Documents. Purchaser shall make its own independent investigation of the financial condition and affairs of the Company in connection with the extension of credit hereunder. Neither Agent nor any of its officers, directors, managers, members, equity owners, employees, attorneys or agents shall be liable to Purchaser for any action lawfully taken or omitted by them hereunder or under any of the other Transaction Documents, or in connection herewith or therewith; provided that the foregoing shall not prevent Agent from being be liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction on a final and nonappealable basis. Agent may resign from the performance of all or part of its functions and duties hereunder at any time by giving at least thirty (30) calendar days’ prior written notice to Purchaser. Such resignation shall take effect upon the acceptance by a successor Agent of appointment. Upon the acceptance of any appointment as Agent under the Transaction Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and, upon the earlier of such acceptance or the effective date of the retiring Agent’s resignation, the retiring Agent shall be discharged from its duties and obligations under the Transaction Documents, provided that any indemnity rights or other rights in favor of such retiring Agent shall continue after and survive such resignation and succession. Purchaser agrees that any action taken by Agent in accordance with the provisions of this Agreement or of the other Transaction Documents relating to the Collateral, and the exercise by Agent of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon Purchaser and Agent.

 

 

8.23 USA Patriot Act Notice. Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account or obtains a loan. Agent or Purchaser may ask for the Company’s legal name, address, tax ID number or social security number and other identifying information. Agent or Purchaser may also ask for additional information or documentation or take other actions reasonably necessary to verify the identity of the Company, any Significant Subsidiary, guarantors or other related persons.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.

 

THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED OR ASSIGNED TO ANY US PERSON AND EVERY PURCHASER OR SUBSEQUENT HOLDER OF THIS NOTE WILL BE REQUIRED TO CERTIFY THAT IT IS NOT A US PERSON AND IS NOT ACQUIRING THE SECURITIES FOR THE ACCOUNT OR BENEFIT OF ANY US PERSON.

 

THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY OTHER APPLICABLE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY OTHER APPLICABLE SECURITIES LAW, INCLUDING STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION THEREFROM, OR IN A TRANSACTION NOT SUBJECT THERETO.

 

NOTE

 

FOR VALUE RECEIVED, the undersigned, AE BIOFUELS, INC., a Nevada corporation (the “Company”), hereby unconditionally promises to pay to THIRD EYE CAPITAL ABL OPPORTUNITIES FUND (the “Note Holder”), or registered assigns, at the office of _____________________________________________________________ or at such other address as may be specified by the Note Holder, in lawful money of the United States of America and in immediately available funds, $5,000,000 (Five Million and 00/100 Dollars) in installments in the amounts and on the dates as set forth in the Note Purchase Agreement (defined below). The Company agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the interest rates and on the dates specified in the Note Purchase Agreement.

 

This Note (a) is one of the Notes referred to in the Note and Warrant Purchase Agreement dated as of May 16, 2008 (as amended, supplemented or otherwise modified from time to time, the “Note Purchase Agreement”), among the Company, Third Eye Capital Corporation, as Agent, and the Note Holder, (b) is subject to the provisions of the Note Purchase Agreement and (c) is subject to mandatory prepayment in whole or in part as provided in the Note Purchase Agreement and the other Transaction Documents. Reference is hereby made to the Transaction Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security, the terms and conditions upon which the security interests were granted and the rights of the holder of this Note in respect thereof.

 

Upon the occurrence and during the continuance of any one or more Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Note Purchase Agreement.

 

All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind.

 

Unless otherwise defined herein, terms defined in the Note Purchase Agreement and used herein shall have the meanings given to them in the Note Purchase Agreement.

 

This Note is hereby expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of the money advanced or to be advanced hereunder exceed the highest lawful rate permissible under the laws of the State of New York. If, from any circumstances whatsoever, fulfillment of any provision of this Note shall, at the time performance of such provisions shall be due, involve the payment of interest in excess of that authorized by law, the obligation to be fulfilled shall be reduced to the limit so authorized by law, and if, from any circumstances, the holder of this Note shall ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of the indebtedness evidenced hereby and not to the payment of interest.

 

IN WITNESS WHEREOF, the undersigned authorized officer of the Company has executed this Note as of the date first set forth above.

 

	AE BIOFUELS, INC.
	By:
	Name:
	Title: