Document:

ex10-3.htm

Exhibit 10.3

 

 

 

 

LOAN AND SECURITY AGREEMENT

 

Dated as of October 1, 2012

 

by and between

 

ESCALATE CAPITAL PARTNERS SBIC I, L.P.,

 

as Lender

 

and

 

GLOWPOINT, INC.

 

as Borrower

 

 

  

  

  

TABLE OF CONTENTS

	 	 	Page 
	1.	THE LOAN	1
	1.1	Commitment	1
	1.2	Interest, Payments and Payment Terms	1
	1.3	Facility Fees	2
	1.4	Lender Expenses	2
	2.	CLOSING	2
	2.1	Conditions to Funding the Advance	2
	3.	GRANT OF SECURITY INTEREST	4
	4.	REPRESENTATIONS AND WARRANTIES	5
	5.	COVENANTS	7
	5.1	Financial Information	7
	5.2	Good Standings; Existence; Compliance with Laws	8
	5.3	Negative Covenants	8
	5.4	Indebtedness	10
	5.5	Liens; Encumbrances	10
	5.6	Prepayment of Debt	10
	5.7	Books and Records; Inspections and Audit Rights	10
	5.8	Insurance	10
	5.9	Registration of Intellectual Property Rights	10
	5.10	Subsidiary Guarantors	11
	5.11	Use of Proceeds	11
	5.12	Further Assurances	11
	5.13	[Reserved]	11
	5.14	Deposit Accounts	11
	5.15	Borrowing Base Covenant	11
	5.16	Additional Financial Covenants	11
	5.17	Notice of Default	11
	5.18	The Act	11
	5.19	Amendment of Subordinated Debt Documents and Acquisition Agreement	11
	5.20	Post Closing Covenants	12
	6.	EVENTS OF DEFAULT; REMEDIES	12
	6.1	Events of Default	12
	6.2	Remedies	13
	7.	WAIVERS; INDEMNITY	14
	8.	MAXIMUM LAWFUL RATE	14
	9.	MISCELLANEOUS	14
	10.	NOTICES	15
	11.	JURY WAIVER; ARBITRATION	16
	12.	THE ACT	16
	13.	DEFINITIONS	16

 

	Exhibits	 
	Exhibit A	Authorization Agreement
	Exhibit B	Form of Note
	Exhibit C	Form of Resolutions to Borrow
	Exhibit D	Form of Stock Purchase and Registration Rights Agreement
	Exhibit E	Form of Management Rights Agreement
	Exhibit F	Form of Intellectual Property Security Agreement
	Exhibit G	Form of Agreement to Provide Insurance
	Exhibit H	Form of SBA Letter Agreement
	Exhibit I-1	SBA Form 480
	Exhibit I-2	SBA Form 652
	Exhibit I-3	SBA Form 1031
	Exhibit J	Form of Deposit Account Control Agreement
	Exhibit K	Form of Compliance Certificate
	Exhibit L	Collateral Questionnaire
	 	 
	Schedules	 
	Schedule A	Lender Account Information
	Schedule 5.14	Control Agreements
	Schedule 4(f)	Liens
	Schedule 4(o)	Investments

  

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LOAN AND SECURITY AGREEMENT

 

This LOAN AND SECURITY AGREEMENT, dated as of October 1, 2012 (this “Loan Agreement”), is entered by and between GLOWPOINT, INC., a Delaware corporation (“Borrower”), and ESCALATE CAPITAL PARTNERS SBIC I, L.P., a Delaware limited partnership (“Lender”).  All capitalized terms used herein and not otherwise defined shall have the meanings provided in Section 13 hereof.

 

In consideration of the covenants, conditions and agreements set forth herein and intending to be legally bound, the parties agree as follows:

 

1. THE LOAN.

 

1.1 Commitment

 

Subject to the terms and conditions of this Loan Agreement and the terms and conditions of each other Transaction Document, Lender agrees to advance to Borrower a term loan in the aggregate principal amount of Six Million Five Hundred Thousand Dollars ($6,500,000) (the “Advance”).  The Advance shall be made in accordance with and subject to the provisions of Section 2 hereof.  The date of the Advance is referred to herein as the “Closing Date.”

 

1.2 Interest, Payments and Payment Terms.

 

(a) Interest.  Interest shall accrue on the unpaid principal amount of the Advance outstanding from time to time at a rate equal to 12.00% per annum.  The Lender’s determination of the amount of the Advance outstanding at any time shall be conclusive and binding, absent manifest error.  Interest on the outstanding principal amount of the Advance will be computed on the basis of a year of 360 days and the actual number of days elapsed.

 

(b) Payments of Interest.  Borrower shall pay accrued and unpaid interest on the Advance, monthly in arrears on the last business day of each calendar month, commencing on October 31, 2012 pursuant to Section 1.2(a).  In addition, accrued and unpaid interest shall be payable on the maturity of the Advance, whether by acceleration or otherwise, and on the date of any prepayment (with respect to the amount prepaid).

 

(c) Payments of Principal.

 

	
(i)  

	
Borrower shall repay to Lender the outstanding principal balance of the Advance in thirty-six (36) equal monthly payments, each payable on the last business day of each calendar month, commencing on October 31, 2014 (the “Principal Commencement Date”), with each such payment in an amount equal to the aggregate principal amount of the outstanding Advance as of the Principal Commencement Date divided by thirty-six (36).

 

	
(ii)  

	
Each monthly repayment of principal pursuant to Section 1.2(c)(i) shall be made together with payment of (x) all accrued and unpaid interest on the then outstanding principal amount of the Advance and (y) all fees, expenses and other amounts then due and payable hereunder and under the other Transaction Documents.

 

	
(iii)  

	
The entire outstanding principal balance of the Advance, all accrued and unpaid interest thereon, and all fees, expenses and other amounts outstanding hereunder and under the other Transaction Documents shall be immediately due and payable on the earlier to occur of (1) an Event of Default consisting of an Insolvency Event, (2) the date of a Change of Control, or (3) October 1, 2017 (the “Maturity Date”).

 

(d) Application of Payments; No Reborrowing.  All payments shall be applied first to fees and expenses, then to interest, and then to principal.  Once repaid, no amount of the Advance may be reborrowed hereunder.

  

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(e) Prepayment.  Borrower may prepay the Advance (or any portion thereof) with no premium or penalty upon not less than five (5) business days prior written notice to Lender.

 

(f) Place and Manner.  Borrower shall make all payments due to Lender in lawful money of the United States, in immediately available funds, without set-off, deduction or counterclaim, at the address of Lender set forth in Section 10 hereof.  Lender may debit the Company’s Deposit Account with Comerica pursuant to the Authorization Agreement for Pre-Authorized Payments attached hereto as Exhibit A (the “Authorization Agreement”), for principal and interest payments due with respect to the Advance or any other amounts due to Lender.  Borrower shall notify Lender promptly upon the opening any new Deposit Accounts or the modification of any existing Deposit Accounts, and shall provide to Lender the account numbers and other information, and provide to the financial institution at which the deposit accounts are held the instructions and authorizations necessary for Lender to debit Borrower’s Deposit Accounts as provided in this clause (f).

 

(g) Default Rate and Maximum Rate.  Subject to the Act, if any amounts required to be paid by Borrower under this Loan Agreement or the other Transaction Documents (including, without limitation, principal or interest payable on the Advance, any fees or other amounts) remain unpaid after such amounts are due and such failure to pay continues for three (3) business days, then Borrower shall pay interest on the aggregate, outstanding principal balance hereunder from such date until such past due amounts are paid in full, at a per annum rate (the “Default Rate”) equal to the applicable per annum interest rate under this Loan Agreement, plus five percent (5%).  The provision in this clause (g) for default interest shall not be construed as Lender’s consent to Borrower’s failure to pay any amounts in strict accordance with this Loan Agreement or the other Transaction Documents and Lender’s acceptance of any such payments shall not restrict Lender’s exercise of any remedies arising out of any such failure.  All computations of default interest shall be based on a year of 360 days and actual days elapsed.

 

1.3 Facility Fees

 

Prior to the date hereof, Borrower paid to EC Management Services, Inc., an Affiliate of Lender (“ECMS”), a closing fee in the aggregate amount of Ninety-Seven Thousand Five Hundred Dollars ($97,500) (the “Closing Fee”) in accordance with the terms of that certain Summary of Terms dated August  16, 2012 between Lender and Borrower (the “Letter of Intent”), as consideration for the commitment of Lender to make the proceeds of the Advances available to the Borrower.  The Borrower agrees that the Closing Fee was fully earned upon the execution and delivery of the Letter of Intent, but Lender agrees that if it fails to consummate the transactions contemplated hereby (and Borrower has otherwise satisfied all of the conditions set forth in Section 2.1 hereof), then it will cause ECMS to return the full amount of the Closing Fee to Borrower.  In addition to the Closing Fee, Borrower agrees to pay Lender a termination fee (the “Termination Fee”) in the amount of Three Hundred Thousand Dollars ($300,000) upon the earlier to occur of (a) the Maturity Date or (b) repayment in full of the Obligations.  Borrower agrees that the Termination Fee will be fully earned upon the execution and delivery of this Loan Agreement.

 

1.4 Lender Expenses

 

Borrower agrees to pay to Lender, (i) on the Closing Date, all reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, and closing of the Transaction Documents through the Closing Date, and (ii) after the Closing Date, all costs and expenses (including reasonable attorneys’ fees and expenses), as and when they become due, incurred in connection with the preparation, negotiation, administration, and enforcement of the Transaction Documents; reasonable Collateral audit fees; and Lender’s reasonable attorneys’ fees and expenses incurred in amending, enforcing or defending the Transaction Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Event, whether or not suit is brought.

 

2. CLOSING.

 

2.1 Conditions to Funding the Advance

 

As a condition to the obligation of Lender to fund the Advance on the date hereof, Lender shall have received in connection with the closing of the Advance on or before the Closing Date, in form and substance satisfactory to Lender:

 

(a) This Loan Agreement, duly executed by Borrower;

  

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(b) A Secured Promissory Note (“Note”) in the form attached hereto as Exhibit B, in the original principal amount of Six Million Five Hundred Thousand Dollars ($6,500,000);

 

(c) An officer’s certificate of Borrower and each Guarantor, certifying copies of:  (A) the operative formation documents, amended as of the date of this Loan Agreement as necessary, certified by the Secretary of State (or equivalent) of the applicable jurisdiction of organization, and bylaws (or equivalent) of such Person (as amended to the date of this Loan Agreement, as necessary), (B) the resolutions adopted by such Person’s board of directors, members, manager or other applicable governing body authorizing the transactions contemplated hereby and the documents being executed in connection therewith, substantially in the form attached hereto as Exhibit C, (C) the incumbency of the officers, member or managers executing this Loan Agreement and the other Transaction Documents on behalf of such Person, and (D) certificates of existence and good standing (including tax status, if available) with respect to such Person from its jurisdiction of organization and, with respect to Borrower, each of New Jersey, Pennsylvania, California and Illinois, as of a date acceptable to Lender;

 

(d) All consents (in form and substance satisfactory to Lender) of Borrower’s and each Guarantor’s board of directors, stockholders, and other third parties necessary in connection with such Person’s execution, delivery and performance of this Loan Agreement, the other Transaction Documents, the Acquisition Agreement, and the transactions contemplated thereby;

 

(e) A Stock Purchase and Registration Rights Agreement in form and substance satisfactory to Lender pursuant to which Borrower shall issue to Lender 295,000 shares of Common Stock at a purchase price of $0.01 per share, in the form attached hereto as Exhibit D, duly executed by Borrower and the Lender;

 

(f) A Secured Guaranty duly executed by each Subsidiary of Borrower;

 

(g) A Management Rights Letter in the form attached hereto as Exhibit E, duly executed by Borrower;

 

(h) An Intellectual Property Security Agreement in the form attached hereto as Exhibit F, duly executed by Borrower and Target;

 

(i) Borrower shall have delivered evidence of insurance as required by Section 5.8 of this Loan Agreement and an Agreement to Provide Insurance, in the form attached hereto as Exhibit G, duly executed by Borrower, and the loss payable/additional insured endorsements required thereby;

 

(j) The SBA Letter Agreement, duly executed by Borrower in the form attached hereto as Exhibit H;

 

(k) Each of (A) the Size Status Declaration on SBA Form 480, substantially in the form attached hereto as Exhibit I-1, and (B) the Assurance of Compliance on SBA Form 652, substantially in the form attached hereto as Exhibit I-2, in each case, duly executed by Borrower;

 

(l) All information and documentation that Lender shall have requested in connection with the preparation and completion of the Portfolio Financing Report on SBA Form 1031, section A and B, substantially in the form attached hereto as Exhibit I-3;

 

(m) A Pledge Agreement, by Borrower pursuant to which Borrower pledges to Lender all of the equity securities of its direct Subsidiaries, in form and substance reasonably satisfactory to Lender;

 

(n) The certificates representing the shares of stock held by Borrower pledged pursuant to the Pledge Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof;

 

(o) Copies of all Senior Loan Documents, the Acquisition Agreement, and the Seller Subordinated Note, in each case, with terms reasonably satisfactory to Lender;

  

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(p) A lien search on Borrower of the Uniform Commercial Code records of the Secretary of State of the applicable state of organization and other applicable jurisdictions;

 

(q) Copies of Borrower’s audited consolidated balance sheet for Fiscal Year 2011 and unaudited financial statements for seven months ended July 31, 2012;

 

(r) Borrower’s financial and business projections and budget for the Fiscal Year ending December 31, 2013, including the business plan and quarterly projected balance sheets and income statements;

 

(s) A Subordination Agreement with Senior Lender, the first lienholder on the Collateral (defined in Section 3 below), in form and substance reasonably satisfactory to Lender;

 

(t) The Seller Subordination Agreement in form and substance reasonably satisfactory to Lender executed by Borrower and Seller;

 

(u) No Event of Default shall have occurred and be continuing;

 

(v) No event or condition shall exist that has had or could be reasonably expected to have a Material Adverse Effect since December 31, 2011;

 

(w) The representations and warranties contained in this Loan Agreement and the other Transaction Documents of Borrower shall be true and correct in all material respects as if made on the date of funding of the Advance;

 

(x) Each of the Transaction Documents shall be valid and binding and in full force and effect;

 

(y) Borrower shall have provided to Lender such documents, instruments and agreements, including financing statements or amendments to financing statements, as Lender shall reasonably request to evidence the perfection and priority of the security interests granted to Lender in this Loan Agreement and in the other Transaction Documents;

 

(z) Lender shall have received the Closing Fee;

 

(aa) Lender shall have received all necessary internal approvals to execute this Agreement and fund the Advance; and

 

(bb) Borrower shall have provided to Lender such other documents, instruments and agreements as Lender shall reasonably request.

 

3. GRANT OF SECURITY INTEREST

 

As security for all present and future indebtedness, guarantees, liabilities, and other obligations of Borrower to Lender under this Loan Agreement and the other Transaction Documents (collectively, the “Obligations”), Borrower grants Lender a security interest in all of Borrower’s right, title, and interest in and to the following personal property whether now owned or hereafter acquired or arising and wherever located (the “Collateral”):

 

(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), contract rights, deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Borrower’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;

  

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(b) all Intellectual Property Collateral;

 

(c) to the extent not listed above, all other personal property of Borrower; and

 

(d) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment.

 

All terms above have the meanings given to them in the Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code-Secured Transactions, added by Stats. 1999, c.991 (S.B. 45), Section 35, operative July 1, 2001.  Notwithstanding the foregoing, the security interest granted herein does not extend to and the term “Collateral” does not include (i) any license or contract rights to the extent (x) the granting of a security interest therein would be contrary to applicable law or (y) that such rights are nonassignable by their terms (but only to the extent the prohibition is enforceable under applicable law, including, without limitation, Sections 9-406(d) and 9-408(d) of the Uniform Commercial Code and the consent of the licensor or other party has not been obtained); and (ii) more than 65% (or such greater percentage that, due to a change of Legal Requirement after the Closing Date, (A) could not reasonably be expected to cause the undistributed earnings of each Subsidiary organized under the laws of any country other than the United States of America (a “Foreign Subsidiary”) as determined for U.S. federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary’s U.S. parent and (B) could not reasonably be expected to cause any material adverse tax consequences) of the issued and outstanding equity interests entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and 100% of the issued and outstanding equity interests not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) of each Foreign Subsidiary now or hereafter owned by Borrower or any domestic Subsidiary (or if Borrower or any domestic Subsidiary owns less than 65% of the equity interests of such Foreign Subsidiary, then all of the equity interests of such Foreign Subsidiary now or hereafter owned by Borrower or such domestic Subsidiary). Borrower agrees to execute, and authorizes Lender to execute on behalf of Lender, such documents and take such actions as Lender deems appropriate from time to time to perfect or continue the security interest granted hereunder.

 

4. REPRESENTATIONS AND WARRANTIES

 

Borrower represents to Lender on the date hereof as follows:

 

(a) Borrower is not in default under any agreement to which Borrower is a party or by which it or its properties is bound where such default could reasonably be expected to have a Material Adverse Effect;

 

(b) Borrower is duly organized, validly existing and (if applicable) in good standing under the laws of its jurisdiction of organization and qualified to do business in all states where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect;

 

(c) Borrower has all requisite corporate power and authority to own and operate its properties, to carry on its business substantially as now conducted, to enter into each Transaction Document to which it is a party and to incur the Obligations;

 

(d) this Loan Agreement is, and the other Transaction Documents when executed and delivered will be, the legal, valid and binding obligations of Borrower, each enforceable against such Person in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles;

 

(e) Borrower has taken all company action and obtained all material consents necessary to authorize the execution, delivery and performance of the Transaction Documents;

 

(f) Borrower has good title to the Collateral or valid and enforceable rights to use the Collateral and there are no liens, security interests or other encumbrances on the Collateral other than the security interest granted to Lender hereunder and Permitted Liens;

  

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(g) the execution and performance of the Transaction Documents do not conflict with, or constitute a default under, any agreement to which Borrower is party or by which such Person is bound or a Legal Requirement, in each case where such conflict or default could reasonably be expected to have a Material Adverse Effect;

 

(h) all financial statements provided to Lender for the Fiscal Year ended December 31, 2011 and for the seven months ended July 31, 2012; fairly present in all material respect Borrower’s financial condition on a consolidated basis as of the respective dates thereof and for the respective periods covered thereby, and there has not been a material adverse change in the financial condition of Borrower on a consolidated basis since the date of the most recent financial statements submitted to Lender (the “Latest Financial Statements”);

 

(i) the projections and forecasts provided by Borrower to Lender were prepared by Borrower in good faith and based upon assumptions believed by Borrower to be reasonable (it being agreed that such projections and forecasts are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results);

 

(j) all other material written information (not otherwise described in clause (h) and clause (i)) provided by Borrower to Lender on or prior to the date hereof, when taken together with all other information provided to Lender, is true and correct in all material respects;

 

(k) Borrower possesses and is in compliance in all material respects with all Permits required to operate its business except where the failure to so possess or be in compliance could reasonably be expected to have a Material Adverse Effect;

 

(l) Borrower owns, or is a licensor thereof, of all the patents, copyrights, trademarks and other intellectual property rights necessary for the conduct of its business or operations as substantially currently conducted and that are material to the financial condition, business, or operations of Borrower (collectively, the “Intellectual Property”), all such registered Intellectual Property that is listed on Schedule 4.5 of the Collateral Questionnaire, and Borrower’s registered trademarks is valid and enforceable. To Borrower’s knowledge, the use of such registered Intellectual Property by the Borrower does not and has not been alleged by any Person to infringe on the rights of any Person;

 

(m) Borrower is in compliance with all Legal Requirements where a failure to be in compliance could reasonably be expected to have a Material Adverse Effect;

 

(n) Borrower is not party to any litigation (other than any suit, action or proceeding in which Borrower is the plaintiff and in which no counterclaim or cross-claim against Borrower has been filed), and is not, to its knowledge, the subject of any government investigation, in each case that could reasonably be expected to have a Material Adverse Effect, and Borrower has no knowledge of any such pending litigation or investigation or the existence of circumstances that reasonably could be expected to give rise to any such litigation or investigation;

 

(o) other than Borrower’s direct and indirect Subsidiaries and Permitted Investments, Borrower does not own any shares or other equity interests in any corporation, partnership, limited liability company or other entity;

 

(p) Borrower reasonably believes that it and its Subsidiaries, on a consolidated basis: (i) owns and will own assets, the fair saleable value of which are (A) greater than the total amount of its liabilities (including contingent liabilities) and (B) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to it; (ii) has sufficient capital in relation to its business as substantially presently conducted; and (iii) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due;

  

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(q) Borrower does not have any obligation or liability (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due and regardless of when asserted) required to be disclosed in a balance sheet prepared in accordance with GAAP (including the notes thereto) arising out of transactions entered into at or prior to the Closing Date, other than:  (A) liabilities set forth on the Latest Financial Statements (including any notes thereto) and (B) liabilities and obligations which have arisen after the date of the Latest Financial Statements in the ordinary course of business (none of which is a liability resulting from breach of contract, breach of warranty, tort, infringement, claim or lawsuit, unless such liability is either fully covered by insurance (subject to normal deductibles or retentions) or could not, individually or in the aggregate with all such other liabilities, reasonably be expected to have a Material Adverse Effect);

 

(r) all material portions of the Collateral consisting of equipment are in good operating condition and repair, subject to ordinary wear and tear and casualty, and Borrower has made all economically reasonable and necessary repairs thereto;

 

(s) the inclusion of each account receivable on the Latest Financial Statements delivered to Lender is in accordance with GAAP;

 

(t) Borrower and each Subsidiary have filed or obtained extensions for filing or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes could not reasonably be expected to have a Material Adverse Effect; and

 

(u) Borrower, including its affiliates and Subsidiaries, has (i) tangible net worth not in excess of Eighteen Million Dollars ($18,000,000) and (ii) average net income after Federal income taxes (excluding any carry-over losses) for the preceding two (2) completed Fiscal Years not in excess of Six Million Dollars ($6,000,000), in each case prepared in accordance with GAAP (for purposes of this Section 4(u) only, “affiliate” has the meaning set forth in Section 121.103 of Title 13 of the Code of Federal Regulations).

 

5. COVENANTS.

 

5.1 Financial Information

 

Borrower will provide Lender:

 

(a) as soon as available, but in any event within thirty (30) days after the last day of each calendar month, monthly Borrower-prepared consolidated financial statements prepared in accordance with GAAP (except for the lack of footnotes and being subject to normal year end audit adjustments);

 

(b) as soon as available, but in any event within one hundred twenty (120) days after the last day of Borrower’s Fiscal Year, audited consolidated financial statements prepared in accordance with GAAP, certified as being fairly stated in all material respects by an independent certified public accounting firm reasonably acceptable to Lender, it being agreed that EisnerAmper LLP, Borrower’s current independent certified public accounting firm, is acceptable to Lender;

 

(c) within thirty (30) days after the last day of each calendar month, a listing of deferred revenue and aged listings by invoice date of accounts payable and accounts receivable;

 

(d) as soon as available, but in any event within the earlier to occur of thirty (30) days after the last day of Borrower’s Fiscal Year or ten (10) days after approval thereof by Borrower’s board of directors, Borrower’s financial and business projections and budget for the upcoming Fiscal Year, including material revisions to the business plan and monthly projected balance sheets and income statements and statements of cash flow, with evidence of approval thereof by Borrower’s board of directors;

 

(e) copies of all notices, minutes, consents, monthly financial performance reviews, and other relevant material provided to members of Borrower’s board of directors at the same time that such materials are provided to the members of Borrower’s board of directors, except that Lender may be excluded from access to any such material if the board of directors determines in good faith, upon advice of counsel, that such exclusion is reasonably necessary to preserve the attorney-client privilege, to protect highly confidential information, or for other similar reasons;

  

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(f) within thirty (30) days of the last day of each fiscal quarter, a report signed by Borrower, in form reasonably acceptable to Lender, listing any applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations, as well as any material change in Borrower’s Intellectual Property Collateral, including but not limited to any subsequent ownership right of Borrower in or to any Trademark, Patent or Copyright not specified in Schedules A, B, and C of any Intellectual Property Security Agreement delivered to Lender by Borrower in connection with this Loan Agreement;

 

(g) within thirty (30) days after the last day of each calendar month, a Compliance Certificate in the form attached hereto as Exhibit K, executed by Borrower’s Chief Financial Officer or other authorized officer reasonably acceptable to Lender;

 

(h) within thirty (30) days of the last day of each fiscal quarter, a detailed fully diluted capitalization table for the Borrower as of the end of such fiscal quarter; and

 

(i) as soon as available, but in any event within thirty (30) days after the Borrower receives copies of any 409A valuation reports or other documents that value any compensation, equity award, bonus, benefit plan, or any other arrangement that could be deemed deferred compensation within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended; and

 

(j) promptly upon Lender’s request, such other information relating to Borrower’s operations and condition as Lender may reasonably request from time to time.

 

5.2 Good Standings; Existence; Compliance with Laws

 

Borrower and each Subsidiary will maintain its corporate existence and good standing in each jurisdiction in which failure to so qualify could reasonably result in a Material Adverse Effect, and will maintain in force all licenses and agreements necessary to the conduct of its business in which failure to so maintain could reasonably result in a Material Adverse Effect. Borrower and each Subsidiary will pay all taxes on or before the date such taxes are due (unless contested by Borrower in good faith and Borrower has made adequate reserves in its financial statements in accordance with GAAP).  Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which could reasonably be expected to have a Material Adverse Effect.

 

5.3 Negative Covenants

 

Neither Borrower nor any Subsidiary thereof will:

 

(a) make any investments in, or loans or advances to, any Person other than in the ordinary course of business as currently conducted and other than Permitted Investments;

 

(b) make any distributions or pay any dividends to any Person on account of any equity ownership interest in Borrower or any Subsidiary (other than (i) those payable solely in equity securities issued by Borrower or such Subsidiary, (ii) those from any Subsidiary to Borrower, and (iii) as long as an Event of Default does not exist prior to such payment or would not exist after giving effect to such payment, dividend payments to Borrower’s B-1 and A-2 preferred shareholders beginning on January 1, 2013, payable quarterly in arrears, in an aggregate amount not to exceed $160,000 in each quarter in accordance with the terms of the Certificate of Designations, Preferences and Rights of Series B-1 Convertible Preferred Stock of Glowpoint, Inc. and the Certificate of Designations, Preferences and Rights of Series A-2 Convertible Preferred Stock of Glowpoint, Inc. , each as in effect on the Closing Date);

 

(c) make any payment on account of or in redemption, retirement or purchase of any capital stock of Borrower or any Subsidiary, except that (i) Subsidiaries may make such payments to Borrower, (ii) Borrower may repurchase the stock of former employees, directors, officers or consultants pursuant to stock repurchase agreements or option agreements (A) as long as such repurchases in any Fiscal Year of Borrower do not exceed $100,000 in the aggregate, and (B) as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, and (iii) the repurchase by Borrower of up to 50% of those shares issued to Avaya pursuant to an equipment purchase agreement dated June 30, 2011 in accordance with the terms of such equipment purchase agreement;

  

-8-

  

(d) directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower or any Subsidiary, except for (i) Permitted Investments, (ii) bona fide equity financings, (iii) other transactions in the ordinary course of business, in each case, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms-length transaction with a non-affiliated Person, (iv) any indemnity provided for the benefit of members of the Board of Directors (or comparable managers), officers, consultants or employees of Borrower and its Subsidiaries, (v) reasonable compensation, severance or employee benefit arrangements to members of the Board of Directors (or comparable managers), employees, officers and outside directors of Borrower and its Subsidiaries in the ordinary course of business and consistent with both industry and past practices of the Borrower, including, without limitation, issuances of stock, payment of bonuses, long term incentive compensation plans and other transactions pursuant to employment or compensation arrangements, stock option agreements, indemnification agreements or other similar arrangements, or (vi) transactions with an Affiliate that is a borrower hereunder or wholly-owned Subsidiaries that have guaranteed the Obligations;

 

(e) transfer or dispose of any portion of Borrower’s assets, except for:

 

	
(i)  

	
transfers or dispositions of Permitted Investments, other cash equivalents and inventory in the ordinary course of business, including the sale or disposition of delinquent notes, charge-offs accounts or accounts receivable for collection purposes,

 

	
(ii)  

	
dispositions of obsolete, damaged, uneconomic, worn-out or surplus equipment and inventory, or property and equipment no longer used or useful in the conduct of Borrower’s business,

 

	
(iii)  

	
the lapse of registered Intellectual Property of the Borrower and its Subsidiaries to the extent not economically desirable in the conduct of their business;

 

	
(iv)  

	
sales or transfers from wholly-owned Subsidiaries to Borrower or from Borrower to a wholly-owned domestic Subsidiary thereof,

 

	
(v)  

	
the sale or disposition of assets in connection with any loss, damage or destruction thereof,

 

	
(vi)  

	
the granting of Permitted Liens,

 

	
(vii)  

	
asset sales in which the sale price is at least equal to the fair market value of the asset sold and the consideration received is cash or cash equivalents or debt of Borrower being assumed by the purchaser, provided, that the aggregate amount of such asset sales does not exceed $100,000 in any Fiscal Year and no Event of Default has occurred and continuing at the time of each such sale (before and after giving effect to such asset sale),

 

	
(viii)  

	
dispositions of owned or leased vehicles in the ordinary course of business, or

 

	
(ix)  

	
non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business.

 

(f) subject to Section 5.10, create any direct or indirect Subsidiary of Borrower (other than in accordance with (i) clause (c) of the definition of “Permitted Investments” and (ii) Section 5.10);

  

-9-

  

(g) alter or modify Borrower’s or any Subsidiary’s constituent documents in a manner that materially adversely affects the interest of Lender as creditor and/or secured party under any Transaction Document; or change its name without prior written notice to Lender; or

 

(h) merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or assets of another Person, in each case other than with or into another Borrower or wholly-owned Subsidiary that has Guaranteed the Obligations.

 

5.4 Indebtedness

 

Borrower will not, nor will it permit any Subsidiary to, create, incur, assume or be liable for any Indebtedness, other than Permitted Indebtedness.

 

5.5 Liens; Encumbrances

 

Borrower will not, nor will it permit any Subsidiary to, create, incur, or allow any Lien on any of its property or assign or convey any right to receive income, except for Permitted Liens.

 

5.6 Prepayment of Debt

 

Borrower will not, nor will it permit any Subsidiary to, make any prepayment (whether optional or mandatory), repurchase, redemption, defeasance, or any other payment in respect of any Subordinated Debt (other than payments permitted under any applicable Subordination Agreement with respect to such Subordinated Debt, including the Seller Subordination Agreement); provided, however, Borrower can pay the Final Surplus (as defined in the Acquisition Agreement) so long as Lender receives two (2) business days prior written notice thereof and no Event of Default exists at the time of (and no Event of Default would exist, after giving effect to) such payment (and Borrower shall certify to Lender as such in the written notice referenced above).

 

5.7 Books and Records; Inspection and Audit Rights

 

Borrower shall maintain financial records in accordance with generally accepted practices. Lender shall have a right (a) to visit and inspect any of the properties of Borrower and its Subsidiaries, including a right to examine and copy Borrower’s and its Subsidiaries’ books and records from time to time upon reasonable notice to Borrower and during normal business hours, (b) to discuss its affairs, finances and accounts with Borrower’s officers, at such reasonable times as Lender may reasonably request, at meetings coordinated by Borrower, and (c) to discuss its affairs, finances and accounts with Borrower’s independent public accountants, at such reasonable times as Lender may reasonably request, but no more than once per quarter (unless an Event of Default has occurred and is continuing) at meetings coordinated by Borrower. Lender may audit Borrower’s Collateral during Borrower’s usual business hours but, in each case, no more than twice a year (unless an Event of Default has occurred and is continuing) at Borrower’s expense. Lender will give Borrower fifteen (15) days advance notice of such an audit, unless an Event of Default has occurred and is continuing.

 

5.8 Insurance

 

Borrower will maintain insurance with financially sound and reputable insurance companies in such amounts and of such types as are customarily carried by companies similar in size and nature relating to the Collateral and Borrower’s business.  Any insurance on the Collateral shall include a lender’s loss payable endorsement in favor of Lender as a loss payee, and any liability insurance shall be endorsed to show Lender as an additional insured.

 

5.9 Registration of Intellectual Property Rights

 

Borrower will register with the United States Patent and Trademark Office or the United States Copyright Office, its registrable Intellectual Property and additional intellectual property rights developed or acquired after the Closing Date, including revisions or additions with any product before the sale or licensing of the product to any third party, in each case to the extent that its board of directors (or comparable managers) in good faith deems appropriate and material for the development of Borrower’s business and in the best interests of Borrower and its stockholders.  To the extent that its board of directors (or comparable managers) in good faith determines appropriate and material for the development of Borrower’s business and in the best interests of Borrower and its stockholders, Borrower will use commercially reasonable efforts to (a) protect, defend and maintain the validity and enforceability of the Intellectual Property determined by Borrower to be material to the business of Borrower and promptly advise Lender in writing of any material infringements and (b) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Lender’s written consent.

  

-10-

  

5.10 Subsidiary Guarantors.

 

Contemporaneously with the formation or acquisition of any new Subsidiary, Borrower shall cause such new Subsidiary to either (a) execute and deliver a guaranty in form and substance reasonably acceptable to Lender or (b) execute and deliver a joinder to this Loan Agreement in which it becomes a borrower hereunder, unless Lender, in its reasonably discretion, agrees otherwise.

 

5.11 Use of Proceeds

 

Subject to the Act, Borrower will use the proceeds from the Advance to pay transaction fees incurred in connection with the Transaction Documents, for working capital, and for the Acquisition.

 

5.12 Further Assurances

 

Borrower will, within five (5) business days, execute any further instruments and take further action as Lender may reasonably request to perfect or continue Lender’s security interest in the Collateral or to effect the purposes of this Loan Agreement.

 

5.13 [Reserved]

 

5.14 Deposit Accounts

 

Neither Borrower nor any of its Subsidiaries shall establish or maintain a Deposit Account that is not subject to a Control Agreement and neither Borrower nor any of its Subsidiaries will deposit Collateral (including the proceeds thereof) or the proceeds of the Advance in a Deposit Account or Securities Account that is not subject to a Control Agreement.

 

5.15 Borrowing Base Covenant

 

Borrower hereby covenants and agrees that the definition of “Eligible Accounts” contained in Exhibit A to the Senior Loan Agreement will not be amended, replaced, modified, or revised in any way without prior written consent of Lender if the effect of such amendment, replacement, modification, or revision would be to allow for advances that would not have been available under the definition of “Eligible Accounts” contained in the Senior Loan Agreement as in effect on the Closing Date.

 

5.16 Additional Financial Covenants

 

In the event that the Senior Indebtedness is paid in full and the Senior Loan Documents are terminated (or in the event that a refinancing occurs under the Senior Indebtedness and Lender is not satisfied with the financial covenants contained in such replacement Senior Indebtedness), Lender shall have the right to implement such financial covenants based upon Lender’s good faith business judgment, in consultation with Borrower and based upon the projections delivered to Lender by Borrower.

 

5.17 Notice of Default

 

Borrower shall provide, prompt written notice (but, in any event, within two (2) business days of the knowledge thereof of a Responsible Officer) (a) of any condition or event that constitutes a default under this Agreement or, with the passage of time or giving of notice or both, would constitute an Event of Default under this Agreement or that notice has been given to Borrower or any of its Subsidiaries with respect thereto or (b) that any Person has given any notice of default to Borrower or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 6.1(a)(iii); or (c) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, which notice shall be accompanied by a certificate of its Responsible Officer specifying the nature and period of existence of such condition, event, or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Event of Default, default, event or condition, and what action Borrower and its Subsidiaries have taken, are taking and/or propose to take with respect thereto.

 

5.18 The Act

 

At the request of Lender, Borrower will provide reasonable assistance to Lender so that Lender is able to promptly correct any defect, error or omission with respect to the Act which may be discovered in the contents of this Loan Agreement or the other Transaction Documents or in the execution or acknowledgment thereof, and will execute, acknowledge and deliver such further instruments and do such further acts as may be reasonably necessary for this Loan Agreement and the other Transaction Documents, and all transactions contemplated thereby, to comply with the Act.

 

5.19 Amendment of Subordinated Debt Documents and Acquisition Agreement

 

Amend, modify or otherwise alter (or suffer to be amended, modified or altered) (a) any Subordinated Debt Document except as permitted in the applicable Subordinated Debt Documents and Subordination Agreements, or (b) the Acquisition Agreement, without the prior written consent of Lender.

  

-11-

  

5.20 Post Closing Covenants.

 

(a) Within 60 days following the Closing Date, the Lender shall have received in form and substance reasonably satisfactory to Lender, a Control Agreement in the form attached hereto as Exhibit J, duly executed by Borrower and Senior Lender covering each Deposit Account described therein and required to be pledged under this agreement.

 

(b) Within 60 days following the Closing Date, the Lender shall have received written confirmation that each of Borrower’s accounts at Silicon Valley Bank have been closed.

 

(c) Within 30 days following the Closing Date, the Lender shall have received in form and substance reasonably satisfactory to Lender, that certain Landlord Consent and Waiver by and among CMC Steel Fabricators, Inc., GRE Mountain Heights Property LLC, Senior Lender, Lender, and Borrower, duly executed by the parties thereto.

 

(d) On or before October 29, 2012, the Lender shall have received an Authorization Agreement in the form attached hereto as Exhibit A, duly executed by Borrower.

 

6. EVENTS OF DEFAULT; REMEDIES.

 

6.1 Events of Default

 

Any one or more of the following shall constitute an “Event of Default” under this Loan Agreement:

 

(a) Borrower’s failure (i) to pay all or any part of (A) the interest hereunder on the date due and payable and such failure continues for three (3) days or (B) the principal hereunder on the date due and payable, or (ii) to comply with any agreement or covenant set forth in this Loan Agreement or any other Transaction Document and, Borrower has not cured the default within ten (10) Business Days after the earlier of (1) receipt by Borrower of notice from Lender of such default, or (2) actual knowledge of a Responsible Officer of Borrower of such default; provided, however, the cure period set forth above shall not apply to Borrower’s failure to comply with Sections 5.1, 5.3, 5.4, 5.5, 5.6, 5.8, 5.12, 5.13, 5.14; and 5.17 provided, further that an Event of Default arising from a breach of Section 5.1 shall be deemed to have been cured upon the delivery of the required items; and provided further that any Event of Default arising from solely due to a breach of Section 5.17(a), Section 5.17(b), or Section 5.8 shall be deemed cured upon the earlier of (x) with respect to a breach of Section 5.17(a) or Section 5.17(b), the giving of the notice required by such sections and (y) the date upon which the default or Event of Default giving rise to the notice  obligations is cured or waived; or (iii) to comply with any agreement pursuant to which Borrower has incurred Indebtedness in excess of $100,000, including, without limitation, any event or occurrence that would constitute a default or Event of Default under the Senior Loan Agreement, to the extent such failure to comply, in each case, results in a right by the applicable Person, irrespective of whether exercised, to accelerate the maturity of Borrower’s obligations thereunder; or

 

(b) Borrower becomes unable to pay its debts (including trade debts) as they mature, or becomes the subject of any case or proceeding under the United States Bankruptcy Code or any other law relating to the reorganization or restructuring of debt which has not been stayed or dismissed within forty-five (45) days of the filing (an “Insolvency Event”), or any material portion of Borrower’s assets is attached or becomes subject to levy or similar judicial proceeding that is not released within fifteen (15) days or in any event no later than five (5) business days prior to the date of any proposed sale thereunder; or

 

(c) any representation made to Lender in this Loan Agreement or any other Transaction Document, or any written information given to Lender by or on behalf of Borrower, shall be incorrect in any material adverse respect when made; or

 

(d) any part of the Collateral becomes subject to an attachment, Lien, security interest or levy in favor of any Person other than Lender, other than Permitted Liens, that is not released within thirty (30) days; or

  

-12-

  

(e) a final non-appealable judgment or judgments for the payment of money in excess of $100,000 shall be rendered against Borrower and shall remain unsatisfied, unstayed or not covered by adequate insurance for a period of thirty (30) days; or

 

(f) any occurrence or event which has had or could reasonably be expect to have a Material Adverse Effect.

 

6.2 Remedies

 

Upon the occurrence and during the continuance of an Event of Default, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, or immediately and automatically with no action required if such Event of Default consists of an Insolvency Event, be immediately due and payable and collectible by or on behalf of Lender, and Lender may exercise all of the rights of a secured party under the Uniform Commercial Code and any other applicable law.  Lender may immediately set off and apply to any obligation outstanding hereunder and under any other Transaction Document any balances or deposits held by Lender or any indebtedness at any time owing to or for the credit or the account of Borrower held by Lender.  Borrower shall assemble the Collateral in accordance with Lender’s directions, and Lender shall have a right at Borrower’s sole expense to dispose of all or any portion of the Collateral in the order and manner that Lender elects, in its sole discretion, in any commercially reasonable manner.  Lender shall have a royalty-free license to use any name, trademark, or any property of Borrower to complete production of, advertisement for, and disposition of any Collateral and Lender shall have a license to enter into, occupy and use Borrower’s premises and the Collateral without charge to exercise any of Lender’s rights or remedies under this Loan Agreement or under any other Transaction Document.  Borrower irrevocably appoints Lender (and any of Lender’s designated employees or agents) as Borrower’s true and lawful attorney in fact to, after the occurrence and during the continuance of an Event of Default, take any action and to execute any instrument which Lender may deem reasonably necessary or advisable to accomplish the purposes of this Loan Agreement, including, without limitation:

 

(a) endorse Borrower’s name on any checks or other forms of payment;

 

(b) make, settle and adjust all claims under and decisions with respect to Borrower’s policies of insurance;

 

(c) settle and adjust disputes and claims respecting accounts receivable with account debtors;

 

(d) execute and deliver all notices, instruments and agreements in connection with the perfection of the security interest granted in this Loan Agreement or under any other Transaction Document;

 

(e) sell, lease, or otherwise dispose of all or any part of the Collateral;

 

(f) ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Collateral;

 

(g) receive and open all mail addressed to Borrower and to notify postal authorities to change the address for the delivery of mail to Borrower to that of Lender;

 

(h) receive, indorse, and collect any drafts or other instruments, documents, negotiable Collateral or chattel paper;

 

(i) file any claims or take any action or institute any proceedings which Lender may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Lender with respect to any of the Collateral;

 

(j) repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any Person obligated to Borrower in respect of any account of Borrower;

 

(k) use any labels, Intellectual Property Collateral, trade names, URLs, domain names, industrial designs, advertising matter or other industrial or intellectual property rights, in advertising for sale and selling inventory and other Collateral and to collect any amounts due under accounts, contracts or negotiable collateral of Borrower; and

  

-13-

  

(l) Lender shall have the right, but shall not be obligated, to bring suit in its own name to enforce the Intellectual Property Collateral and, if Lender shall commence any such suit, then Borrower shall, at the request of Lender, do any and all lawful acts and execute any and all proper documents required by Lender in aid of such enforcement.

 

The appointment of Lender as Borrower’s attorney in fact, and each of Lender’s rights and powers, being coupled with an interest, is irrevocable until all amounts owing to Lender under this Loan Agreement and the other Transaction Documents have been repaid in full.

 

7. WAIVERS; INDEMNITY

 

Borrower waives notice of default, presentment, and demand for payment, notice of dishonor, protest, and notice of protest under this Loan Agreement and any other Transaction Document.  Borrower shall pay all costs of collection and enforcement of this Loan Agreement and each Transaction Document when incurred, including reasonable attorneys’ fees, costs, and expenses incurred before, after, or in connection with an Insolvency Event.  So long as Lender complies with reasonable lending practices and Section 9-207 of the Uniform Commercial Code and all other applicable laws, rules and regulations, Lender shall not in any case be liable for any loss of, or damage to, the Collateral, the risk of which shall be borne by Borrower at all times.  Borrower shall indemnify and hold Lender harmless from any claim, obligation or liability (including without limitation reasonable attorneys’ fees and expenses) arising out of this Loan Agreement or any other Transaction Document or the transactions contemplated hereby or thereby, including any claim, obligation or liability arising before, after or in connection with an Insolvency Event other than losses solely and directly resulting from Lender’s gross negligence or intentional breach of this Loan Agreement or any other Transaction Document.  The indemnity obligation hereunder shall survive repayment of all Obligations and termination of this Loan Agreement until all applicable statute of limitation periods as to actions that may be brought against Lender have run.

 

8. MAXIMUM LAWFUL RATE

 

On the Maturity Date or, if earlier, the date that the Advance and all accrued interest thereon are paid in full, Lender will compute the total amount of interest that has been contracted for, charged or received by Lender or payable by Borrower hereunder and compare such amount to the Maximum Lawful Amount that could have been contracted for, charged or received by Lender. If such computation reflects that the total amount of interest that has been contracted for, charged or received by Lender or payable by Borrower exceeds the Maximum Lawful Amount, then Lender shall apply such excess to the reduction of the principal balance, and any remaining excess shall be refunded to Borrower.  This provision concerning the crediting or refunding of excess interest shall control and take precedence over all other agreements between Borrower and Lender so that under no circumstance shall the total interest contracted for, charged or received by Lender exceed the Maximum Lawful Amount.

 

9. MISCELLANEOUS

 

Lender may assign all or any part of its interest in this Loan Agreement and the Advance to any Person, or grant a participation of any interest in this Loan Agreement, with the prior written consent of Borrower.  This Loan Agreement can be amended only by an instrument signed by Lender and Borrower.  All prior agreements, understandings, and negotiations are superseded by this Loan Agreement.  Borrower may not assign any obligation hereunder without Lender’s prior written consent, which may be granted or withheld in Lender’s sole discretion.  This Loan Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one instrument.  This Loan Agreement may be executed by facsimile transmission or other electronic means, which such electronic signatures shall be considered original executed counterparts for purposes of this Section 9, and each party to this Loan Agreement agrees that it will be bound by its own electronic signature and that it accepts the electronic signature of each other party to this Loan Agreement.  Each provision of this Loan Agreement shall be severable from every other provision of this Loan Agreement for the purpose of determining the legal enforceability of any specific provision.  All covenants, representations, and warrants made in this Loan Agreement shall continue in full force and effect so long as any Obligations hereunder remain outstanding.  This Loan Agreement shall be governed by the internal laws of the State of California, without regard to conflicts of laws rules.  Borrower and Lender consent to the jurisdiction of the United States District Court of the Northern District of California and the state courts for San Mateo, California.

  

-14-

  

10. NOTICES

 

Unless otherwise provided in this Loan Agreement, all notices, requests, consents, demands, and other communications by any party relating to this Loan Agreement or any other Transaction Document shall be in writing and will be deemed given:  (a) when delivered if delivered personally (including by courier); (b) on the third day after mailing, if mailed, postage prepaid, by registered or certified mail (return receipt requested, except for financial statements and other informational documents which may be sent by first-class mail); (c) on the day after mailing if sent by a nationally recognized overnight delivery service which maintains records of the time, place, and recipient of delivery; or (d) upon receipt of a confirmed transmission, if sent by .pdf or facsimile transmission, in each case, to Borrower or to Lender, as the case may be, at its addresses set forth below (or, in the case of .pdf, to the email address designated from time to time):

 

	 	
If to Borrower:

	
Glowpoint, Inc.

	 	  	
430 Mountain Avenue, Suite 301

	 	  	
Murray Hill, New Jersey 07974

	 	  	
Attention:  General Counsel

	 	  	
Phone:  866.456.9764

	 	  	
Fax:  073.855.3411

	 	  	
Email:  generalcounsel@glowpoint.com

	 	  	  
	 	
with a copy (which shall not constitute

	
Thompson Hine LLP

	 	
notice) to:

	
335 Madison Avenue, 12th Floor

	 	  	
New York, NY 10017-4611

	 	  	
Attention:  Katherine D. Brandt, Esq.

	 	  	
Phone:  212.908.3915

	 	  	
Fax:  212.344.6101

	 	  	
Email:  katherine.brandt@thompsonhine.com

	 	  	  
	 	
If to Lender:

	
Escalate Capital Partners SBIC I, L.P.

	 	  	
300 West Sixth Street, Suite 2300

	 	  	
Austin, Texas 78701

	 	  	
Attention: Chris Julich

	 	  	
Phone: 512.651.2104

	 	  	
Fax: 512.651.2101

	 	  	
Email: chris@escalatecapital.com

	 	  	  
	 	
And to:

	
Escalate Capital Partners

	 	  	
150 Almaden Blvd., Suite 925

	 	  	
San Jose, California 95113

	 	  	
Attention: Simon James

	 	  	
Phone: 408.200.0097

	 	  	
Fax: 408.200.0099

	 	  	
Email: simon@escalatecapital.com

	 	  	  
	 	
with a copy (which shall not constitute

	
Patton Boggs LLP

	 	
notice) to:

	
2000 McKinney Avenue, Suite 1700

	 	  	
Dallas, Texas 75201

	 	  	
Attn: David McLean, Esq.

	 	  	
Phone: 214.758.3553

	 	  	
Fax: 214.758.1550

	 	  	
Email: dmclean@pattonboggs.com

	 	  	  

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

 

  

-15-

  

11. JURY WAIVER; ARBITRATION

 

LENDER AND BORROWER WAIVE ANY RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS LOAN AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT.  EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IF THIS JURY WAIVER IS FOR ANY REASON UNENFORCEABLE, THE PARTIES AGREE TO RESOLVE ALL CLAIMS, CAUSES AND DISPUTES THROUGH FINAL AND BINDING ARBITRATION TO BE HELD IN SAN MATEO COUNTY IN ACCORDANCE WITH THEN-CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. JUDGMENT UPON ANY AWARD RESULTING FROM ARBITRATION MAY BE ENTERED INTO AND ENFORCED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF.

 

12. THE ACT

 

This Loan Agreement, the other Transaction Documents and all transactions contemplated hereby and thereby are subject to provisions of the Act, and shall be governed thereby to the extent of any conflict therewith.

 

13. DEFINITIONS.

 

“Acquisition” means the merger of Merger Sub with and into Target as the surviving entity, pursuant to the terms and conditions of the Acquisition Agreement.

 

“Acquisition Agreement” means that certain Agreement and Plan of Merger dated as of August 12, 2012, by and among Borrower, Merger Sub, Target and Seller.

 

“Act” means the Small Business Investment Act of 1958, as amended and in effect from time to time, and the regulations promulgated thereunder.

 

“Advance” has the meaning set forth in Section 1.1.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person.

 

“Authorization Agreement” has the meaning set forth in Section 1.2(f).

 

“Capitalized Lease” shall mean, as applied to any Person, any lease of any property (whether real, personal or mixed) with respect to which the discounted present value of the rental obligations of such Person as lessee thereunder, in conformity with GAAP, is required to be capitalized on the balance sheet of that Person.

 

“Change of Control” shall mean the occurrence of any of the following:

 

(a) any transaction or series of related transactions resulting in the sale or issuance of securities or any rights to securities of Borrower by Borrower representing in the aggregate more than 50% of its issued and outstanding voting securities, on a fully diluted basis, or any transaction or series of related transactions resulting in the sale, transfer, assignment or other conveyance or disposition of any securities or any rights to securities of Borrower by any holder or holders thereof representing in the aggregate more than 50% of the issued and outstanding voting securities of Borrower on a fully diluted basis and the receipt of any consideration in connection therewith, in each case other than to the existing stockholders and their Affiliates;

  

-16-

  

(b) a merger, consolidation, reorganization, recapitalization or share exchange in which the stockholders of Borrower immediately prior to such transaction receive, in exchange for securities of Borrower owned by them, cash, property or securities of the resulting or surviving entity and as a result thereof Persons who were holders of voting securities of Borrower hold less than 50% of the capital stock, calculated on a fully diluted basis, of the resulting corporation entitled to vote in the election of directors; or

 

(c) a sale, transfer or other disposition of 50% or more of the assets of Borrower and its Subsidiaries, on a consolidated basis.

 

“Cisco” means Cisco Systems Capital Corporation and any Affiliates, successors or assigns.

 

“Closing Date” has the meaning set forth in Section 1.1.

 

“Closing Fee” has the meaning set forth in Section 1.3.

 

“Collateral” has the meaning set forth in Section 3.

 

“Collateral Questionnaire” means the Collateral Questionnaire provided by Borrower and dated as of the date hereof, attached hereto as Exhibit L.

 

“Comerica” means Comerica Bank.

 

“Common Stock” means the common stock, par value $0.0001 per share, of Borrower.

 

“Compliance Certificate” shall mean the certificate to be furnished by Borrower to Lender pursuant to Section 5.1(g) hereof, substantially in the form attached hereto as Exhibit K and certified by a Responsible Officer of Borrower, in which report Borrower shall set forth the information specified therein.

 

“Contingent Obligations” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (a) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (b) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued for the account of that Person; and (c) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 

“Control Agreements” means a control agreement, in form and substance satisfactory to Lender, entered into with the bank or securities intermediary at which any Deposit Account or Securities Account is maintained by Borrower or any of its Subsidiaries as required under the terms of Section 5.14.  Schedule 5.14 identifies all of the Control Agreements that are required to be in effect on the Closing Date (subject to Section 5.20).

 

“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.

 

“Default Rate” has the meaning set forth in Section 1.2(g).

 

“Dell” means Dell Financial Services L.L.C. and any Affiliates, successors or assigns.

  

-17-

  

“Deposit Account” means any “deposit account,” as such term is defined in Section 9-102(a)(30) of the Uniform Commercial Code, now owned or hereafter acquired by Borrower or any of its Subsidiaries or in which Borrower or any of its Subsidiaries now has or hereafter acquires any right and wherever located, provided, however, “zero balance” payroll accounts maintained in the ordinary course of business shall not be deemed to be Deposit Accounts; provided, further however, that any deposits into such payroll accounts shall be limited to the type of deposit for which such accounts were established and the aggregate amount on deposit in such payroll accounts does not exceed the aggregate payroll obligations of Borrower and its Subsidiaries for the then current pay period.

 

“Event of Default” shall have the meaning set forth in Section 6.

 

“Fiscal Year” means the twelve-month period ending on each December 31.

 

“Foreign Subsidiary” has the meaning set forth in Section 3.

 

“GAAP” means generally accepted accounting principles in effect in the United States.

 

“Governmental Authority” means any federal, state, provincial, municipal, and foreign governmental entity, authority, or agency or any other political subdivision, or any entity exercising executive, legislative judicial, regulatory or administrative functions of government.

 

“Guarantor” shall mean each direct or indirect domestic Subsidiary of Borrower and any other Person providing a secured guaranty with respect to the Obligations.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit (other than trade payables incurred in the ordinary course of business, having a term of less than six (6) months that are not overdue by more than ninety (90) days), (b) all obligations evidenced by notes, bonds, debentures or similar instruments (including the Advance and the Senior Indebtedness), (c) the principal component of obligations under Capitalized Leases, and (d) all Contingent Obligations; provided, however, Indebtedness does not include any intercompany debt between Borrower and its Subsidiaries.

 

“Insolvency Event” has the meaning set forth in Section 6.1.

 

“Intellectual Property” has the meaning set forth in Section 4(1).

 

“Intellectual Property Collateral” means all of Borrower’s right, title, and interest in and to the following:

 

(a) Copyrights, Trademarks and Patents;

 

(b) any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

 

(c) any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;

 

(d) any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

 

(e) all licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

 

(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

  

-18-

  

(g) all proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

 

“Latest Financial Statements” has the meaning set forth in Section 4(h).

 

“Legal Requirement” means any statute, ordinance, code, law, rule, regulation, order or other requirement, standard, procedure enacted, adopted or applied by any Governmental Authority, including, decisions, orders, writs, awards, or injunctions of an arbitrator or a court or other Governmental Authority.

 

“Lien” means any lien, mortgage, pledge, charge, security interest or other encumbrance of any kind.

 

“Loan Agreement” has the meaning set forth in the introductory paragraph.

 

“Material Adverse Effect” means a material adverse effect on (a) the financial condition, business operations, or assets of Borrower and its Subsidiaries taken as a whole, (b) the ability of Borrower to repay the Obligations or otherwise perform their obligations under the Transaction Documents or of Lender to enforce any Transaction Documents, or (c) the value, perfection or priority of Lender’s security interest in the Collateral.

 

“Maturity Date” has the meaning set forth in Section 1.2(c)(iii).

 

“Maximum Lawful Amount” means the maximum amount of interest that is permissible under applicable state or federal laws for the type of loan evidenced by the Transaction Documents.

 

“Maximum Senior Indebtedness Amount” means $5,000,000 less the amount of any permanent reduction in the revolving portion of the Senior Indebtedness; provided, that the aggregate principal amount of Senior Indebtedness that is comprised of term debt shall not, at any time, exceed $2,000,000, less the amount of any payments of principal on such term debt, (which may not be reborrowed).

 

“Merger Sub” means GPAV Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned Subsidiary of Borrower.

 

“Note” has the meaning set forth in Section 2.1(c).

 

“Obligations” has the meaning set forth in Section 3.

 

“Patents” means all patents, patent applications and like protections including without limitation, improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same.

 

“Permits” means all franchises, approvals, permits, authorizations, licenses, orders, registrations, certificates, variances and other similar permits or rights obtained from any Governmental Authority and all pending applications therefor, which are material to the business of Borrower.

 

“Permitted Indebtedness” means:

 

(a) Indebtedness of Borrower in favor of Lender arising under this Loan Agreement or any other Transaction Document;

 

(b) Senior Indebtedness;

 

(c) Indebtedness not to exceed $250,000 in the aggregate in any Fiscal Year of Borrower secured by a lien described in clause (c) of the defined term “Permitted Liens;” provided, that (i) such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment and related software financed with such Indebtedness, (ii) the amount of Indebtedness as of the Closing Date related to the liens listed on Schedule 4(f) shall not be subject to the foregoing cap, and (iii) notwithstanding clause (ii), Borrower shall not incur any Indebtedness in favor of Cisco and Dell which Indebtedness, in the aggregate owing to Cisco and Dell, shall exceed $750,000.

  

-19-

  

(d) Subordinated Debt in an aggregate principal amount not to exceed (i) with respect to the Seller Subordinated Note, $2,750,000, less the amount of any payments of principal on such debt (which may not be reborrowed) and (ii) with respect to any other Subordinated Debt, $100,000;

 

(e) Indebtedness to trade creditors incurred in the ordinary course of business;

 

(f) guarantees of Permitted Indebtedness;

 

(g) Indebtedness arising from the endorsement of instruments or other payment items for deposit in the ordinary course of business;

 

(h) Indebtedness arising from judgments or decrees not deemed to be a default or Event of Default under Section 6.1(e);

 

(i) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness listed in clause (a) through clause (f) above and clause (j) below, provided that (i) the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower, (ii) the interest rate margins or any fixed interest rates on such Indebtedness are not increased, (iii) restrictions are not added on the ability of Borrower to repay the Advance, other than those in effect on the date hereof, (iv) the final maturity date of the Indebtedness is not extended to a date beyond the Maturity Date, or (v) the amortization of any portion of the Senior Indebtedness is not shortened;

 

(j) Indebtedness owing to a Person that is a borrower hereunder or its wholly-owned Subsidiary, but only to the extent permitted under the terms of this Loan Agreement;

 

(k) Indebtedness composing Permitted Investments;

 

(l) Indebtedness in respect of workers’ compensation claims, payment obligations in connection with health or other type of social security benefits, unemployment or other insurance or self-insurance obligations in the ordinary course of business;

 

(m) performance bonds, surety bonds, and other indemnities or similar obligations issued in the ordinary course of business; and

 

(n) other unsecured Indebtedness in an aggregate outstanding principal amount not exceeding $100,000 at any time.

 

“Permitted Investments” are:

 

(a) investments shown on Schedule 4(o) hereto and existing on the Closing Date;

 

(b) (i) marketable direct obligations issued or unconditionally guaranteed or insured by the United States or its agency or instrumentality thereof or any State maturing within one year from its acquisition, (ii) commercial paper maturing no more than one year after its creation and having the highest rating from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., (iii) certificates of deposit issued maturing no more than one year after issue, (iv) money market accounts, (v) Investments in regular checking or deposit accounts subject to a Control Agreement, and (vi) Investments made pursuant to Borrower’s investment policy approved by its board of directors and disclosed to Lender;

 

(c) investments in cash and cash equivalents;

 

(d) investments in negotiable instruments deposited or to be deposited for collection in the ordinary course of business;

  

-20-

  

(e) investments of wholly-owned Subsidiaries in or to other wholly-owned Subsidiaries that have guaranteed the Obligations pursuant to Section 5.10 of this Loan Agreement and investments by Borrower in any domestic Subsidiaries that have guaranteed the Obligations pursuant to Section 5.10 of this Loan Agreement; provided, that payments of such amounts will not cause an Event of Default or the occurrence of an event that, with the passage of any notice and cure period, would constitute an Event of Default;

 

(f) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business or in connection with the satisfaction or enforcement of Indebtedness or claims due or owing to Borrower or its Subsidiaries (in bankruptcy of customers or suppliers or otherwise outside the ordinary course of business) or as security for  any such Indebtedness or claims;

 

(g) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this clause (e) shall not apply to Investments of Borrower in any Subsidiary;

 

(h) Investments consisting of (i) travel advance and employee relocation loans and other employee loans and advance in the ordinary course of business, and (ii) loans to employees, officers or directors, members, managers or stockholders relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s board of directors not to exceed, for all such Investments for all Borrower, $100,000 in the aggregate outstanding at any time; and

 

(i) Investments otherwise expressly permitted under the terms of this Loan Agreement.

 

“Permitted Liens” means:

 

(a) Any Liens (i) existing on the Closing Date and listed on Schedule 4(f) hereto (excluding Liens to be satisfied with the proceeds of the Advance) and renewals, refinancings and extensions thereof on substantially the same or better terms as in effect on the Closing Date and otherwise in compliance with this Loan Agreement or (ii) arising under this Loan Agreement or the other Transaction Documents;

 

(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves;

 

(c) Purchase money Liens (i) on equipment acquired or held by Borrower incurred for financing the acquisition of the equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment; provided that Borrower shall not permit any new Lien after the Closing Date in favor of Cisco and/or Dell (unless such new Lien shall extend solely to financed equipment and the scope of such Lien shall be approved by Lender in writing);

 

(d) Leases or subleases and licenses or sublicenses granted in the ordinary course of Borrower’s business;

 

(e) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 6;

 

(f) Liens in favor of other financial institutions arising in connection with Borrower’s deposit accounts held at such institutions to secure standard fees for deposit services charged by, but not financing made available by such institutions, provided that Lender has a perfected security interest in the amounts held in such deposit accounts;

 

(g) Liens securing Indebtedness described in clause (b) of the definition of Permitted Indebtedness and extensions, refinancings, modifications, amendments and restatements thereof;

  

-21-

  

(h) Liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and other similar liens incurred in the ordinary course of business for sums not overdue more than sixty (60) days;

 

(i) Liens (other than any lien created by Section 4068 of ERISA and securing an obligation of any employer or employers which is delinquent) incurred or deposits or pledges made in the ordinary course of business in connection with worker’s compensation, unemployment insurance and other types of social security, or to secure the performance of bids, leases, customs, tenders, statutory obligations, surety and appeal bonds, payment and performance bonds, return-of-money bonds and other similar obligations (not incurred in connection with the borrowing of money or the obtaining of advance or credits to finance the purchase price of property);

 

(j) Easements, rights-of-way, restrictions, covenants, conditions and other liens incurred, licenses and sublicenses and other similar rights granted to others in the ordinary course of business and not, individually or in the aggregate, materially interfering with the ordinary conduct of the business of the applicable Person; and

 

(k) Liens consisting of rights of set-off or bankers’ liens or amounts on deposit.

 

“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity, or governmental agency.

 

“Principal Commencement Date” has the meaning set forth in Section 1.2(c)(i).

 

“Responsible Officer” means any of the Chief Executive Officer, Chief Financial Officer or Executive Vice President of Borrower.

 

“SBA Letter Agreement” means that certain letter agreement regarding matters pertaining to the Act, dated as of the date hereof, by and between Lender and Borrower, substantially in the form of Exhibit H attached hereto.

 

“Securities Account” means any “securities account” as defined in the Uniform Commercial Code.

 

“Seller” means Shareholder Representative Services LLC, a Colorado limited liability company, in its capacity as Sellers’ Representative (as defined in the Acquisition Agreement).

 

“Seller Subordinated Note” means that certain Nonnegotiable Promissory Note dated as of the date hereof, by Borrower in favor of Seller, in the principal amount of $2,750,000, as amended, restated, supplemented, or otherwise modified from time to time in accordance with the Seller Subordination Agreement.

 

“Seller Subordination Agreement” means that certain Subordination Agreement by and among Lender, Seller, and Borrower, in form and substance satisfactory to Lender, in its sole discretion, as the same may be amended, modified, supplemented or otherwise modified from time to time.

 

“Senior Indebtedness” means all obligations, liabilities and Indebtedness of every nature of Borrower from time to time owed under the Senior Loan Documents or under any replacement or substitute senior loan facility; provided, however, that in no event shall the principal amount of the Senior Indebtedness exceed the Maximum Senior Indebtedness Amount.  Senior Indebtedness shall be considered to be outstanding whenever any loan commitment or principal amount under the Senior Loan Documents is outstanding.

 

“Senior Lender” means Comerica, or any replacement or substitute lender permitted under the subordination agreement between the Lender and the Senior Lender.

 

“Senior Loan Agreement” means that certain Loan and Security Agreement dated as of the date hereof, by and between Borrower and Senior Lender, as the same may be amended, supplemented or otherwise modified from time to time as permitted herein.

  

-22-

  

“Senior Loan Documents” means the Senior Loan Agreement and all other agreements, documents and instruments executed from time to time in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time as permitted herein, including a subordination agreement by and between Lender and Senior Lender, in form and substance reasonably satisfactory to Lender.

 

“Subordinated Debt” means any debt incurred by Borrower that is subordinated in writing to the debt owing by Borrower to Lender on terms reasonably acceptable to Lender (and identified as being such by Borrower and Lender).

 

“Subordinated Debt Documents” shall mean and include any documents evidencing any Subordinated Debt, including the Seller Subordinated Note, in each case, as the same may be amended, modified, supplemented or otherwise modified from time to time in compliance with the terms of this Loan Agreement.

 

“Subordination Agreements” shall mean, collectively, any subordination agreements, including the Seller Subordination Agreement, entered into by any Person from time to time in favor of Lender in connection with any Subordinated Debt, the terms of which are reasonably acceptable to Lender, in each case as the same may be amended, restated or otherwise modified from time to time, and “Subordination Agreement” shall mean any one of them.

 

“Subsidiaries” shall mean for any Person, a joint venture, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person.  As of the Closing Date, the Borrower’s Subsidiaries are Target and GP Communications, LLC, a Delaware limited liability company.

 

“Target” means Affinity VideoNet, Inc., a Delaware corporation.

 

“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

 

“Transaction Documents” means this Loan Agreement, and all other agreements, documents, and instruments executed from time to time in connection herewith, as the same may be amended, supplemented, or otherwise modified from time to time as permitted herein.

 

“Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of California.

 

[signature pages follow]

  

-23-

  

IN WITNESS WHEREOF, the undersigned have executed this Loan and Security Agreement as of the first day above written.

 

BORROWER:

GLOWPOINT, INC.,

a Delaware corporation

By:  /s/ Tolga Sakman                                                                  

Name:  Tolga Sakman

Title:  Chief Financial Officer                                                          

  

-24-

  

LENDER:

ESCALATE CAPITAL PARTNERS SBIC I, L.P., a Delaware limited partnership

By:  Escalate SBIC Capital Management, LLC, its general partner

 

By:  /s/ Ross Cockrell                                                                  

Name:  Ross Cockrell

Title:  Memberex10-1.htm

Exhibit 10.1

Subscription Agreement

 

AtheroNova Inc.

2301 Dupont Drive

Suite 525

Irvine, CA  92612

 

Ladies and Gentlemen:

 

The undersigned (the “Investor”) hereby confirms and agrees with you as follows:

 

	
1.

	
The subscription terms set forth herein (this “Subscription Agreement”) are made as of the date set forth below between AtheroNova Inc., a Delaware corporation (the “Company”), and the Investor.

 

	
2.

	
As of the Closing (as defined below) and subject to the terms and conditions hereof, the Company and the Investor agree that the Investor will purchase from the Company and the Company will issue and sell to the Investor in the aggregate that number of Units consisting of 1 share of Common Stock of the Company, par value $0.0001 per share (the “Common Stock”) and a warrant to purchase .50 shares of Common Stock at $.625 per share.  The warrant is exercisable for four (4) years from the date of issuance of the Common Stock purchased.  The per Unit purchase price is $0.50 (the “Offering Price”), pursuant to an offering (the “Offering”) to one or more potential investors.  The Units are also sometimes referred to herein as the “Securities”), as is set forth on the signature page hereto (the “Signature Page”).  The Investor acknowledges that the offering is not a firm commitment underwriting and that the Closing will not occur unless the Company has received Subscription Agreements for Shares in the aggregate purchase amount of at least $2,500,000.

 

	
3.

	
The completion of the purchase and sale of the Units shall occur at one or more closings (each a “Closing”) which, in accordance with Rule 15c6-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are expected to occur from and after the date of receipt hereof through September 7, 2012.  At a Closing, (a) the Company shall cause the Escrow Agent (as defined below) to release to the Investor the Units being purchased by the Investor, and (b) the aggregate purchase price for the Units being purchased by the Investor, less certain fees and expenses to be paid on behalf of the Company, will be delivered by or on behalf of the Investor to the Company.

 

	
  

	
a.

	
Delivery of Funds.  No later than one (1) business day after the execution of this Agreement by the Investor and the Company, the Investor shall remit by wire transfer the amount of funds equal to the aggregate purchase price for the Units being purchased by the Investor to the following account (the “Escrow Account”) designated by the Company and the Philadelphia Brokerage Corporation, as placement agent (the “Placement Agent”), pursuant to the terms of that certain Escrow Agreement (the “Escrow Agreement”) dated as of June 19, 2012 by and among the Company, the Placement Agent and Bryn Mawr Trust Company (the “Escrow Agent”):

 

Bryn Mawr Trust Company

Bryn Mawr, PA

ABA #: 031-908-485

A/C #: 069-6964

A/C Name: Trust Funds

FFC A/C #: 1040002968

 

FFC Acct Name: BMTC as Escrow Agent for PBC/AHRO

 

Such funds shall be held in an escrow account until the Closing and delivered by the Escrow Agent on behalf of the Investors to the Company upon the satisfaction, in the sole judgment of the Placement Agent, of the Company closing conditions set forth herein.  The Placement Agent shall have no rights in or to any of the escrowed funds, unless the Placement Agent and the Escrow Agent are notified in writing by the Company in connection with the Closing that a portion of the escrowed funds shall be applied to the Placement Fee (as defined below).  The Company and the Investor agree to indemnify and hold the Escrow Agent harmless from and against any and all losses, costs, damages, expenses and claims (including, without limitation, court costs and reasonable attorneys fees) (“Losses”) arising under this Section 3 or otherwise with respect to the funds held in escrow pursuant hereto or arising under the Escrow Agreement, unless such Losses resulted directly from the willful misconduct or gross negligence of the Escrow Agent.

 

  

  

  

 

	
  

	
b.

	
Delivery of Units.  At least one (1) business day prior to the Closing, the Company shall deliver to the Escrow Agent certificates representing the Shares as well as Warrants represented in each Investor’s documents.  On the day of the Closing, the Escrow Agent shall deliver the certificates  and documents representing the Shares and Warrants to the Investor by overnight courier to the address designated by the Investor on the signature page of this Subscription Agreement.

 

	
4.

	
The offering and sale of the Units are being made pursuant to the Offering Memorandum (as defined below).  The Investor acknowledges that the Company intends to enter into subscriptions, which the Company represents will be in substantially the same form as this Subscription Agreement, with certain other investors and intends to offer and sell (the “Offering”) Units with a minimum aggregate offering price of $2,500,000 and a maximum aggregate offering price of up to $5,000,000 pursuant to the Offering Memorandum.  The Company may accept or reject this Subscription Agreement or any one or more other subscriptions with other investors in its sole discretion.

 

	
5.

	
The Company has entered into an engagement letter, dated March 26, 2012, amended on June 28, 2012 and August 17, 2012 (the “Engagement Letter”) with Philadelphia Brokerage Corporation (the “Placement Agent”), which will act as the Company’s Placement Agent with respect to the Offering and receive a fee (the “Placement Fee”) in connection with the sale of the Units equal to eight percent (8.0%) of the aggregate offering price of the Units (not including warrants associated with each Unit), plus the issuance to the Placement Agent of an aggregate number of shares of Common Stock with a value, at the offering price hereunder, equal to two percent (2%) of the gross amount of the Offering.  The Company will reimburse the Placement Agent for its out-of-pocket expenses and for the fees of its outside counsel, such fees not to exceed $40,000 in the aggregate.

 

	
6.

	
The obligations of the Company to complete the transactions contemplated by this Subscription Agreement shall be subject to the satisfaction of the following conditions:

 

	
  

	
a.

	
the acceptance by the Company of this Subscription Agreement (as may be indicated by the Company’s execution of the Signature Page hereto);

 

	
  

	
b.

	
the receipt by the Company of the purchase price for the Units being purchased hereunder as set forth on the Signature Page; and

 

	
  

	
c.

	
the accuracy of the representations and warranties made by the Investor and the fulfillment of those undertakings of the Investor to be fulfilled prior to the date of the applicable Closing (each a “Closing Date”).

 

	
7.

	
The Investor’s obligation to purchase the Shares shall be subject to the satisfaction of the following conditions:

 

	
  

	
a.

	
no action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Units; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Units;

 

  

2

  

 

	
  

	
b.

	
subsequent to August 14, 2012, (i) neither the Company nor its subsidiary (“Subsidiary”) has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the Company’s periodic reports and other information filed with the Securities and Exchange Commission (the “Commission”), (ii) there has not been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants or the conversion of convertible indebtedness), or material change in the short-term debt or long-term debt (other than the existing senior secured notes and the purchase agreement relating thereto) of the Company or its Subsidiary or any material adverse change in the business, affairs, operations, properties, financial condition or results of operations of the Company and its Subsidiary taken as a whole, otherwise than as set forth in the Company’s previously filed periodic reports and other information filed with the Commission;

 

	
  

	
c.

	
each of the representations and warranties of the Company contained in Exhibit A attached hereto shall be true and correct when made and on and as of the Closing Date, as if made on such date (except that those representations and warranties that address matters only as of a particular date shall remain true and correct as of such date), and all covenants and agreements herein contained to be performed on the part of the Company and all conditions herein contained to be fulfilled or complied with by the Company at or prior to the Closing Date shall have been duly performed, fulfilled or complied with;

 

	
  

	
d.

	
the Placement Agent shall have received from Stubbs Alderton & Markiles, LLP, counsel to the Company, such counsel’s written opinion addressed to the Placement Agent and the Investor with respect to such matters as is customary in transactions such as the offering and reasonably satisfactory to the Placement Agent;

 

	
  

	
e.

	
the Placement Agent shall have received on the Closing Date a certificate, addressed to the Placement Agent and dated the Closing Date, of the chief executive officer and the chief financial officer of the Company to the effect that:

 

	
  

	
(i)

	
each of the representations, warranties and agreements of the Company in this Subscription Agreement were true and correct in all material respects when originally made and are true and correct in all material respects as of the Closing Date; and the Company has complied in all material respects with all agreements and satisfied all the conditions on its part required under this Subscription Agreement to be performed or satisfied at or prior to the Closing Date; and

 

	
  

	
(ii)

	
subsequent to August 14, 2012, (A) neither the Company nor any of its Subsidiary has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the Company’s periodic reports and other information filed with the Commission, and (B) there has not been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants or the conversion of convertible indebtedness), or material change in the short-term debt or long-term debt (other than the existing senior secured notes and the purchase agreement relating thereto) of the Company or its Subsidiary or any material adverse change in the business, affairs, operations, properties, financial condition or results of operations of the Company and its Subsidiary taken as a whole, otherwise than as set forth in the Company’s previously filed periodic reports and other information filed with the Commission;

 

	
  

	
f.

	
on the Closing Date, the Company shall have furnished to the Placement Agent a Secretary’s Certificate of the Company setting forth the Company’s certificate of incorporation, bylaws and resolutions of the Company’s board of directors;

 

  

3

  

 

	
  

	
g.

	
the Company shall have entered into the Subscription Agreements with the Investor and such other investors purchasing Units in the Offering for the sale by the Company of Units resulting in gross proceeds to the Company of at least $2,500,000, and such agreements shall be in full force and effect on the Closing Date;

 

	
  

	
h.

	
the Company shall have entered into the Escrow Agreement, and such agreement shall be in full force and effect on the Closing Date; and

 

	
  

	
i.

	
prior to the Closing Date, the Company shall have furnished to the Placement Agent such further information, certificates or documents as the Placement Agent shall have reasonably requested.  All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Placement Agent.

 

	
8.

	
The Investor hereby makes the following representations, warranties and covenants to the Company:

 

	
  

	
a.

	
The Investor represents that (i) it has been provided with a copy of the Confidential Private Placement Memorandum dated July 2, 2012, and Supplement No.1 to the Confidential Private Placement Memorandum dated August 21, 2012, with respect to the material terms of the Offering, and the attachments thereto  (collectively, the “Offering Memorandum”) and the Company has made available to the Investor periodic reports and other information filed by the Company with the Commission, prior to or in connection with its receipt of this Subscription Agreement, (ii) it is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in securities representing an investment decision like that involved in the purchase of the Units, (iii) the Securities are being and will be acquired for investment for the Investor’s own account, and not as a nominee or agent and not with a view to the resale or distribution of all or any part of the Shares, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing any of the Securities within the meaning of the Securities Act, and it does not have any agreement or understanding, directly or indirectly, with any person or entity to distribute any of the Units and (iv) the Investor is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

	
  

	
b.

	
The Investor has the requisite corporate, limited liability company, partnership, trust or other entity, as applicable, power and authority to enter into this Subscription Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Subscription Agreement by the Investor and the consummation by it of the transactions contemplated hereunder have been duly authorized by all necessary action on the part of the Investor.  This Subscription Agreement has been executed by the Investor and, when delivered in accordance with the terms hereof, will constitute a valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally, and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

	
  

	
c.

	
The Investor understands that the Investor may be required to bear the economic risk of the Investor’s investment in the Company for an indefinite period of time.  The Investor further understands that (i) neither the offering nor the sale of the Units has been registered under the Securities Act or any applicable state securities laws (“State Acts”) in reliance upon exemptions from the registration requirements of such laws, (ii) the Units must be held by him, her or it indefinitely unless the sale or transfer thereof is subsequently registered under the Securities Act and any applicable State Acts, or an exemption from such registration requirements is available, (iii) the Company is under no obligation to register any of the Units on the Investor’s behalf or to assist the Investor in complying with any exemption from registration, and (iv) the Company will rely upon the representations and warranties made by the Investor in this Subscription Agreement in order to establish such exemptions from the registration requirements of the Securities Act and any applicable State Acts.

 

  

4

  

 

	
  

	
d.

	
The Investor understands that nothing in this Subscription Agreement or any other materials presented to the Investor in connection with the purchase and sale of the Units constitutes legal, tax or investment advice.  The Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Units.

 

	
  

	
e.

	
Neither the Investor nor any person acting on behalf of, or pursuant to any understanding with or based upon any information received from, the Investor has, directly or indirectly, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities) since the time that the Investor was first contacted by the Placement Agent or the Company with respect to the transactions contemplated hereby.  “Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements (including on a total return basis), and sales and other transactions through non-U.S.  broker dealers or foreign regulated brokers.  The Investor covenants that neither it, nor any person acting on behalf of, or pursuant to any understanding with or based upon any information received from, the Investor will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Subscription Agreement are publicly disclosed.

 

	
  

	
f.

	
The Investor represents that, except as set forth below, (i) it has had no position, office or other material relationship within the past three years with the Company or persons known to it to be affiliates of the Company, (ii) it is not, and it has no direct or indirect affiliation or association with, any FINRA member or an Associated Person (as such term is defined under the NASD Membership and Registration Rules Section 1011) as of the date the Investor executes this Subscription Agreement, and (iii) neither it nor any group of investors (as identified in a public filing made with the Commission) of which it is a member, acquired, or obtained the right to acquire, 20% or more of the Common Stock (or securities convertible or exercisable for Common Stock) or the voting power of the Company on a post-transaction basis.  Exceptions:

 

 

(If no exceptions, write “none.” If left blank, response will be deemed to be “none.”)

 

	
  

	
g.

	
The Investor, if outside the United States, will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Shares or has in its possession or distributes any offering material, in all cases at its own expense.

 

	
  

	
h.

	
The Investor is either (i) an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), or (ii) a “qualified institutional buyer” as term is defined in Rule 144A(a) promulgated under the Securities Act.  The Investor has completed the Investor Questionnaire immediately following the Signature Page to this Subscription Agreement and all information provided therein is true and correct.

 

  

5

  

 

	
  

	
i.

	
The Investor has reviewed information provided by the Company in connection with the decision to purchase the Securities, consisting of the Company’s publicly available filings with the Commission and the information contained therein.  The Company has provided the Investor with all the information that the Investor has requested in connection with the decision to purchase the Units.  The Investor further represents that the Investor has had an opportunity to ask questions and receive answers from the Company regarding the business, properties, prospects, and financial condition of the Company. All such questions have been answered to the full satisfaction of the Investor.  Neither such inquiries nor any other investigation conducted by or on behalf of the Investor or its representatives or counsel shall modify, amend, or affect the Investor’s right to rely on the truth, accuracy, and completeness of the disclosure materials and the Company’s representations and warranties contained herein.

 

	
  

	
j.

	
The execution, delivery, and performance of this Subscription Agreement by the Investor do not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Investor pursuant to, any material instrument or agreement to which the Investor is a party or by which the Investor or its properties may be bound or affected, and, do not or will not violate or conflict with any provision of the articles of incorporation or bylaws, partnership agreement, operating agreement, trust agreement, or similar organizational or governing document of the Investor, as applicable.

 

	9.  	Covenants.  The Company covenants and agrees with the Placement Agent as follows:

         

	
  

	
a.

	
The Company will promptly take or cause to be taken, from time to time, such actions as the Placement Agent may reasonably request to qualify the Units for offering and sale under the state securities, or blue sky, laws of such states or other jurisdictions as the Placement Agent may reasonably request and to maintain such qualifications in effect so long as the Placement Agent may request for the distribution of the Securities, provided, that in no event shall the Company be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to file a general consent to service of process in any jurisdiction or subject itself to taxation as doing business in any jurisdiction. 

 

	
  

	
b.

	
The Company will apply the net proceeds from the sale of the Units in the manner set forth in the Offering Memorandum under the heading “Use of Proceeds.”

 

	
  

	
c.

	
Prior to 9:30 a.m.  Philadelphia, Pennsylvania time on the business day immediately subsequent to the initial Closing Date, the Company shall issue a press release reasonably acceptable to the Placement Agent disclosing the closing of the transaction contemplated hereby.

 

	
10.

	
Requirement of Commission Filings.

 

	
  

	
a.

	
With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act (“Rule 144”), for a period of thirty-six (36) months following the final Closing Date, the Company agrees to:

 

	
  

	
(i)

	
make and keep public information available, as those terms are understood and defined in Rule 144;

 

	
  

	
(ii)

	
file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

 

	
  

	
(iii)

	
furnish or make available to the Investors, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of the Exchange Act or confirm in writing that such Investor can sell Shares under Rule 144, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other reports and documents of the Company as an Investor may reasonably request in availing itself of any rule or regulation of the Commission allowing an Investor to sell any such securities without registration (at any time after the Company has become subject to the reporting requirements of the Exchange Act), including without limitation any documents required by the Company’s transfer agent (including any applicable opinion of Company counsel) to allow for the transfer of shares and the removal of any legends from certificates representing Shares.

 

  

6

  

 

	
  

	
b.

	
At any time beginning on the date hereof and ending at such time that all of the Shares may first be sold without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144 (a “Public Information Failure”) then, as partial relief for the damages to the Investor by reason of any such delay in or reduction of its ability to sell the Shares (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall, on the date on which such Public Information Failure occurs, and each 30th day thereafter, as applicable, issue to the Investor its ratable share (based on the number of Units purchased by the Investor in the Offering) at a rate of 3% of the shares purchased under the subscription agreements for each month that a Public Information Failure persists.

 

	
11.

	
Legend; Restrictions on Transfer.

 

	
  

	
The Investor will not transfer any of the Shares unless such transfer is registered or exempt from registration under the Securities Act and applicable State Acts, and, if requested by the Company in the case of an exempt transaction, the Investor has furnished an opinion of counsel reasonably satisfactory to the Company that such transfer is so exempt.  The Investor understands and agrees that (i) the Company shall have no obligation to honor transfers of any of the Shares in violation of such transfer restrictions, (ii) the Company shall be entitled to instruct any transfer agent or agents for the securities of the Company to refuse to honor such transfers and (iii) the certificate and other documents evidencing the Shares will bear the following legend:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

 

The Company and the Investor acknowledge and agree that the Investor may, as permitted by law, from time to time pledge pursuant to a bona fide margin agreement or grant a security interest in some or all of the Shares and, if required under the terms of such arrangement, Investor may, as permitted by law, transfer pledged or secured Shares to the pledgees or secured parties. So long as Investor is not an affiliate of the Company, such a pledge or transfer in compliance with all applicable federal and state securities laws would not be subject to approval or consent of the Company, provided that, upon the request of the Company, an opinion of legal counsel to the pledgee, secured party or pledgor shall be obtained.

 

	
12.

	
Indemnification of the Company and affiliates.

 

	
  

	
Notwithstanding anything else contained herein to the contrary, the Investor hereby agrees to indemnify the Company, the Placement Agent and their respective employees, agents, affiliates, officers, directors, general partners, and the employees of each of them and to hold each of them harmless from and against any and all losses, claims, liabilities, damages, costs or expenses (including reasonable attorneys’ fees and expenses and costs of suit) incurred on account of, arising out of, or based upon:

 

	
  

	
a.

	
any inaccuracy or omission in the Investor’s declarations, representations and warranties as set forth herein or the failure of such Investor to comply with the covenants of the Investor contained herein; and

 

	
  

	
b.

	
the voluntary disposition of the Investor’s Shares in a manner contrary to the Investor’s declarations, representations and warranties as made herein.

 

  

7

  

 

	
13.

	
The Company agrees to indemnify and hold harmless Investor from and against any losses, claims, damages or liabilities to which Investor may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon any breach of the representations or warranties of the Company contained herein or failure to comply with the covenants and agreements of the Company contained herein, and the Company will reimburse such Investor for any reasonable legal or other out-of-pocket expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, or preparing to defend any such action, proceeding or claim, provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon the breach of, or the inaccuracy or omission in, the Investor’s declarations, representations and warranties as made herein or the failure of Investor to comply with its covenants and agreements contained in this Subscription Agreement. The Company shall reimburse Investor for the indemnifiable amounts provided for herein on demand as such expenses are incurred.

 

	
14.

	
Notwithstanding any investigation made by any party to this Subscription Agreement, all covenants, agreements, representations and warranties made by the Company and the Investor herein will survive the execution of this Subscription Agreement, the delivery to the Investor of the Shares being purchased and the payment therefor.

 

	
15.

	
This Subscription Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the Investor.

 

	
16.

	
In case any provision contained in this Subscription Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein will not in any way be affected or impaired thereby.

 

	
17.

	
This Subscription Agreement will be governed by, and construed in accordance with, the internal laws of the State of California, without giving effect to the principles of conflicts of law that would require the application of the laws of any other jurisdiction.

 

	
18.

	
All statements, requests, notices and agreements hereunder shall be in writing shall be delivered or sent by mail, telex or facsimile transmission, and shall be deemed sent when delivered personally or by facsimile transmission (with receipt acknowledged), one day after delivery to a recognized overnight courier service, or three days after deposit in the U.S. mail, certified mail, return receipt requested, as follows:

 

	
  

	
a.

	
if to the Placement Agent, to:

 

	
  

	
Philadelphia Brokerage Corporation

	
  

	
2 Radnor Corporate Center

	
  

	 	
Suite 111

	
  

	
Radnor, Pennsylvania 19087

	
  

	
Attention:  Robert Fisk

	
  

	
Facsimile No.: (610) 975-0520

	
  

	
b.

	
if to the Company, to:

 

AtheroNova Inc.

2301 Dupont Drive

Suite 525

Irvine, CA  92612

	
  

	
Attention:  Mark Selawski

	
  

	
Facsimile: (949) 476-1122

	
  

	
c.

	
If to the Investor, to the address set forth on the signature page hereto.

 

  

8

  

 

	
19.

	
This Subscription Agreement may be executed in one or more counterparts (delivery of which may be by facsimile or as “pdf” or similar attachments to an electronic transmission), each of which will constitute an original, but all of which, when taken together, will constitute but one instrument, and will become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties.

 

	
20.

	
The Investor acknowledges and agrees that such Investor’s receipt of the Company’s counterpart to this Subscription Agreement shall constitute written confirmation of the Company’s sale of Shares to such Investor.

 

	
21.

	
In the event that the Engagement Letter is terminated by the Placement Agent pursuant to the terms thereof, this Subscription Agreement shall terminate without any further action on the part of the parties hereto.

 

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

  

9

  

 

INVESTOR SIGNATURE PAGE

 

Aggregate Purchase Price to be Paid by the Investor:  $                                                                                                           

 

Number of Units to be purchased by the Investor:                                                                                                                     

 

Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for that purpose.

 

Dated as of:  ___________, 2012

 

INVESTOR

 

By:                                                                                                     

 

Print Name:                                                                                       

 

Title:                                                                                                  

 

Name in which

Shares

are to be registered:                                                                                       

 

Mailing

Address:                                                                                           

 

Address for delivery

of Shares

(if different):                                                                                     

 

Taxpayer

Identification

Number:                                                                                            

 

Manner of Settlement:  As described in Section 3 of this Subscription Agreement

 

Agreed and Accepted this ____ day of ________, 2012:

 

ATHERONOVA INC.

 

By:                                                                                                      

 

Title:                                                                                                      

 

Acknowledged this ____ day of _________ 2012:

 

PHILADELPHIA BROKERAGE CORPORATION

 

By:                                                                                                      

 

Title:                                                                                                   

 

  

  

  

 

INVESTOR QUESTIONNAIRE

The information contained in this Investor Questionnaire (“Questionnaire”) is being furnished to AtheroNova Inc., a Delaware corporation (the “Company”), in order for the Company to determine whether the undersigned’s subscription to purchase Units of the Company’s Common Stock (the “Common Stock”) may be accepted by the Company pursuant to Sections 3(b), 4(2) and 4(6) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder (“Regulation D”).  The undersigned understands that (i) the Company will rely upon the information contained herein for purposes of determining the availability of exemptions from the registration requirements of the Securities Act and (ii) the issuance of the Common Stock will not be registered under the Securities Act in reliance upon such exemptions.

 

All information furnished is for the sole use of the Company and will be held in confidence by the Company, except that this Questionnaire may be furnished to such parties as the Company’s counsel deems necessary or desirable to establish compliance with federal or state securities laws.

PART ONE:  INFORMATION REQUIRED OF EACH PROSPECTIVE INVESTOR:

	
1.

	
Name:

	  
	  	
(Investor’s exact name, as it should appear in the records of the Company.)

 

	
2.

	
Describe any preexisting business or personal relationship between the undersigned and any director or officer of the Company (if any):

	 	 

	 	 

 

PART TWO: TO BE COMPLETED ONLY BY PROSPECTIVE INVESTORS WHO ARE INDIVIDUALS

3.          Initial each of the following representations, AS APPLICABLE:

	                          	 	
(a)

	
The undersigned’s individual net worth, or joint net worth with the undersigned’s spouse, exceeds $1,000,000, excluding the value of the primary residence.  For purposes of this Questionnaire, an investor’s “net worth” is equal to the excess of total assets at fair market value over total liabilities.  Net worth may include the equity value (i.e., current appraised value less mortgage indebtedness) of real property owned by the investor but must exclude the investor’s primary residence.  Thus, if an investor calculated its net worth by including the net equity value of its primary residence, it must reduce its net worth for purposes hereof by such net equity value.  Moreover, any indebtedness secured by the residence in excess of the value of the primary residence should be considered a liability and deducted from the investor’s net worth for purposes hereof, and any indebtedness secured by the primary residence up to the value thereof should be considered a liability and deducted from the investor’s net worth for purposes hereof if the amount of such indebtedness currently outstanding exceeds the amount outstanding 60 days prior to the date hereof, other than as a result of the acquisition of such primary residence.

	  	 	  	 
	                          	 	
(b)

	
The undersigned’s individual income (without the undersigned’s spouse) was in excess of $200,000 in each of the two most recent years or joint income with the undersigned’s spouse was in excess of $300,000 in each of those years, and the undersigned reasonably expects an income reaching the same income level in the current year.  For purposes of this Questionnaire, individual income means adjusted gross income, as reported for federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or to property owned by a spouse): (i) the amount of any tax exempt interest income received, (ii) the amount of losses claimed as a limited partner in a limited partnership, (iii) any deduction claimed for depletion, (iv) deductions for alimony paid, (v) amounts contributed to an IRA or Keogh retirement plan, and (vi) any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202 of the Internal Revenue Code.

	  	 	  	 

 

  

  

  

 

PART THREE:  TO BE COMPLETED ONLY BY PROSPECTIVE INVESTORS WHO ARE ENTITIES.

	
4.             Type of Organization (LLC, corporation, etc.):

	  
	  	  
	
5.             Date and place of organization:

	  
	  	  
	
6.             The undersigned is (Initial each of the following representations, AS APPLICABLE):

	
  

	
(a)

	
(___) a bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act acting in either an individual or fiduciary capacity;

 

	
  

	
(___) a broker or dealer registered pursuant to Section 15 of the Securities and Exchange Act of 1934, as amended;

 

	
      (I) 

	 	(___) a Small Business Investment Company licensed by the U. S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958;

 

	
      (II)

	 	 

 

	
  

	 	(___) an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; or

 

	
  

	 	(___) an insurance company as defined in Section 2(13) of the Securities Act;

 

	
  

	
(b)

	
(___) a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

	
  

	
(c)

	
(___) a corporation, partnership, limited liability company, Massachusetts or similar business trust, or an organization described in Section 501(c)(3) of the Internal Revenue Code, not formed for the specific purpose of acquiring the securities offered with total assets in excess of $5,000,000;

	
  

	
(d)

	
(___) any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in the rules and regulations of the Securities Act (a trust must attach a copy of its Declaration of Trust or other governing instrument, as amended, as well as all other documents that authorize the trust to invest in the securities);

	
  

	
(e)

	
(___) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is a bank, an insurance company, a savings and loan association, or a registered investment advisor;

	
  

	
(___) an employee benefit plan with total assets in excess of $5,000,000; or

(___) an employee benefit plan that is a self-directed plan (such as a self-directed individual retirement account (IRA), Keogh or SEP plan) with investment decisions made solely by persons that are accredited investors; or

	
  

	
(f)

	
(___) an entity (including a revocable trust - a trust must attach a copy of its Declaration of Trust or other governing instrument, as amended, as well as all other documents that authorize the trust to invest in the securities) in which all of the equity owners are Accredited Investors as defined in Rule 501(a) of Regulation D.  Note: each equity owner/trustee must submit an individual Questionnaire.

 

  

  

  

 

	 	
(1)

	
List all equity owners/trustees of the entity:

	  
	 	 	 	 

 

	 	
(2)

	
Type of entity:

	  

PART FOUR:  REPRESENTATIONS AND WARRANTIES OF EACH PROSPECTIVE INVESTOR:

7.           The undersigned understands that the Company will be relying on the accuracy and completeness of the responses to the foregoing questions and represents and warrants to the Company as follows:

	
  

	
(i)

	
The answers to the above questions are complete and correct and may be relied upon by the Company in determining whether the offering in which the undersigned proposes to participate is exempt from registration under the Securities Act and the rules promulgated thereunder;

	
  

	
(ii)

	
The undersigned will notify the Company immediately of any material change in any statement made herein occurring prior to the completion of the offering; and

	
  

	
(iii)

	
The undersigned has adequate means of providing for the undersigned’s current needs and personal contingencies, has no need for liquidity in its investment in the Common Stock, and is able to bear the economic risk of an investment in the Common Stock of the size contemplated.  In making this statement, the undersigned at the present time could afford a complete loss of such investment.

IN WITNESS WHEREOF, the undersigned has executed this Investor Questionnaire this _____ day of __________________, 2012.

                                                                                                                                               

	INDIVIDUALS: 	 	ENTITIES:
	  	  	  
	  	  	  
	
Print Name

	  	
Print Name of Subscriber

	  	  	  
	  	  	  
	
Signature

	  	
Authorized Signature

	  	  	  
	  	  	  
	
Signature (if Joint Tenants

Or Tenants in Common)

	  	
Print Name of Signatory and

Capacity in which Signed

 

  

  

  

Exhibit A

 

Representations and Warranties of the Company

 

The Company represents and warrants to the Investor as of the date hereof and as of the Closing Date, and agrees with the Investor, as follows:

 

a.           Due Incorporation.  The Company has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of organization, with the corporate power and authority to own its properties and to conduct its business as currently being conducted and as described in the Company’s periodic reports and other information filed with the Commission and is duly qualified to transact business and is in good standing as a foreign corporation in each other jurisdiction in which its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing or have such power or authority (i) would not have, individually or in the aggregate, a material adverse effect upon, the general affairs, business, operations, properties, financial condition or results of operations of the Company and the Subsidiary (as defined below), taken as a whole, or (ii) impair in any material respect the power or ability of the Company to perform its obligations under the Subscription Agreements or to consummate any transactions contemplated by the Subscription Agreements, including the issuance and sale of the Securities (any such effect as described in clauses (i) or (ii), a “Material Adverse Effect”).

 

b.           Subsidiary.  The Company has no significant Subsidiary (as such term is defined in Rule 1-02 of Regulation S-X promulgated by the Commission) other than AtheroNova Operations, Inc. (the “Subsidiary”).  The Subsidiary has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of organization, with the corporate power and authority to own its properties and to conduct its business as currently being conducted and as described in the Company’s periodic reports and other information filed with the Commission.  All of the issued and outstanding capital stock of the Subsidiary has been duly authorized and validly issued and is fully paid and nonassessable and, except as described in the Company’s periodic reports and other information filed with the Commission, is owned by the Company free from liens, encumbrances and defects.

 

c.           Due Authorization and Enforceability.  The Company has the full right, power and authority to enter into each of the Subscription Agreements and the Escrow Agreement, and to perform and discharge its obligations hereunder and thereunder; and each of the Subscription Agreements and the Escrow Agreement has been duly authorized, executed and delivered by the Company, and constitutes a valid, legal and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity.

 

d.           The Securities.  The issuance of the Shares has been duly and validly authorized by the Company.  The Shares, when issued, delivered and paid for in accordance with the terms of the Subscription Agreements, will have been duly and validly issued and will be fully paid and nonassessable.  Except as described in the Offering Memorandum or as otherwise stated in the Company’s periodic reports and other information filed with the Commission, there are no statutory or contractual preemptive rights or other rights to subscribe for or purchase or acquire any shares of Common Stock of the Company, which have not been waived or complied with and will conform in all material respects to the description thereof contained in the Offering Memorandum or the Company’s periodic reports and other information filed with the Commission.

 

  

  

  

 

e.           Capitalization.  As of August 21, 2012, the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock, par value $0.0001 per share, of which 28,730,321 shares are issued and outstanding, 4,556,998 shares are reserved for issuance upon exercise of stock options outstanding under the Company’s employee and director stock option plans, and 9,446,747 shares are reserved for issuance under warrants and convertible notes; and (ii) 10,000,000 shares of preferred stock, $0.0001 par value per share, none of which are issued and outstanding.  The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Offering Memorandum under the caption “Description of capital stock” (and any similar sections or information, if any, contained in the Company’s periodic reports and other information filed with the Commission).  The issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, and have been issued in compliance with all federal and state securities laws.  None of the outstanding shares of capital stock was issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase or acquire any securities of the Company.  There are no authorized or outstanding shares of capital stock, options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable for, any capital stock of the Company or the Subsidiary other than those described in the Offering Memorandum or those stated in the Company’s periodic reports and other information filed with the Commission.  The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, as described in the Offering Memorandum or as described in the Company’s periodic reports and other information filed with the Commission, accurately and fairly present the information required to be shown with respect to such plans, arrangements, options and rights.

 

f.           No Conflict.  The execution, delivery and performance by the Company of the Subscription Agreements and the Escrow Agreement and the consummation of the transactions contemplated hereby and thereby, including the issuance and sale by the Company of the Units, will not (i) conflict with or result in a breach or violation of, or constitute a default under (nor constitute any event which with notice, lapse of time or both would result in any breach or violation of or constitute a default under), give rise to any right of termination or other right or the cancellation or acceleration of any right or obligation or loss of a benefit under, or give rise to the creation or imposition of any lien, encumbrance, security interest, claim or charge upon any property or assets of the Company or the Subsidiary pursuant to any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or the Subsidiary is a party or by which any of them or any of their respective properties may be bound or to which any of the property or assets of the Company or the Subsidiary is subject, (ii) result in any violation of the provisions of the charter or by-laws (or analogous governing instrument, as applicable) of the Company or the Subsidiary, or (iii) result in any violation of any law, statute, rule, regulation, judgment, order or decree of any court or governmental agency or body, domestic or foreign, having jurisdiction over the Company or the Subsidiary or any of their properties or assets, except, in the case of each of clauses (i) and (iii) above, for any such conflict, breach, violation, default, lien, charge or encumbrance that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

g.           No Consents Required.  No approval, authorization, consent or order of or filing, qualification or registration with, any court or governmental agency or body, foreign or domestic, which has not been made, obtained or taken and is not in full force and effect, is required in connection with the execution, delivery and performance of the Subscription Agreements and the Escrow Agreement by the Company, the issuance and sale of the Shares or the consummation by the Company of the transactions contemplated hereby or thereby other than (i) filings required to be made after the date hereof under the Securities Act or the Exchange Act, (ii) any necessary qualification of the Securities under the securities or blue sky laws of the various jurisdictions in which the Securities are being offered by the Placement Agent (or filings related to an exemption therefrom) or (iii) actions to be taken by the Placement Agent after the date hereof under the rules and regulations of the National Association of Securities Dealers, Inc. (“NASD”) or the Financial Industry Regulatory Authority (“FINRA”) in connection with the distribution of the Securities by the Placement Agent.

 

h.           Registration Rights.  Except pursuant to the transactions contemplated by the Subscription Agreements, as described in the Offering Memorandum or as otherwise described in the Company’s periodic reports and other information filed with the Commission, there are no contracts, agreements or understandings between the Company and any person granting such person the right (other than rights which have been waived in writing in connection with the transactions contemplated by the Subscription Agreements or otherwise satisfied) to require the Company to register any securities with the Commission.

 

i.           Independent Accountants.  Weinberg & Company, P.A. are independent public accountants with respect to the Company as required by the Securities Act, and the applicable published Securities Act Rules and Regulations thereunder and Rule 3600T of the Public Company Accounting Oversight Board.

 

  

  

  

 

j.           Commission Reports.  Since March 31, 2011, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits) incorporated by reference therein, being hereinafter referred to herein as the “Exchange Act Filings”). As of their respective dates, the Exchange Act Filings complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the Securities Act Rules and Regulations or rules and regulations of the Commission promulgated under the Exchange Act (the “Exchange Act Rules and Regulations”), as the case may be, applicable to the Exchange Act Filings.

 

k.           Financial Statements.  The consolidated financial statements of the Company, together with the related schedules and notes thereto, set forth in the Company’s Form 10-K for the fiscal year ended December 31, 2011, Form 10-Q for the fiscal quarter ended March 31, 2012 and Form 10-Q for the fiscal quarter ended June 30, 2012, as each may have been amended from time to time, comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as applicable, and present fairly in all material respects (i) the financial condition of the Company and the Subsidiary, taken as a whole, as of the dates indicated and (ii) the consolidated results of operations, stockholders’ equity (deficiency) and cash flows of the Company and the Subsidiary, taken as a whole, for the periods therein specified; and such financial statements and related schedules and notes thereto have been prepared in conformity with United States generally accepted accounting principles, consistently applied throughout the periods involved (except as otherwise stated therein and subject, in the case of unaudited financial statements, to the absence of footnotes and normal year-end adjustments).

 

l.           Absence of Material Changes.  Subsequent to March 31, 2012, and except as may be otherwise stated in the Subscription Agreements, the Offering Memorandum or the Company’s periodic reports and other information filed with the Commission, (i) there has not been any change in the capital stock of the Company (except for changes in the number of outstanding shares of Common Stock of the Company due to the issuance of shares upon the exercise or conversion of securities exercisable for, or convertible into, shares of Common Stock outstanding on the date hereof) or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock; (ii) there has not been any material adverse change or development that would result in a material adverse change in or affecting the general affairs, business, properties, management, consolidated financial position, stockholders’ equity or results of operations of the Company and the Subsidiary taken as a whole (a “Material Adverse Change”); and (iii) neither the Company nor the Subsidiary has entered or will enter into any transaction or agreement, not in the ordinary course of business, that is material to the Company and the Subsidiary taken as a whole or incurred or will incur any liability or obligation, direct or contingent, not in the ordinary course of business, that is material to the Company and the Subsidiary taken as a whole.

 

m.           Legal Proceedings.  There are no legal or governmental actions, suits, claims or proceedings pending to which the Company or the Subsidiary is or would be a party or of which any of their respective properties is or would be subject at law or in equity, which are required to be described in the Company’s periodic reports and other information filed with the Commission and are not so described therein, or which, singularly or in the aggregate, if resolved adversely to the Company or the Subsidiary, would reasonably be likely to result in a Material Adverse Change.  To the Company’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others.

 

n.           No Violation.  Except as described in the Offering Memorandum or as otherwise stated in the Company’s periodic reports and other information filed with the Commission, neither the Company nor the Subsidiary is in breach or violation of or in default (nor has any event occurred which with notice, lapse of time or both would result in any breach or violation of, or constitute a default) (i) under the provisions of its charter or bylaws (or analogous governing instrument, as applicable) or (ii) in the performance or observance of any term, covenant, obligation, agreement or condition contained in any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the Company or the Subsidiary is a party or by which any of them or any of their properties may be bound or affected, or (iii) in the performance or observance of any statute, law, rule, regulation, ordinance, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company, the Subsidiary or any of their respective properties, as applicable, except, with respect to clauses (ii) and (iii) above, to the extent any such contravention has been waived or would not result in a Material Adverse Effect.

 

  

  

  

 

o.           Permits.  Except as described in the Offering Memorandum or as otherwise stated in the Company’s periodic reports and other information filed with the Commission, the Company and the Subsidiary have made all filings, applications and submissions required by, and own or possess all approvals, licenses, certificates, certifications, clearances, consents, exemptions, marks, notifications, orders, permits and other authorizations issued by, the appropriate federal, state or foreign regulatory authorities necessary to conduct its general corporate business as described in the Company’s periodic reports and other information filed with the Commission (collectively, “Permits”), except for such Permits which the failure to obtain would not have a Material Adverse Effect (the “Immaterial Permits”), and are in compliance with the terms and conditions of all such Permits other than the Immaterial Permits (the “Required Permits”) except for such failure to comply that would not have a Material Adverse Effect, and for the avoidance of doubt, except for any Permits arising in connection with the preparation, prosecution or exploitation of its Intellectual Property, to which no representations or warranties are made and which are not deemed Required Permits hereunder.  Neither the Company nor the Subsidiary has received notice of any proceedings relating to revocation or modification of, any such Required Permit, which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect.

 

p.           Not an Investment Company.  Neither the Company nor the Subsidiary is 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 “Investment Company Act”), and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Offering Memorandum, neither the Company nor the Subsidiary will 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.

 

q.           No Price Stabilization.  Neither the Company nor the Subsidiary nor, to the Company’s knowledge, any of their respective officers, directors, affiliates or controlling persons has taken or will take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in, or which has constituted or which might reasonably be expected to constitute the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.

 

r.           Intellectual Property Rights.  For purposes of this Subscription Agreement, patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, software, databases, know-how, Internet domain names, trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures, and other intellectual property are collectively referred to as “Intellectual Property”.  Except as set forth in the Offering Memorandum and as otherwise set forth in the Company’s periodic reports and other information filed with the Commission, the Company and the Subsidiary own or possess the right to use all Intellectual Property necessary to carry on their respective businesses as currently conducted, as described in the Offering Memorandum and as otherwise set forth in the Company’s periodic reports and other information filed with the Commission, except where the failure to own or possess such right to use would not have a Material Adverse Effect, and the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiary with respect to the foregoing except for those that would not have a Material Adverse Effect.  To the Company’s knowledge, the Intellectual Property licenses described in the Company’s periodic reports and other information filed with the Commission are valid, binding upon, and enforceable by or against the parties thereto in accordance to its terms.  The Company and the Subsidiary have complied in all material respects with, and are not in breach nor have received any asserted or threatened claim of breach of, any Intellectual Property license described in the Company’s periodic reports and other information filed with the Commission except for such breaches or asserted or threatened claims of breach that would not have a Material Adverse Effect, and the Company has no knowledge of any breach or anticipated breach by any other person to any Intellectual Property license.  To the knowledge of the Company, the Company’s and the Subsidiary’s businesses as now conducted do not infringe any patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses or other Intellectual Property of any person.  The Company has not received written notice of any material claim against the Company or the Subsidiary alleging the infringement by the Company or the Subsidiary of any patent, trademark, service mark, trade name, copyright, trade secret, license in or other intellectual property right or franchise right of any person.  The Company and the Subsidiary have taken reasonable steps to protect, maintain and safeguard their rights in all Intellectual Property.  The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other person in respect of, the Company’s or the Subsidiary’s right to own, use, or hold for use any of the Intellectual Property as owned, used or held for use in the conduct of the businesses as currently conducted.

 

  

  

  

 

s.           No Labor Disputes.  No labor problem or dispute with the employees of the Company exists, or, to the Company’s knowledge, is threatened or imminent, which would reasonably be expected to result in a Material Adverse Effect.  The Company is not aware that any key employee or significant group of employees of the Company plans to terminate employment with the Company.

 

t.           Taxes.  The Company and the Subsidiary (i) have timely filed all necessary federal, state, local and foreign income and franchise tax returns (or timely filed applicable extensions therefore) that have been required to be filed and (ii) are not in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto, other than any which the Company or the Subsidiary is contesting in good faith and for which adequate reserves have been provided.

 

u.           Insurance.  The Company and the Subsidiary maintain or are covered by insurance provided by recognized, financially sound and reputable institutions with policies in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and as is customary for companies engaged in similar businesses in similar industries.  All such insurance is fully in force on the date hereof and will be fully in force as of the Closing Date.  Neither the Company nor the Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

v.           Disclosure Controls.  The Company has established, maintains and evaluates “disclosure controls and procedures” (as such term is defined in Rule 13a-15e and 15d-15e under the Exchange Act) that (i) are designed to ensure that material information relating to the Company is made known to the Company’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the Exchange Act are being prepared, (ii) have been evaluated for effectiveness as of the end of the Company’s last fiscal quarter; and (iii) are effective to perform the functions for which they were established.  Since the date of the most recent evaluation of such disclosure controls and procedures, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weakness.

 

w.           Contracts; Off-Balance Sheet Interests.  There is no document, contract, permit or instrument, or off-balance sheet transaction (including, without limitation, any “variable interests” in “variable interest entities,” as such terms are defined in Financial Accounting Standards Board Interpretation No.  46) of a character required by the Securities Act or the Securities Act Rules and Regulations to be described in the Company’s periodic reports and other information filed with the Commission, which is not described or filed as required.  The contracts described in the immediately preceding sentence to which the Company is a party have been duly authorized, executed and delivered by the Company, constitute valid and binding agreements of the Company, are enforceable against and by the Company in accordance with the terms thereof and are in full force and effect on the date hereof.

 

x.           No Undisclosed Relationships.  No relationship, direct or indirect, exists between or among the Company and the Subsidiary on the one hand and the directors, officers, stockholders, customers or suppliers of the Company or the Subsidiary or any of their affiliates on the other hand, which is required to be described in the Company’s periodic reports and other information filed with the Commission and which has not been so described.

 

y.           Brokers Fees.  Except as described in the Offering Memorandum or as disclosed in the Company’s periodic reports and other information filed with the Commission, there are no contracts, agreements or understandings between the Company and any person (other than the Engagement Letter) that would give rise to a valid claim against the Company, the Subsidiary or the Placement Agent for a brokerage commission, finder’s fee or other like payment in connection with the offering and sale of the Securities.

 

  

  

  

 

z.           Forward-Looking Statements.  No forward-looking statements (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Company’s periodic reports and other information filed with the Commission have been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

 

aa.           Sarbanes-Oxley Act.  The Company, and to its knowledge, all of the Company’s directors or officers, in their capacities as such, are in compliance in all material respects with all applicable effective provisions of the Sarbanes-Oxley Act of 2002, as amended and any related rules and regulations promulgated by the Commission.  Each of the principal executive officer and the principal financial officer of the Company (or each former principal executive officer of the Company and each former principal financial officer of the Company as applicable) has made all certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act with respect to all reports, schedules, forms, statements and other documents required to be filed by it with the Commission.  For purposes of the preceding sentence, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act.

 

bb.           NASD Affiliations.  Except as described in the Offering Memorandum or as otherwise stated in the Company’s periodic reports and other information filed with the Commission, neither the Company nor the Subsidiary nor any of their affiliates (within the meaning of FINRA Rule 5121) directly or indirectly controls, is controlled by, or is under common control with, or is an associated person (within the meaning of applicable rules of the NASD) of, any member firm of the NASD.

 

cc.           Trading Market.  Assuming the accuracy of the representations of the Investors in the Subscription Agreements, no approval of the stockholders of the Company under the rules and regulations of any trading market is required for the Company to issue and deliver to the Investors the Units.

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