Exhibit 10.1

 

REVOLVING CREDIT FACILITY LOAN AND SECURITY AGREEMENT

 

This REVOLVING CREDIT FACILITY LOAN And SECURITY AGREEMENT (“Agreement”) is made
as of November 14, 2018 (the “Effective Date”) by and between C-Bond Systems,
Inc. (fka WestMountain Alternative Energy, Inc.), a Colorado corporation having
its principal place of business, as of the Effective Date, at 6035 South Loop
East, Houston, Texas 77033 (the “Company”), and BOCO Investments, LLC, a
Colorado limited liability company (“Lender”).

 

RECITALS:

 

The Company is in need of a credit facility to provide additional working
capital with the goal of, among other things, growing the Company’s inventory
and accounts receivable. Lender has agreed to provide the Company with such a
facility for a term of twenty four (24) months subject to the terms and
conditions specified herein.

 

AGREEMENT:

 

Now, Therefore, in consideration of the foregoing, and the representations,
warranties, covenants and conditions set forth below, the Company and Lender,
intending to be legally bound, hereby agree as follows:

 

1.Amount and Terms of the Loans.

 

1.1 The Loans. Subject to and in accordance with the terms and conditions of
this Agreement and the Note (as defined below), Lender agrees to lend to the
Company up to the principal sum of Four Hundred Thousand Dollars ($400,000) (the
“Maximum Loan Amount”) against the issuance and delivery by the Company of the
Secured Promissory Note in the form attached hereto as Exhibit A and
incorporated herein (the “Note”) for use as working capital and to assist in
inventory acquisition. Upon and subject to the terms and conditions set forth
herein, Lender may make loans to Company at any time and from time to time
during the twenty four (24) month period from the Effective Date through
November 14, 2020 (“Commitment Period”), up to an aggregate amount not to exceed
the Maximum Loan Amount. In no event shall Lender be required to make any loans
hereunder after the expiration of the Commitment Period. At any time when there
is no amount owed by Company to Lender under this Agreement, the Company may
terminate this Agreement upon written notice to Lender.

 

(a) The Initial Loan. At Closing (as defined herein), Lender shall advance the
initial loan to the Company in the amount of Two Hundred Thousand Dollars
($200,000).

 

(b) Additional Principal Loans. Provided Company is not in default under the
Note or this Agreement (collectively, the “Transaction Agreements”) or any other
agreement between Company and Lender, and the outstanding principal due and
owing under the Transaction Agreements is less than the Maximum Loan Amount,
Company may request in writing that Lender make additional loans to Company. All
such requests must be made by the Company to Lender in writing (each a “Loan
Request”) at least eight (8) Business Days prior to the proposed funding of the
loan specifying the amount and proposed funding date of the loan (“Loan Date”).
At least four (4) Business Days prior to the Loan Date the Company shall provide
Lender with such information and supporting documentation as Lender may request
(in its sole and absolute discretion) to permit Lender to evaluate and/or
substantiate each Loan Request (the “Supporting Documents”). Each Loan Date must
be between Monday and Thursday, and not on a day that is a federal legal holiday
(“Business Day”). Lender may approve or deny any Loan Request or modify the Loan
Date in its sole and absolute discretion. If Lender has approved a given Loan
Request, Lender will transfer the applicable loan proceeds to the Company (or
such other recipient as may be agreed upon between Lender and Company as a
condition to approval of the Loan Request) on the Loan Date (as may be modified
by Lender) via cash, wire transfer, or certified funds provided: (1) Company has
then complied with all conditions to Lender’s approval of the Loan Request and
all other conditions precedent to funding the Loan Request; (2) Company has
certified in writing its agreement with Lender’s Schedule (as defined below)
reflecting amounts that will be outstanding under the Note as of the Loan Date;
and, (3) Company is otherwise not in default under the Transaction Agreements or
any other agreement between Lender and the Company.

 

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(c) No Obligation to Advance. With the exception of the Initial Loan identified
in Section 1.1(a) above, Lender shall have no obligation to advance any funds to
Company. Lender may approve or deny any Loan Request in its sole and absolute
discretion. Lender may establish such conditions to granting or approving a Loan
Request as it determines are appropriate in its sole and absolute discretion.
Lender may require additional documents, actions, assurances, or agreements as a
condition precedent to disbursing any loan proceeds hereunder as Lender may
determine, in its sole and absolute discretion, are reasonably necessary to
protect the interests of Lender hereunder (including, without limitation,
evidence of compliance with the covenants set forth herein and waiver/estoppel
agreements affirming Company has no claims against Lender as of the Loan Date).
Company shall be responsible for reasonable costs and fees incurred in
connection with Lender’s evaluation, documentation or granting of any Loan
Request in the same fashion set forth in Section 10.12 hereof.

 

1.2 Recording of Loans and Repayments. Lender shall keep a spreadsheet (the
“Schedule”) in which Lender shall enter: (a) the principal amount of each loan
it makes to the Company; (b) interest, fees or other charges payable by Company
pursuant to the Transaction Agreements; (c) the amount of any payment made by
the Company in satisfaction of any amount due under the Transaction Agreements;
(d) the manner in which any payment by the Company is applied; and, (e) the
outstanding principal and interest balance under the Note as of the date of each
payment or Loan Date. Lender need not calculate accrued interest, penalties or
other amounts except on payment dates or Loan Dates (such that the Schedule may
accurately reflect amounts due and owing on such dates). The Company hereby
authorizes Lender to keep the Schedule described herein and agrees that the
outstanding principal and interest amounts shown in the Schedule shall
constitute conclusive evidence of all loans and repayments and the dates thereof
and of the outstanding amounts due under the Transaction Agreements at any given
point in time. The Company hereby appoints Lender as its attorney in fact to
make all such entries on the Schedule, and such appointment is coupled with an
interest and shall be irrevocable. Should the Company believe the liabilities
and payments reflected in the Schedule are inaccurate, such amounts shall
nonetheless remain controlling unless the Company can establish, by clear and
convincing evidence, that the balance due and owing under the Note is different
than that reflected in the Schedule. All payments received from Company for
application to amounts due under the Note shall first be applied to interest,
then to any costs, fees or other amounts chargeable by Lender under the
Transaction Agreements, then to outstanding principal. Lender’s failure to
include all amounts properly chargeable under the Transaction Agreements as of a
given payment or Loan Date shall not act as a waiver of Lender’s entitlement to
such amounts and Lender may at all times prior to obtaining a final judgment or
acknowledging repayment in full of the Note amend its calculations in the
Schedule to ensure Lender receives the full benefit of all amounts due and owing
under the Transaction Agreements.

 

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1.3 Other Loan Terms. The outstanding principal advanced to Company pursuant to
the Transaction Agreements shall bear interest at the rate of twelve percent
(12%) per annum, compounded annually. All costs, fees or other amounts (other
than interest) chargeable to Company by Lender under the Transaction Agreements
shall be added to the outstanding principal on the date such sums are incurred
or on the date they become due and owing from Company, whichever is later. Upon
the occurrence of an Event of Default under the Transaction Agreements, all
amounts then outstanding (including principal and interest) shall bear interest
at the rate of eighteen percent (18%) per annum, compounded annually until the
Event of Default is cured. Notwithstanding any other provision of the
Transaction Agreements, interest under the Transaction Agreements shall not
exceed the maximum rate permitted by law. If any amount is paid under the
Transaction Agreements as interest in excess of such maximum rate, then the
amount so paid will not constitute interest but will constitute a payment on
account of the principal amount advanced to the Company pursuant to the
Transaction Agreements. If such excessive interest exceeds the unpaid principal
balance of the Note, such excess shall be refunded to the Company.

 

2.Inventory Covenants.

 

2.1 December 31, 2018 Inventory and AR Covenant. Company shall achieve an
accounts receivable (“AR”) balance plus inventory (defined herein, when not
capitalized, as goods held by Company for sale or lease, or to be furnished
under a contract of service, to third parties) balance equal to the unpaid
principal balance of the Note on or before December 31, 2018. Company shall
document its compliance with this Section 2.1 with evidence acceptable to Lender
in Lender’s sole and absolute discretion.

 

2.2 Covenant period extension. In the event that the Company’s AR balance plus
inventory balance is less than the unpaid principal balance of the Note as of
December 31, 2018 (violating the inventory plus AR covenant in Section 2.1
above), the Company shall have 45 days (through and until February 15, 2019) to
cure such violation and establish AR plus inventory equal to the unpaid
principal balance of the Note. Company shall document its compliance with this
Section 2.2 with evidence acceptable to Lender in Lender’s sole and absolute
discretion.

 

2.3 Post March 31, 2019 Inventory and AR Covenant. Commencing March 31, 2019 and
at all times thereafter through the remainder of the Commitment Period and for
so long thereafter as there is any amount still due and owing under the Note,
Company must maintain AR balances and inventory such that the outstanding
principal borrowed by Company under the Transaction Agreements is less than or
equal to eighty five percent (85%) of AR plus fifty percent (50%) of inventory,
all as measured at the same point in time. Thus, by way of example, if the
Company’s AR as of March 31, 2019 is $405,000 and the principal borrowed under
the Transaction Agreements was $400,000, the Company’s inventory would have to
be at least $111,501 for the Company to remain in compliance with the covenant
set forth in this Section 2.3. In the event the Company at any time violates the
covenant set forth in this Section 2.3, it must cure such violation within ten
(10) Business Days by paying down the outstanding principal borrowed under the
Transaction Agreements until such point as the Company is in compliance with the
covenants set forth in this Section 2.3. Commencing May 15, 2019 and on or
before the 10th day of every fiscal quarter thereafter, Company shall affirm to
Lender in writing its compliance with the covenants set forth in this Section
2.3 as of the end of the quarter previously concluded and shall provide Lender
with financial statements or balance sheets evidencing such compliance. Company
shall provide similar confirmation on such other dates as may be requested by
Lender. Company shall provide such additional evidence and documents to
demonstrate its compliance with the covenants in this Section 2.3 as Lender may
request. Company’s compliance with the covenants in this Section 2.3 must be
demonstrated with evidence acceptable to Lender in Lender’s sole and absolute
discretion.

 

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2.4 Use of sales proceeds attributable to cost of goods sold. The term cost of
goods sold (“COGS”) is defined as the amount paid by the Company to manufacture
or otherwise acquire the inventory that is conveyed or provided to the Company’s
customer in a sales transaction. The Company represents and warrants that all
tangible products or goods conveyed or provided to the Company’s customers in
sales transactions (i.e., inventory as defined above) are, prior to such sale(s)
occurring, accounted for as “inventory” on the Company’s balance sheets. For the
duration of the Commitment Period and for so long thereafter as there is any
amount due and owing under the Transaction Agreements, the Company shall use the
portion of each sales transaction attributable to COGS for the sole purpose of
acquiring additional inventory for use in future sales transactions or paying
Lender for amounts then due and owing under the Transaction Agreements. Company
shall document its compliance with this Section 2.4 with evidence acceptable to
Lender in Lender’s sole and absolute discretion.

 

3.The Closing.

 

3.1 Closing Date. The closing of the loan (the “Closing”) shall be held as of
the date hereof or such other date as may be mutually agreed upon in writing
between Lender and Company (the “Closing Date”).

 

3.2 Delivery. At or before the Closing the Company shall duly execute and issue
and deliver to Lender an original wet-signed counterpart of the Note.

 

4.Repayment.

 

4.1 At term. Company must repay all principal, interest and other amounts then
outstanding under the Transaction Agreements on or before the final day of the
Commitment Period (which is defined and referred to in the Note as the Maturity
Date). Compliance with this Section 4.1 requires the Company to ensure that
there are no sums still due and owing under the Transaction Agreements after the
Maturity Date (as defined in the Note).

 

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4.2 To maintain covenant compliance. In the event that the Company violates the
covenants set forth in Section 2.3 above, the Company shall make such mandatory
pre-payments to Lender as are necessary to bring the Company into compliance as
described in Section 2.3.

 

4.3 Mandatory Monthly Interest Payments. Commencing on January 10, 2019 and on
or before the 10th day of each month thereafter, Company shall pay Lender all
interest accrued on outstanding principal under the Transaction Agreements as of
the end of the month then concluded. Thus, by way of example, on or before
January 10, 2019, Company shall pay all interest accrued under the Transaction
Agreements for the time period from Closing through December 31, 2018. Then, on
or before February 10, 2019, Company shall pay all interest accrued under the
Transaction Agreements for the time period from January 1, 2019 through January
31, 2019, and so on.

 

5.Security Agreement.

 

5.1 Grant of Security Interest. As security for the Obligations (as defined
below), Company hereby grants to Lender a security interest in Company’s right,
title and interest in, to and under the following property of Company wherever
located and whether now owned or existing or hereafter acquired, arising or
coming into existence, and including all Proceeds (including but not limited to
proceeds from any insurance insuring the same against risk of loss or
non-payment), products, accessions, additions, substitutions, rents, profits and
replacements thereof, (collectively, the “Collateral”):

 

all Inventory, Equipment, Fixtures, Goods, Accounts, account receivables,
contract rights, Commercial Tort Claims, Chattel Paper (tangible and
electronic), Deposit Accounts, Documents, General Intangibles, payment
intangibles, Software, Instruments, Promissory Notes, Investment Property,
Letter-of-Credit Rights and letters-of-credit, and Supporting obligations,
intellectual property (including, and without limitation, patents, patent
applications, copyrights, trademarks and trade secrets), license rights,
distribution rights, and rights to sue for infringement of General Intangible or
intellectual property rights.

 

All capitalized terms used in this Section 5 and not otherwise defined shall
have the meanings given to such terms in the Uniform Commercial Code of the
State of Colorado as in effect from time to time. The term “Obligations” means
all loans, advances, debts, liabilities and obligations, howsoever arising, owed
by Company to Lender of every kind and description (whether or not evidenced by
any note or instrument and whether or not for the payment of money), now
existing or hereafter arising under or pursuant to the terms of the Transaction
Agreements, including, without limitation, all principal, interest, fees,
charges, expenses, attorneys’ fees and costs chargeable to and payable by
Company hereunder and thereunder, in each case, whether direct or indirect,
absolute or contingent, due or to become due, and whether or not arising after
the commencement of a proceeding under Title 11 of the United States Code (11
U.S.C. Section 101 et seq.), as amended from time to time (including
post-petition interest) and whether or not allowed or allowable as a claim in
any such proceeding.

 

5.2 Liabilities Secured. The security interests granted herein shall be security
for the performance of and timely payment of all the Obligations.

 

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5.3 Seniority of Security Interest. The security interest granted herein shall
be senior to all other security interests granted by Company subsequent to the
date hereof and all security interests granted by Company prior to the date of
this Agreement.

 

5.4 Filing and Perfection; Power-of Attorney. Immediately upon execution and
delivery of this Agreement, Lender may take all steps necessary to perfect and
evidence the perfection of the security interest granted herein, including but
not limited to doing so by: (1) the completion and filing of UCC-1 Financing
Statements where the Company has its chief executive office within the meaning
of U.C.C. 9-307(b)(3) including but not limited to Texas; and, (2) the
completion and filing of an appropriate patent assignment with the United States
Patent and Trademark Office. In addition, the Company hereby covenants and
agrees to take all such actions in connection therewith as the Lender may
reasonably request, and to take such further or other actions in such regard as
the Lender may reasonably request from time to time, including but not limited
to any such actions relating to the renewal or extension of any provision for
the continuing security interest of the Lender in the Collateral. The security
interest granted herein shall be a first-priority security interest in the
Collateral.

 

5.5 Company’s Representations and Warranties. Company represents and warrants to
Lender, now and for so long as any portion of the Obligations remains
outstanding, that:

 

(a) Ownership. Company is the owner of the Collateral (or, in the case of
after-acquired Collateral, at the time Company acquires rights in the
Collateral, will be the owner thereof) and that no other person or entity other
than Company has (or, in the case of after-acquired Collateral, at the time
Company acquires rights therein, will have) any right, title, claim or interest
(by way of security interest, lien or otherwise) in, against or to the
Collateral, with the sole exception of the Permitted Liens (as defined below).

 

(b) Perfection. Upon the filing of a UCC-1 financing statement in the
appropriate filing office, Lender shall have (or in the case of after-acquired
Collateral, at the time Company acquires rights therein, will have) a perfected
security interest in the Collateral to the extent that a security interest in
the Collateral can be perfected by such filing. Upon the filing of a patent
assignment in the appropriate filing office, Lender shall have a perfected
security interest in those patents and patent applications included within the
Collateral to the extent that a security interest in such patents and patent
applications can be perfected by such filing.

 

5.6 Company’s Covenants. Until such time as the Obligations described herein are
satisfied in full and this Agreement has been irrevocably terminated, Company
hereby agrees that:

 

(a) Security. Company shall perform, or assist Lender in performing, all acts
that may be necessary to maintain, preserve, protect and perfect the Collateral,
the lien granted to Lender herein and the perfection and priority of such lien
including: (i) to procure, execute and deliver from time to time any
endorsements, assignments, financing statements, consents, landlord waivers or
other writings reasonably necessary for Lender to perfect, maintain and protect
its lien hereunder and the priority thereof; (ii) to appear in and defend any
action or proceeding which may affect its title to or Lender’s interest in the
Collateral; (iii) to permit Lender the right, at any time during normal business
hours, upon reasonable prior notice, to visit and inspect the properties of
Company and its corporate, financial and operating records, and make abstracts
therefrom, and to discuss Company’s affairs, finances and accounts with its
officers and independent public accountants; and (iv) to promptly notify Lender
in writing if Company has, or believes it may have a Commercial Tort Claim and
to provide a summary description of such claim.

 

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(b) Sale of Collateral. Company shall not assign, sell, convey, lease, transfer,
hypothecate, or dispose of the Collateral or any portion thereof to any third
party without Lender’s prior written consent, other than the sales of Inventory
to third parties in the normal course of business.

 

(c) Insurance. Company will at its own expense at all times keep all insurable
Collateral insured against loss by damage, fire, theft and other extended
coverage hazards. Upon request of Lender, Company shall cause Lender to be named
as an additional insured on all insurance policies insuring any of the
Collateral against risk of loss or non-payment and shall deliver certificates of
insurance naming Lender as an additional insured. Lender will be a named insured
without liability for premiums and will be the sole loss payee under all such
insurance. On request by Lender, the Company will furnish Lender with
certificates issued by the insurer(s) confirming that the insurance coverage
required under this Agreement is maintained and in full force and effect. In
addition, at the request of Lender, the original or certified copies of the
actual policies showing the existence of insurance in accordance with this
Agreement will be delivered to Lender. All insurance will provide for prompt
written notice to Lender of any failure to pay a premium and for at least thirty
(30) days’ prior written notice to Lender of cancellation or non-renewal of the
policy and of any material change in the coverage or in any of the other terms
of the insurance.

 

(d) Liens. Company will at all times keep the Collateral free from any adverse
claims, liens, security interests, or encumbrances (other than Permitted Liens),
and in good order and repair and will not waste, destroy or otherwise
intentionally impair the value of all or any part of the Collateral. The term
“Permitted Liens” means (i) liens for taxes not yet delinquent or liens for
taxes being contested in good faith and by appropriate proceedings for which
adequate reserves have been established; (ii) liens in respect of property or
assets imposed by law which were incurred in the ordinary course of business,
such as carriers’, warehousemen’s, materialmen’s and mechanics’ liens and other
similar liens arising in the ordinary course of business which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings for which adequate reserves have been
established; (iii) liens incurred or deposits made in the ordinary course of
business in connection with workers’ compensation, unemployment insurance and
other types of social security, and other liens to secure the performance of
tenders, statutory obligations, contract bids, government contracts, performance
and return of money bonds and other similar obligations, incurred in the
ordinary course of business, whether pursuant to statutory requirements, common
law or consensual arrangements; or (iv) liens in favor of Lender. Company shall
defend the Collateral against, and take such other action as is necessary to
remove, any and all claims, liens, security interests, or encumbrances on the
Collateral except Permitted Liens.

 

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(e) Taxes. Company will pay promptly when due all taxes, assessments, and other
charges upon the Collateral.

 

(f) Maintenance. Company will provide for all maintenance, repairs and
replacements to the Collateral in accordance with standard maintenance and
repair procedures and upon request will promptly make available copies of all
repairs, maintenance and test reports to Lender.

 

(g) Location of Collateral. Company shall not without prior written consent of
Lender (i) change Company’s legal name or legal structure from a corporation, or
(ii) change Company’s state of registration. Company shall immediately notify
Lender in writing of any change in the location of its chief executive office or
in the location where its books and records are kept.

 

(h) Intellectual Property. Company will perform all acts and execute all
documents reasonably requested by Lender, including notices of security interest
for each relevant type of intellectual property in forms suitable for filing
with the United States Patent and Trademark Office or the United States
Copyright Office, that may be necessary or desirable to record, maintain,
preserve, protect and perfect Lender’s security interest in such intellectual
property. Company specifically authorizes Lender to make any filings necessary
or desirable to perfect and preserve its security interest in the intellectual
property included within the Collateral. With respect to intellectual property,
Company shall timely file and pay all maintenance fees for patents and renewal
fees for trademarks and will promptly notify Lender in writing of any
infringement litigation in connection with any of the intellectual property.
Company shall promptly notify Lender in writing of all newly acquired or created
intellectual property (including, without limitation, any patent applications
submitted, and any patents granted, after the date of this Agreement). Such
notice shall be considered timely if given on the same business day the patent
application in question is submitted or that Company receives notice that the
patent in question is granted.

 

5.7 Financing Statement. Company authorizes Lender to file, in jurisdictions
where this authorization will be given effect, a UCC-1 Financing Statement and
continuation statements (including “in lieu” continuation statements) describing
the Collateral in the same manner as it is described herein in order to perfect
and maintain Lender’s security interest in the Collateral. In addition, Company
shall execute one or more Financing Statements and continuation statements
(including “in lieu” continuation statements) and such other documents (and pay
the cost of filing or recording the same) in all public offices deemed necessary
or desirable by Lender to establish and maintain a valid security interest in
the Collateral (free of all other liens and claims whatsoever) to secure the
payment of the Obligations. Company shall promptly take all such further actions
as reasonably requested by Lender to perfect and maintain its security interest
in the Collateral.

 

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6.Representations and Warranties of the Company.

 

As of the Effective Date, Closing, the date of any Loan Request, all Loan Dates,
and for the duration of time that any amount is outstanding under the
Transaction Agreements, the Company represents and warrants to Lender as
follows:

 

6.1 Organization, Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado. The Company has the requisite corporate power to own, lease
and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted. The Company is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.

 

6.2 Corporate Power. The Company has and will have all requisite corporate power
to execute and deliver the Transaction Agreements and to carry out and perform
its obligations thereunder.

 

6.3 Authorization. All corporate action on the part of the Company, its
directors and its shareholders necessary for the authorization, execution,
delivery by the Company of the Transactions Agreements and the performance of
the Company’s obligations hereunder and thereunder has been taken or will be
taken prior to the Closing Date and prior to the Company making any Loan Request
or accepting any disbursement of proceeds (or the benefit of any disbursement of
proceeds paid to third parties) under the Transaction Agreements. The
Transaction Agreements, when executed and delivered by the Company, shall
constitute valid and binding obligations of the Company enforceable in
accordance with their terms.

 

6.4 Title to Properties and Assets; Liens, Etc. Except as disclosed in the
Company’s filings with the Securities and Exchange Commission and publicly
available on the EDGAR system (“SEC filings”), the Company has good and
marketable title to, or valid leasehold interests in, its properties and assets,
including the properties and assets currently used in its business, in each case
subject to no Lien other than (i) the Lien of current taxes not yet due and
payable, (b) Liens created in connection with the transactions contemplated
hereby and (c) Liens and encumbrances which do not materially detract from the
value subject thereto or materially adversely affect the Company or its business
as conducted and proposed to be conducted. For the purposes hereof, the term
“Lien” shall mean, with respect to any property, any security interest,
mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such
property or the income therefrom, including, without limitation, the interest of
a vendor or lessor under a conditional sale agreement, capital lease or other
title retention agreement, or any agreement to provide any of the foregoing, and
the filing of any financing statement or similar instrument under the Uniform
Commercial Code or comparable law of any jurisdiction. All facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased or
used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used.

 

6.5 Compliance with Laws; Permits. The Company is not in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership or operation of its properties, which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties or
financial condition of the Company and believes it can obtain, without undue
burden or expense, any similar authority for the conduct of its business as
presently proposed to be conducted.

 

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6.6 Compliance with Other Instruments. The Company is not in violation or
default of any term of, and the execution and delivery by the Company of the
Transaction Agreements will not result in any violation or default with respect
to, its articles of incorporation or bylaws, or of any provision of any
mortgage, indenture or contract to which it is a party and by which it is bound
or of any judgment, decree, order or writ. The execution, delivery and
performance of this Agreement and the other Transaction Agreements, and the
consummation of the transactions contemplated hereby or thereby will not result
in any such violation or be in conflict with, give rise to any acceleration or
right to accelerate, or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument,
judgment, decree, order or writ or an event that results in the creation of any
Lien upon any assets of the Company or the suspension, revocation, impairment,
forfeiture, or nonrenewal of any material permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.

 

6.7 Litigation. There is no action, suit, proceeding or investigation pending
or, to the Company’s knowledge, threatened against the Company that questions
the validity of this Agreement or the other Transaction Agreements or which
questions the right of the Company to enter into any of such agreements, or to
consummate the transactions contemplated hereby or thereby, or which would
reasonably be expected to result, either individually or in the aggregate, in
any material adverse change in the business, assets, liabilities, operations or
condition of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for any of the foregoing. The foregoing includes, without limitation,
actions pending or, to the Company’s knowledge, threatened (or any basis
therefor known by the Company) involving the prior employment of any of the
Company’s employees, their use in connection with the Company’s business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party to, or to its knowledge subject to, the provisions of any
order, writ, injunction, judgment or decree of any arbitration panel or
tribunal, court or other government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.

 

6.8 Financial Statements. Except as disclosed in the Company’s SEC filings and
balance sheets otherwise provided by Company to Lender, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business and (ii) obligations under contracts
and commitments incurred in the ordinary course of business, which, in both
cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with Generally Accepted Accounting
Principles. Upon request of Lender, the Company will furnish Lender with
quarterly, semiannual and annual profit and loss statements and balance sheets
(collectively called the “Financial Statements”). The quarterly and semi-annual
Financial Statements will be delivered to Lender within forty-five (45) days
after the end of the applicable period; the annual Financial Statements will be
delivered to Lender within ninety (90) days after the end of the Company’s
fiscal year and will be reviewed by Company’s independent certified accountants.
In addition, the Company will provide Lender with such other information about
the Company, its financial condition, the Collateral and its other assets and
its liabilities as Lender may from time to time request.

 

Page 10 of 20

 

 

6.9 Brokers or Finders. The Company has not incurred, and will not incur,
directly or indirectly, as a result of any action taken by the Company, any
liability for brokerage or finders’ fees or agents’ commissions or any similar
charges in connection with this Agreement, the Transaction Agreements or any of
the transactions contemplated hereby or thereby. The Company shall indemnify,
protect and hold Lender harmless from all claims for brokerage or finders’ fees
or agents’ commissions or any similar charges in connection with this Agreement,
the Transaction Agreements or any of the transactions contemplated hereby or
thereby.

 

6.10 Obligations of Management. Except as disclosed in the Company’s SEC
filings, each officer and key employee of the Company is currently devoting
substantially all of his or her business time to the conduct of the business of
the Company. The Company is not aware that any officer or key employee of the
Company is planning to work less than full time at the Company in the future. No
officer or key employee is currently working or, to the Company’s knowledge,
plans to work for a competitive enterprise, whether or not such officer or key
employee is or will be compensated by such enterprise.

 

6.11 Insurance. The Company has in full force and effect fire and casualty
insurance policies in amounts customary for companies in similar businesses
similarly situated.

 

6.12 Minute Books. The minute books of the Company contain a complete summary of
all meetings of directors and shareholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all material
respects.

 

7.Additional Covenants of the Company.

 

7.1 Covenants. For the duration of the Commitment Period and until the repayment
in full of the outstanding principal and all accrued and unpaid interest and
other amounts payable under the Note (whichever is longer), the Company
covenants and agrees as follows:

 

(a) With the exception of sales of inventory to third parties in the ordinary
course of business, the Company shall not undertake any disposition of material
assets without the prior written approval of the Lender.

 

(b) The Company shall deliver to Lender (i) unaudited quarterly financial
reports within thirty days after the end of each quarter, and (ii) a monthly
accounting of the Company’s cash balance, AR and inventory. Both shall be in a
format reasonably acceptable to the Lender.

 

Page 11 of 20

 

 

(c) The Company shall not incur or agree to incur any indebtedness for borrowed
money or financed equipment, or any trade debt in excess of $50,000 in the
aggregate without the prior written consent of the Lender. All such indebtedness
shall be on terms and conditions no more beneficial to a third-party lender than
the terms and conditions set forth in the Transaction Agreements.

 

(d) The Company shall not pledge, encumber or grant any security interest in any
assets of the Company or any of its subsidiaries to any third party without the
prior written consent of the Lender, excluding the pledge of assets pursuant to
this Agreement and the Note.

 

(e) Without the prior written approval of Lender, the Company shall not enter
into any agreement or promise whereby the Company agrees to issue shares in the
Company, warrants, options (excluding pursuant to an approved employee stock
option plan), debt convertible into shares of the Company, or any other
agreement, security, or instrument pledging to issue shares in the Company in
consideration for property or services furnished or to be furnished to the
Company or any third party.

 

(f) The Company shall keep its books and records, including balance sheets,
financial statements, profit and loss statements, and other financial records
and reports in accordance with Generally Accepted Accounting Principles.

 

(g) The Company shall at all times comply with all laws, rules, regulations
orders or restrictions of any domestic or foreign government or any
instrumentality or agency thereof that are applicable to Company. This
obligation will include, without limitation, timely making all required tax
filings and payments and the timely filing of all forms, documents and
disclosures required or permitted of Company under the Securities Exchange Act
of 1934, applicable rules of the Securities and Exchange Commission, or other
actions necessary to maintain a public listing for the Company’s stock.

 

(h) Company shall not, without the prior written consent of Lender, adopt or
agree to adopt any plan providing for its reorganization.

 

8.Conditions to Disbursement of Loan Proceeds.

 

Lender’s obligations to consummate the Closing or make any and all loans
(including loans made pursuant to Loan Requests) are subject to the fulfillment
of all of the following conditions, any of which may be waived in whole or in
part by Lender:

 

8.1 Representations and Warranties. The representations and warranties made by
the Company in the Transaction Agreements shall have been true and correct when
made, and shall be true and correct on the date of disbursement. The Company is
not in breach of any of its obligations under the Transaction Agreements.

 

8.2 Proceedings and Documents. All corporate and other proceedings in connection
with the transactions contemplated at the Closing or disbursement, as
applicable, and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Lender.

 

Page 12 of 20

 

 

8.3 Transaction Agreements. The Company shall have duly executed and delivered
to the Lender the following documents:

 

(a) This Agreement;

 

(b) The Note; and,

 

(c) All other documents or instruments that Lender may reasonably request in
order to perfect the security interest granted by Company to Lender herein.

 

8.4 Supporting Documents. For all loans made pursuant to a Loan Request after
Closing, Company shall have provided Lender with sufficient Supporting Documents
(to be determined in Lender’s sole and absolute discretion).

 

8.5 Corporate Documents. The Company shall have delivered to the Lender each of
the following:

 

(a) The Articles of Incorporation of the Company, certified as of a recent date
prior to the Closing by the Secretary of State of Colorado.

 

(b) A Certificate of Good Standing or comparable certificate as to the Company,
certified as of a recent date prior to the Closing by the Secretary of State of
Colorado.

 

(c) A certificate of the Secretary of the Company, dated as of the Closing,
certifying (a) that the Articles of Incorporation of the Company, delivered to
Lender pursuant to Section 8.5(a) hereof, are in full force and effect and have
not been amended, supplemented, revoked or repealed since the date of such
certification; (b) that attached thereto is a true and correct copy of the
Bylaws of the Company as in effect on the date of the Closing; (c) that attached
thereto are true and correct copies of resolutions duly adopted by the Board of
Directors of the Company and continuing in effect, which authorize the
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby and thereby; and (d) that
there are no proceedings for the dissolution or liquidation of the Company
(commenced or threatened); and

 

(d) A certificate of the Secretary of the Company, dated as of the Closing,
certifying the incumbency, signatures and authority of the officers of the
Company authorized to execute and deliver the Transaction Agreements on behalf
of the Company and perform the Company’s obligations thereunder on behalf of the
Company.

 

9.Events of Default.

 

9.1 The occurrence of any one or more of the following shall constitute an
“Event of Default” under all the Transaction Agreements:

 

(a) Company fails to pay timely any of the principal amount due under the
Transaction Agreements on the date the same becomes due and payable or any
accrued interest or other amounts due under the Transaction Agreements on the
date the same becomes due and payable.

 

Page 13 of 20

 

 

(b) Company breaches any provision, covenant or other representation, warranty,
term or condition contained in this Transaction Agreements or any other note or
agreement, of any kind or nature, between Company and Lender.

 

(c) Any representation or warranty of Company made in the Transaction Agreements
or any other agreement, statement, certificate, or communication given to Lender
be false or misleading in any material respect when made or become false or
misleading in any material respect after Closing.

 

(d) Company shall (i) fail to make any payment when due under the terms of any
bond, debenture, note or other evidence of indebtedness for money borrowed to be
paid by Company and such failure shall continue beyond any period of grace
provided with respect thereto, or (ii) default in the observance or performance
of any other agreement, term or condition contained in any bond, debenture, note
or other evidence of indebtedness for borrowed money.

 

(e) Company (i) files any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law or any other law for the relief of,
or relating to, debtors, now or hereafter in effect; (ii) makes any assignment
for the benefit of creditors or takes any corporate action in furtherance of any
of the foregoing; (iii) applies for or consents to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a substantial
part of its property; (iv) is unable, or admits in writing its inability, to pay
its debts generally as they mature, (v) is dissolved or liquidated; (vi) becomes
insolvent (as such term may be defined or interpreted under any applicable
statute); or (vii) takes any action for the purpose of effecting any of the
foregoing.

 

(f) An involuntary petition is filed against Company (unless such petition is
dismissed or discharged within thirty (30) days under any bankruptcy statute now
or hereafter in effect) or a custodian, receiver, trustee, assignee for the
benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Company;

 

(g) A final judgment or order for the payment of money in excess of $10,000 is
rendered against the Company and the same shall remain undischarged for a period
of ten (10) days during which execution shall not be effectively stayed, or any
judgment, writ, assessment, warrant of attachment, or execution or similar
process shall be issued or levied against the Collateral (as defined above) and
such judgment, writ, or similar process shall not be released, stayed, vacated
or otherwise dismissed within ten (10) days after issue or levy.

 

(h) Any cessation of operations by Company.

 

(i) Company’s failure to maintain any material intellectual property rights,
personal, real property or other assets which are necessary to conduct its
business (whether now or in the future).

 

(j) The sale, conveyance, or disposition of all or substantially all of the
assets of the Company, the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of or transferred, or the consolidation, merger or other
business combination of the Company with or into any other Person (as defined
below) or Persons when the Company is not the survivor. “Person” shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.

 

Page 14 of 20

 

 

(k) Company accrues past due accounts payable (whether to a single vendor or
service provider or in combination to multiple vendors or service providers) in
excess of fifty thousand dollars ($50,000) other than to legal and accounting
professionals.

 

(l) Lender in good faith believes itself insecure.

 

(m) Company otherwise takes action which threatens Lender’s security for this
Note or threatens Company’s ability to repay the same.

 

9.2 Notice of Event of Default. Company shall provide Lender with written notice
of any Event of Default (whether occurring under this Agreement or the Note)
within two (2) Business Days of the occurrence, commencement or recurrence of
such Event of Default.

 

9.3 Lender Remedies Upon Event of Default. Upon the occurrence of any Event of
Default and at any time thereafter, Lender may, at its option, declare any and
all Obligations (as defined above) immediately due and payable without demand or
notice of any kind and the same thereupon shall immediately become and be due
and payable without demand or notice, in which event (subject to the further
provisions of the Transaction Agreements) Lender shall have and may exercise
from time to time any and all rights and remedies of a Lender under the Uniform
Commercial Code in effect in any and all jurisdictions where UCC-1s or other
documents are filed to perfect or maintain Lender’s security interest, as
amended from time to time, and any and all rights and remedies available to it
under any other applicable law, including but not limited to directing account
debtors to make payment directly to Lender, settling, compromising or adjusting
any of the Collateral (the same to be binding upon Company), commencing,
prosecuting, and defending, as the case may be, any proceeding to collect or
protect any or all of the Collateral, or any other proceeding with respect to
any of the Collateral and selling any of the Collateral at private or public
sale on such terms as Lender deems appropriate. Upon request of Lender, Company
will immediately deliver and endorse or cause to be delivered and endorsed, to
Lender or in accordance with Lender’s instructions, any of the Collateral. Any
proceeds of any disposition of all or any part of the Collateral may be applied
by Lender toward payment of such of the Obligations, and in such order of
application, as Lender may from time to time elect. The remedies set forth
herein shall be cumulative and not alternative and, upon the occurrence of an
Event of Default, Lender may pursue any and all remedies available to it under
the Transaction Agreements, at law, in equity, or otherwise.

 

10.Miscellaneous.

 

10.1 Binding Agreement. The rights and obligations of the Company and the Lender
under the Transaction Agreements shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the parties.

 

10.2 No Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended to confer upon any third party any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

 

Page 15 of 20

 

 

10.3 Assignment by the Company. The rights, interests or obligations hereunder
may not be assigned, by operation of law or otherwise, in whole or in part, by
the Company without the prior written consent of Lender, which may be withheld
in Lender’s sole and absolute discretion.

 

10.4 Severability of this Agreement. If any provision of this Agreement shall be
judicially determined to be invalid, illegal or unenforceable, the offending
provision shall be modified to the minimum extent necessary to be enforceable in
accordance with the parties original intentions and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

 

10.5 Governing Law. This Agreement shall be governed by and construed under the
laws of the State of Colorado as applied to agreements among Colorado residents,
made and to be performed entirely within the State of Colorado, without giving
effect to conflicts of laws principles. Exclusive venue for all actions arising
out of this Agreement shall be in the District Court in and for Larimer County,
State of Colorado, which shall have authority to adjudicate all claims arising
out of this Agreement.

 

10.6 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

 

10.7 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

10.8 Collection Costs. If Lender hires an attorney to assist in collecting any
amount due or in enforcing any right or remedy under this Agreement or the
Transaction Agreements, Company agrees to pay Lender’s reasonable attorney’s
fees and collection costs. All amounts payable by Company under this Section
10.8 shall be payable on demand and shall accrue interest in the same fashion as
principal advanced under the Note with interest beginning to run: (a) from the
date Lender incurs the amount in any case where Lender has requested the Company
to pay Lender’s costs and fees as incurred and Company has failed to do so, or
(b) from the date Lender requests reimbursement in any case where Lender has not
requested the Company to pay Lender’s costs and fees as incurred.

 

10.9 Further Assurances. The Company agrees at any time and from time to time at
its expense, upon request of Lender and at Company’s sole expense, to promptly
execute, deliver, or obtain or cause to be executed, delivered or obtained any
and all further instruments and documents and to take or cause to be taken all
such other action as the Lender may deem reasonably desirable in obtaining the
full benefits of, or in preserving the liens and/or security interests of, the
Transaction Agreements.

 

10.10 Survival. All representations, warranties, covenants, obligations and
agreements made by the Company in connection the Transaction Agreements shall
survive Closing, the disbursement of the loans and the execution and delivery of
this Agreement and the Note.

 

Page 16 of 20

 

 

10.11 Modification; Waiver. No modification or waiver of any provision of the
Transaction Agreements or consent to departure therefrom shall be effective
unless agreed to in writing by the Company and Lender.

 

10.12 Fees and Expenses. At the Closing, the Company shall pay the reasonable
legal and due diligence fees and expenses of counsel to the Lender. If the
amount of such costs and fees is not yet known at Closing (i.e., if Lender has
not yet received a final bill for the same), such costs and fees shall be
payable on demand in the same fashion set forth in Section 10.8.

 

10.13 Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power or remedy accruing to Lender, upon any breach or default of the
Company under this Agreement or any other Transaction Agreement, shall impair
any such right, power or remedy, nor shall it be construed to be a waiver of any
such breach or default, or any acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. It is further agreed that any waiver, permit, consent
or approval of any kind or character by Lender of any breach or default under
this Agreement, or any waiver by Lender of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in writing and that all remedies, either under this
Agreement, or by law or otherwise afforded to the Lender, shall be cumulative
and not alternative.

 

10.14 Notices and Other Communications. All notices, requests, demands and other
communications permitted or required in the Transaction Agreements shall be in
writing and shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation with delivery
confirmation, or (d) sent as electronic mail, in each case delivered or sent to
the party to whom notice is being given to the business address or e-mail
address set forth below or, as to each party, at such other business address or
e-mail address as it may hereafter designate in writing to the other party
pursuant to the terms of this Section 10.14. All such notices, requests, demands
and other communications shall be deemed communicated or given on (i) the date
received if personally delivered, (ii) five (5) Business Days after deposit in
the mail if delivered by mail, (iii) the date delivered if delivered by
overnight courier with delivery confirmation, or (iv) the date of transmission
if sent by electronic mail, except that notices or requests delivered to the
Lender via electronic mail shall not be effective until actually received and
read by the Lender. All notices, requests, demands and other communications
shall be addressed and given to Lender and Company as set forth below:

 

If to Lender:

 

BOCO Investments, LLC

262 E. Mountain Avenue

Fort Collins, CO 80524

Attention: Patrick Kanouff

Email: patrick@bohemiancompanies.com

 

Page 17 of 20

 

 

If to Company:

 

C-BOND SYSTEMS, INC.

6035 South Loop East

Houston, TX 77033

Attention: Vince Pugliese

E-mail: vpugliese@cbondsystems.com

 

10.15 Deadlines. In the event that any deadline or date on which any action must
be taken herein falls on a day other than a Business Day, such deadline or date
on which action must be taken is extended to the next Business Day.

 

10.16 Entire Agreement. This Agreement together with the other Transaction
Agreements constitute and contain the entire agreement among the Company and
Lender and supersede any and all prior agreements, negotiations, correspondence,
understandings and communications among the parties, whether written or oral,
respecting the subject matter hereof.

 

10.17 Miscellaneous. The provisions of this Agreement are cumulative and Lender
shall have all the benefits, rights and remedies of and under the Transaction
Agreements.

 

Page 18 of 20

 

 

In Witness Whereof, the parties have executed this REVOLVING CREDIT FACILITY
LOAN And SECURITY AGREEMENT as of the Effective Date.

 

The Company:

 

C-BOND SYSTEMS, INC., a Colorado corporation

 

By: /s/ Scott R. Silverman   Print Name: Scott R. Silverman  

 

Its: Chief Executive Officer

 

Lender:

 

BOCO Investments, LLC, a Colorado limited liability company

 

By: /s/ Joseph C. Zimlich      Print Name: Joseph C. Zimlich   Title: President
of Managing Member  

 

Page 19 of 20

 

 

Exhibit A

 

Form of Secured Promissory Note

 

[See attached]

 

Page 20 of 20