EXHIBIT 10.5
 
 
Note Purchase Agreement

This Note Purchase Agreement (the “Agreement”) is made as of September 6, 2012
(the “Effective Date”) by and among Bitzio, Inc., a Nevada corporation (the
“Company”) and the purchasers executing a signature page attached hereto
(individually, a “Purchaser” and collectively, the “Purchasers”).
 
Recitals

To provide the Company with additional resources to conduct its business, the
Purchasers are willing to loan to the Company up to $1,500,000, subject to the
conditions specified in this Agreement.

Agreement

Now, Therefore, in consideration of the foregoing, and the representations,
warranties, covenants and conditions set forth below, the Company and each
Purchaser, intending to be legally bound, hereby severally and not jointly agree
as follows:

1.    Amount and Terms of the Loans.  Subject to the terms of this Agreement, at
the Closing (as defined below) the Company agrees to issue and sell to each of
the Purchasers, and each Purchaser agrees, severally and not jointly, to
purchase from the Company, a convertible promissory note in the form attached to
this Agreement as Exhibit A (each, a “Note” and collectively, the “Notes”) in
the principal amount set forth on each Purchaser’s signature page (each, a “Loan
Amount”), in an aggregate principal amount not to exceed $1,500,000, provided,
however, that the Company may accept more than $1,500,000 in aggregate principal
amount upon the written agreement of the Company and a majority of the
Purchasers (the “Aggregate Offering Amount”.  The Notes shall mature twelve
months from the date of issuance, or such earlier date set forth in the Notes
(the “Maturity Date”).

2.    Additional Consideration.  In addition to the Notes, each Purchaser shall
also receive a warrant (each a “Warrant” and collectively, the “Warrants”),
exercisable until two years after the date of issuance, in substantially the
form attached hereto as Exhibit B, to purchase the number of shares of common
stock of the Company (“Warrant Shares”) equal to two times the product obtained
by multiplying the Purchaser’s Loan Amount by the Initial Conversion Price.  The
Warrant shall initially have a strike price equal to $0.30 per share of common
stock (the “Strike Price”).

3.    Collateral.  Pursuant to the Security Agreement in the form attached
hereto as Exhibit C (the “Security Agreement”), the Company shall grant to the
Purchasers a continuing security interest in all Collateral (as defined in the
Security Agreement) to secure all obligations and performance of each of the
Company’s duties under the Notes and any related documentation.

4.    Conversion. The Notes will be convertible into shares of the Company’s
Common Stock, par value $0.001 per share (“Common Stock”), at $0.15 per share
(the “Initial Conversion Price”).  The Initial Conversion Price of the shares of
Common Stock issued in connection with the conversion of any particular Note
shall be subject to adjustment from time to time in the manner set forth in the
Note.
 
5.    Use of Proceeds. The proceeds from the sale of the Notes will be used for
general corporate purposes, including working capital and the payment and
repayment of various Company and subsidiary obligations.
 
 
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6.    The Closing(s)

6.1       Closing Date.  The initial closing of the sale and purchase of the
Notes (the “Initial Closing”) shall be held on the Effective Date, or at such
other time as the Company and the initial Note Purchaser agree.

6.2       Subsequent Closing(s).  At any time, the Company may, at its
discretion, allow one or more subsequent closings of the purchase and sale of
the Notes in an aggregate principal amount not to exceed $1,500,000 (each a
“Subsequent Closing” and together with the Initial Closing and each other
Subsequent Closing, each, a “Closing”).  Upon their execution and delivery of
this Agreement and such other counterpart signature pages as contemplated by
Section 6.3 below, such parties shall be deemed to be “Purchasers” for all
purposes under this Agreement.

6.3       Delivery.  At each Closing, (i) each Purchaser will deliver to the
Company (a) the signature page to this Agreement completed by the Purchaser, (b)
a signature page to the Escrow Agreement, if applicable, and (c) a check or wire
transfer of funds in the amount of such Purchaser’s Loan Amount or, in the sole
discretion of the Company, by tendering any previously issued notes or other
cancellation of indebtedness of the Company held by such Purchaser; and (ii) the
Company will issue and deliver to each Purchaser (a) a Note in favor of such
Purchaser payable in the principal amount of such Purchaser’s Loan Amount, (b) a
corresponding Warrant, and (c) a fully executed copy of the Security Agreement.

7.    Representations and Warranties of the Company.  The Company hereby
represents and warrants to each Purchaser in a Closing, as of the date of such
Closing, as follows:
 
7.1       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 Nevada.  The Company has the requisite corporate power to own
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.
 
7.2       Corporate Power.  The Company has all requisite corporate power to
execute and deliver this Agreement, the Notes, the Warrants, the Security
Agreement and any other related documentation (collectively, the “Loan
Documents”) and to carry out and perform its obligations under the Loan
Documents, including, but not limited to, its obligations to issue the
Securities (defined below).
 
7.3       Authorization.  All corporate action on the part of the Company, its
directors and its stockholders necessary for the authorization, execution,
delivery and performance of the Loan Documents by the Company and the
performance of the Company’s obligations thereunder, including the issuance of
the Securities, has been properly taken.  The Loan Documents, when executed and
delivered by the Company, will constitute valid and binding obligations of the
Company enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency, the relief of debtors and, with
respect to rights to indemnity, subject to federal and state securities laws.
 
7.4       Capitalization.  The capitalization of the Company immediately prior
to the initial Closing consists of a total of: (A) 25,000,000 authorized shares
of preferred stock, par value $0.001 per share, consisting of 2,500,000 shares
designated as Series A Convertible Redeemable Preferred Stock (“Series A
Preferred Stock”), of which 5,343,120 are issued and outstanding and (B) a total
of 250,000,000 authorized shares of common stock, par value $0.001 per share, of
which 63,414,821 are issued and outstanding.  The Common Stock and Series A
Preferred Stock shall have the rights, preferences, privileges and restrictions
set forth in the Company’s Articles of Incorporation, including any certificates
of designation.  The outstanding shares have been duly authorized and validly
issued, are fully paid and nonassessable, and were issued in compliance with
applicable laws.  The Company has reserved up to 30,000,000 shares of Common
Stock for issuance upon conversion of the Notes and exercise of the Warrants
issued hereunder.
 
 
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7.5       Options, Warrants, Reserved Shares.  Except as otherwise provided in
the Loan Documents and except for (i) the conversion privileges of the Series A
Preferred Stock; (ii) warrants exercisable for up to 2,544,000 shares of Common
Stock and (iii) options exercisable for up to 21,648,462 shares of Common Stock,
as of the initial Closing there are no options, warrant or other rights to
purchase or acquire any of the Company’s capital stock or otherwise reserved for
issuance.
 
7.6       Agreements.
 
(a)       Except for the Loan Documents and agreements between the Company and
its employees with respect to sales of the Company’s Common Stock, there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, affiliates, or any affiliate thereof other than as
disclosed in the SEC Filings (as defined below).
 
(b)       Other than as disclosed in the SEC Filings, there are no agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Company is a party or by which it is bound
that may involve obligations or liabilities (contingent or otherwise) of, or
payments by the Company in excess of, $50,000 other than in the ordinary course
of the Company’s business.
 
7.7       Title to Property.  Other than as disclosed in the SEC Filings, the
Company has good and marketable title to its properties and assets, and has good
title to all its leasehold interests, in each case subject to no material
mortgage, pledge, lien, lease, encumbrance or charge (“Lien”), other than
Permitted Liens (as defined in the Security Agreement). With respect to the
property and assets it leases, the Company is in compliance with such leases in
all material respects.
 
7.8       Litigation.  There are no actions, suits, proceedings or
investigations pending against the Company or its properties (nor has the
Company received notice of any threat thereof) before any court or governmental
agency that, either individually or in the aggregate, if determined adversely to
the Company, would or could reasonably be expected to have a material adverse
effect or result in any change in the current equity ownership of the Company.
The Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit or proceeding initiated by the Company
currently pending or which the Company currently intends to initiate.
 
7.9       Changes.  Since March 31, 2012 there has not been a material adverse
change in the assets, liabilities, financial condition or operating results of
the Company from that reflected in the financial statements, except changes in
the ordinary course of business or otherwise disclosed in the SEC Filings.
 
7.10     Filings.  All documents filed with the Securities and Exchange
Commission (the “Commission”) subsequent to December 19, 2011 (the “SEC
Filings”) complied as to form in all material respects with the requirements of
the Securities Act of 1933, as amended (the “Act”) and the Securities Exchange
Act of 1934, as amended, (the “Exchange Act”) as applicable, and the rules and
regulations of the Commission thereunder.  None of the SEC Filings, when such
documents became effective or were so filed, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
 
7.11     Governmental Consents.  All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with, any governmental authority, required on the part of the Company
in connection with the valid execution and delivery of this Agreement, the
offer, sale or issuance of the Notes or the consummation of any other
transaction contemplated by the Loan Documents will have been obtained and will
be effective at the Closing.
 
 
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7.12     Compliance with Laws.  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 of its properties, the violation of
which would materially and adversely affect the business, assets, liabilities,
financial condition, operations or prospects of the Company.
 
7.13     Compliance with Other Instruments.  The Company is not in violation or
default of any term of its articles of incorporation, including any certificate
of designation, or bylaws, or, except as disclosed in an SEC Filing, of any
provision of any mortgage, indenture, contract, agreement or instrument to which
it is a party and by which it is bound or of any judgment, decree, order or
writ, other than such violation(s) that would not have a material adverse effect
on the Company. The execution, delivery and performance of the Loan Documents,
and the consummation of the transactions contemplated thereby will not result in
any such violation or be in conflict with, 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 (except as contemplated herein), charge or encumbrance 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.  Without limiting the foregoing, the Company has obtained all
waivers reasonably necessary with respect to any preemptive rights, rights of
first refusal or similar rights, including any notice or offering periods
provided for as part of any such rights, in order for the Company to consummate
the transactions contemplated by the Loan Agreements without any third party
obtaining any rights to cause the Company to offer or issue any securities of
the Company as a result of the consummation of the transactions contemplated
hereunder.
 
7.14     Offering.  Assuming the accuracy of the representations and warranties
of the Purchasers contained in Section 8 hereof, the offer, issue, and sale of
the Notes and Warrants are and will be exempt from the registration and
prospectus delivery requirements of the Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit, or qualification requirements of all applicable state
securities laws.
 
8.    Representations and Warranties of the Purchasers
 
8.1       Purchase for Own Account.  Each Purchaser represents that it is
acquiring the Notes and Warrants and any securities issued upon the full
conversion or exercise thereof (collectively, the “Securities”) solely for its
own account and beneficial interest for investment and not for sale or with a
view to distribution of the Securities or any part thereof, has no present
intention of selling (in connection with a distribution or otherwise), granting
any participation in, or otherwise distributing the same, and does not presently
have reason to anticipate a change in such intention.
 
8.2       Information and Sophistication.  Without lessening or obviating the
representations and warranties of the Company set forth in Section 7, each
Purchaser hereby: (i) acknowledges that it has received all the information it
has requested from the Company and it considers necessary or appropriate for
deciding whether to acquire the Securities, (ii) represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities and to obtain any
additional information necessary to verify the accuracy of the information given
the Purchaser and (iii) further represents that it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risk of this investment.
 
8.3       Ability to Bear Economic Risk.  Each Purchaser acknowledges that
investment in the Securities involves a high degree of risk, and represents that
it is able, without materially impairing its financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss of its
investment.
 
8.4       Accredited Investor Status.  Each Purchaser is an “accredited
investor” as such term is defined in Rule 501 under the Act.
 
 
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9.    Further Agreements
 
9.1       Protective Provisions.  So long as at least 50% of the aggregate
principal under the Notes is outstanding, the Company shall not, without the
prior written consent of a Majority in Interest (as defined below) incur,
create, assume, become liable for or grant any Lien, other than Permitted Liens,
on the Company’s assets or permit any of its direct or indirect subsidiaries to
do the same.
 
10.          Miscellaneous
 
10.1     Binding Agreement.  The terms and conditions of this Agreement will
inure to the benefit of and be binding upon the respective successors and
assigns of the parties.  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.
 
10.2     Governing Law.  IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS, AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THE COMPANY AND EACH
PURCHASER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
LOS ANGELES COUNTY IN THE STATE OF CALIFORNIA SHALL HAVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG THE PURCHASERS, ON THE ONE
HAND, AND COMPANY, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT.
 
10.3     Counterparts.  This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
 
10.4     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.
 
10.5     Further Actions. The Company will execute and deliver such other
agreements, conveyances, and other documents, and take such other action, as may
be reasonably requested by the Purchasers in order to give effect to the
transactions contemplated by this Agreement and the other Loan Documents.
 
10.6     Notices.  All notices required or permitted hereunder will be in
writing and will be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed electronic mail or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt.  All communications will be
sent to the Company at 548 Market Street, Suite 18224 San Francisco, CA 94104
and to Purchaser at the address(es) set forth on each Purchaser’s signature page
or at such other address(es) as the Company or Purchaser may designate by ten
(10) days advance written notice to the other parties to this Agreement.
 
10.7     Modification; Waiver.  No modification or waiver of any provision of
this Agreement or consent to departure therefrom will be effective unless in
writing and approved by (i) the Company and (ii) the Purchasers holding Notes
representing at least fifty one percent (51%) of the outstanding aggregate Loan
Amounts (a “Majority in Interest”).  Any provision of the Notes may be amended
or waived by the written consent of the Company and a Majority in
Interest.  Notwithstanding the foregoing, the written consent of Purchaser shall
be required to reduce the principal amount of a Note held by Purchaser, or
reduce the rate of interest of the Note held by Purchaser.  “Affiliate” shall
mean, with respect to a specified Person, an individual, firm, corporation,
partnership, association, limited liability company, trust or any other entity
(collectively, a “Person”) who, directly or indirectly, controls, is controlled
by or is under common control with such Person, including, without limitation,
any general partner, managing member, officer or director of such Person or any
venture capital or investment fund now or hereafter existing that is controlled
by one or more general partners or managing members of, or shares the same
management company with, such Person.
 
 
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10.8     Expenses.  The Company and each Purchaser will each bear its respective
expenses and legal fees incurred with respect to the Loan Documents and the
transactions contemplated thereby.  If any action, suit or other proceeding is
instituted concerning or arising out of this Agreement or any transaction
contemplated under the Loan Documents, the prevailing party shall recover all of
such party’s costs and attorneys’ fees incurred in each such action, suit, or
other proceeding, including any and all appeals or petitions from such action,
suit or other proceeding.
 
10.9     Delays or Omissions.  The parties agree that no delay or omission to
exercise any right, power or remedy accruing to each Purchaser, upon any breach
or default of the Company under this Agreement will impair any such right, power
or remedy, nor will 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 will 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 any Purchaser of any breach or default under this
Agreement, or any waiver by any Purchaser of any provisions or conditions of
this Agreement must be in writing and will 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 Purchasers, will be cumulative
and not alternative.
 
10.10   Severability.  If any provision of this Agreement becomes or is declared
by a court of competent jurisdiction to be illegal, unenforceable or void,
portions of such provision, or such provision in its entirety, to the extent
necessary, shall be severed from this Agreement, and such court will replace
such illegal, void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the same
economic, business and other purposes of the illegal, void or unenforceable
provision. The balance of this Agreement shall be enforceable in accordance with
its terms.
 
10.11   Entire Agreement.  This Agreement, the exhibits to this Agreement and
the other Loan Documents constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
will be liable or bound to any other party in any manner by any representations,
warranties, covenants and agreements except as specifically set forth in this
Agreement.
 
10.10   Reliance on Counsel and Advisors. Each Purchaser acknowledges that
counsel to a particular Purchaser represents only that Purchaser and shall not
be deemed to be counsel to any other Purchaser in this transaction. Each
Purchaser acknowledges that he, she or it has had the opportunity to review this
Agreement, including all attachments hereto, and the transactions contemplated
by this Agreement with his or her own legal counsel, tax advisors and other
advisors. Each Purchaser is relying solely on his or her own counsel and
advisors and not on any statements or representations of any other Purchaser or
such other Purchaser’s counsel or advisors for legal or other advice with
respect to this investment or the transactions contemplated by this Agreement.
 
10.11. No Commitment for Additional Investment.  The Company acknowledges and
agrees that no Purchaser has made any representation, undertaking, commitment or
agreement to provide or assist the Company in obtaining any financing,
investment or other assistance, other than the purchase of the Notes as set
forth herein and subject to the conditions set forth in herein.  In addition,
the Company acknowledges and agrees that, except as set forth in this Agreement,
(a) no statements, whether written or oral, made by any Purchaser or its
representatives on or after the date of this Agreement shall create an
obligation, commitment or agreement to provide or assist the Company in
obtaining any financing or investment, (b) the Company shall not rely on any
such statement by any Purchaser or its representatives and (c) an obligation,
commitment or agreement to provide or assist the Company in obtaining any
financing or investment may only be created by a written agreement, signed by
such Purchaser and the Company, setting forth the terms and conditions of such
financing or investment and stating that the parties intend for such writing to
be a binding obligation or agreement.  Each Purchaser shall have the right, in
its sole and absolute discretion, to refuse or decline to participate in any
other financing of or investment in the Company, and shall have no obligation to
assist or cooperate with the Company in obtaining any financing, investment or
other assistance.

[Signature Page Follows]
 
 
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In Witness Whereof, the parties have executed this Note Purchase Agreement as of
the date first written above.
 

  Company:          
Bitzio, Inc.
         
 
By:
/s/ William Schonbrun       William Schonbrun       President and Chief
Executive Officer  

 
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Note Purchase Agreement
Signature Page

In Witness Whereof, the parties have executed this Note Purchase Agreement as of
the date first written above.
 
Purchaser:
 
Name (Please type or Print): __________________________________________________
 
 
By (signature): ______________________________________________

 
Name and title: _____________________________

Loan Amount: $ ____________________________

Address for Notice:
 
_________________________________________
 
_________________________________________
 
_________________________________________
 
 
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Schedules and Exhibits
 
Exhibit A:  Form of Convertible Promissory Note
 
Exhibit B:  Form of Warrant
 
Exhibit C:  Security Agreement
 

 

 

 

 
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Exhibit A
 
Form of Convertible Promissory Note
 
(see attached)
 

 
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Exhibit B
 
Form of Warrant
 
(see attached)
 

 
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Exhibit C
 
Security Agreement
 
(see attached)

 
 
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