FUNDING AGREEMENT
Exhibit
10.2
FUNDING
AGREEMENT
THIS
FUNDING AGREEMENT (this "Agreement"),
is
executed as of February 6, 2006, by and between Itec Environmental Group, Inc.,
a Delaware corporation (the "Company"),
and
Itec Capital Group, LLC, a Washington limited liability company ("ICG").
WHEREAS,
the Company wishes to sell and ICG wishes to invest on behalf of its members
$1.0 million in connection with acquiring certain securities of the Company,
with the rights provided and under the terms set forth herein; and
WHEREAS,
ICG is willing to provide such additional investment on terms and conditions
as
set forth herein.
NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and ICG, intending
to
be legally bound, agree as follows:
ARTICLE
1
DEFINITIONS
1.1 Defined
terms.
Certain
capitalized terms used in this Agreement shall have the specific meanings
defined below:
“Business
Day”
shall
mean a day other than a Saturday, Sunday, or other day on which commercial
banks
are authorized or required by law to close.
“Closing
Date”
shall
mean the date upon which the Investment (as defined below) is received by the
Company.
"Encumbrance"
means
any lien, charge, security interest, mortgage, deed of trust, pledge or other
encumbrance of any nature whatsoever.
“Interest
Rate”
shall
mean ten percent (10%) per annum.
“Proprietary
Rights”
means
all patents, trademarks, service marks, copyrights, trade names and all
registrations and applications and renewals for any of the foregoing and all
goodwill associated therewith.
ARTICLE
2
THE
INVESTMENT
2.1 Investment.
According to the terms and subject to the conditions of this Agreement, ICG
shall invest on behalf of its members an amount of One Million Dollars
($1,000,000.00) (the “Investment”)
under
the
terms of the KW
Securities Financing pursuant to the Company’s 2006 Private Placement
Memorandum
(the
“PPM”)
with
an option to invest up to an additional Eight Million Dollars ($8,000,000)
(the
“Additional
Investment”).
The
Investment shall be evidenced by one or more convertible promissory notes (each
a “Note”),
duly
executed on behalf of the Company and dated as of the date that funds are
received by the Company. In connection with the Investment, the Company agrees
and undertakes to do as follows:
1
(a) issue
Note(s) and Warrants (as defined below), and otherwise be responsible and
liable, for the full amount of the Investment or Additional Investment but
shall
receive actual funds equal to ninety-two percent (92%) of the Investment and
the
Additional Investment (if applicable).
(b) issue
to
ICG, (i) a warrant for that number of shares equal to eight percent (8%) of
the
securities, exclusing any Note(s), issued pursuant to the Investment (the
“Investment Warrant”); (ii) a warrant for that number of shares equal to eight
percent (8%) of the securities issued pursuant to the Additional Investment
(the
“Additional Investment Warrant”); and (iii) that number of shares equal to eight
percent (8%) of the securities issued in connection with the conversion of
the
Note(s) into equity (the “Conversion Warrant”).
(c) provide
ICG with a cash payment equal to three percent (3%) of any cash received by
the
Company in connection with any future financing and a warrant equal to three
percent (3%) of that number of securities issued by the Company pursuant to
such
future financing, for a one (1) year period from the date of this Agreement.
2.2 Interest.
(a) Interest
Rate.
The
Note(s) shall bear interest (“Interest”)
from
the date of issuance until the Maturity Date at the Interest Rate (calculated
on
the basis of the actual number of days elapsed over a year of 360 days).
Interest is payable by the Company on a monthly basis in arrears on the first
Business Day of the month.
(b) Default
Interest.
Upon
the occurrence of an Event of Default and for so long as such Event of Default
continues, Interest shall accrue on the outstanding Note amount at the rate
per
annum equal to the lower of eighteen percent (18%) or the maximum rate of
interest permissible under applicable law at any time (the “Default
Interest Rate”).
The
term “Interest”
shall
include both the interest rate described in Section 2.2(a) and the Default
Interest Rate, if applicable.
2.3 Maturity
Date.
Unless
the Note(s) are earlier accelerated pursuant to the terms hereof or converted
pursuant to the provisions of Section 4.1 hereof, the Note(s) and all accrued
Interest thereon shall be due and payable in full on the date that is one (1)
year following the date the Company receives the funds represented by the Note
(the “Maturity
Date”).
ICG
may, at ICG's option, extend the Maturity Date on such terms and conditions
as
determined by ICG in their sole discretion.
2.4 Conditions
Precedent to the Investment.
The
obligation of ICG to make the Investment pursuant to Section 2.1 shall be
subject to the satisfaction, on or before the applicable Closing Date, of the
conditions set forth in this Section. If the conditions set forth in this
Section are not met on or prior to the applicable Closing Date, ICG shall have
no obligation to fund the amount of the Investment required on the applicable
Closing Date.
2
(a) The
Company shall have duly executed and delivered to ICG the Note representing
the
Investment in the amount funded on the applicable Closing Date.
(b) The
Company shall have duly authorized, executed, and delivered to ICG a security
agreement (the “Security
Agreement”)
to
secure the repayment of the Investment and granting ICG a continuing security
interest in all presently existing and hereafter acquired assets and property
of
the Company of whatever nature and wherever located which such Security Interest
shall be senior to all other security interests or Encumbrances against the
assets and property of the Company other than Senior Debt (as hereafter
defined). Except as set forth above, ICG’s security interest shall be senior to
any other indebtedness of the Company, whether now existing or created or
incurred in the future. “Senior
Debt”
shall
mean all indebtedness for all principal,
fees, expenses, interest, penalties, post-bankruptcy petition interest, and
all
other amounts payable for money borrowed from banking or other financial
institutions or governmental lending facilities that is not convertible into
equity securities of the Company, including, but not limited to the $2,000,000
loan from the California Integrated Waste Management Board (the “CIWMB
Loan”)
and
the remaining amount due and owing the Elevation Fund, LLC (the “Elevation
Fund”).
ARTICLE
3
REPRESENTATIONS,
WARRANTIES AND COVENANTS
3.1 Organization,
qualification and Authority.
The
Company is a corporation duly organized and validly existing under the laws
of
the State of Delaware, and is in good standing and duly qualified to do business
as a foreign corporation in all jurisdictions where the operation of its
business or the ownership of its properties make such qualification necessary.
The Company has the requisite corporate power and authority to own, lease and
operate its facilities and assets as presently owned, leased and operated,
and
to carry on its respective business as it is now being conducted. The Company
has the requisite or individual right, power and authority to execute, deliver
and carry out the terms of this Agreement and all documents and agreements
contemplated hereby or necessary to give effect to the provisions of this
Agreement and to consummate the transactions contemplated hereunder and
thereunder. The execution, delivery and consummation of this Agreement, and
all
other agreements and documents executed in connection herewith by the Company,
have been duly authorized by all necessary action on the part of the Company.
No
other action, consent or approval on the part of the Company or any other person
or entity, is necessary to authorize the Company's due and valid execution,
delivery and consummation of this Agreement and all other agreements and
documents executed in connection hereto. This Agreement and all other agreements
and documents executed in connection herewith by the Company, upon due execution
and delivery thereof, shall constitute the valid and binding obligations of
the
Company, enforceable in accordance with its terms, except as enforcement may
be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general principles of equity.
3.2 Compliance
with Laws.
The
nature and transaction of the Company's business and operations and the use
of
its properties and assets do not, and during the term of this Agreement shall
not, violate or conflict with in any material respect any applicable law,
statute, ordinance, rule, regulation or order of any kind or
nature.
3
3.3 Absence
of Conflicts.
The
execution, delivery and performance by the Company of this Agreement and all
other agreements and documents executed in connection herewith by the Company,
and the transactions contemplated hereby, do not constitute a breach or default,
or require consents under, any agreement, permit, contract or other instrument
to which the Company is a party, or by which the Company is bound or to which
any of the assets of the Company is subject, or any judgment, order, writ,
decree, authorization, license, rule, regulation, or statute to which the
Company is subject, and will not result in the creation of any lien upon any
of
the assets of the Company.
3.4 Litigation
and Taxes.
There
is no
litigation or governmental proceeding pending, or to the best knowledge of
the
Company after due inquiry, threatened, against the Company other than as
disclosed in the Company SEC Reports (as defined below). The Company has duly
filed all applicable income or other tax returns and has paid all material
income or other taxes when due. There is no controversy or objection pending,
or
to the best knowledge of the Company after due inquiry, threatened in respect
of
any tax returns of the Company.
3.5 Intellectual
Property.
No
proceedings have been instituted or are pending or, to the Company’s knowledge,
threatened which challenge the validity of the ownership by the Company of
any
Proprietary Rights of the Company. The Company has not licensed anyone to use
any such Proprietary Rights and, to the Company’s knowledge, there has been no
use or infringement of any of such Proprietary Rights by any other
person.
3.6 Company's
SEC Reports.
The
Company is current in regards to all filings with the Securities and Exchange
Commission (the “SEC”)
of all
forms, reports, definitive proxy statements, schedules and registration
statements (the “ Company
SEC Reports”)
required to be filed by it with the SEC pursuant to the Securities Act of 1933,
as amended (the “Securities
Act”),
and
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”),
and
the respective rules and regulations of the SEC thereunder. As of their
respective filing dates or, if amended prior to the date hereof, as of the
date
of the last amendment, none of the Company SEC Reports contained any untrue
statement of a material fact or omitted to state any material fact required
to
be stated therein or necessary to make the statements made therein, in the
light
of the circumstances under which they were made, not misleading. The Company
SEC
Reports (including, without limitation, any financial statements and schedules
included therein) when filed or, if amended prior to the date hereof, as of
the
date of the last amendment, complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, and the
respective rules and regulations of the SEC thereunder.
3.7 No
Omissions or Misstatements.
None of
the information included in this Agreement, other documents or information
furnished to ICG by the Company, or any of its representations, contains any
untrue statement of a material fact or is misleading in any material respect
or
omits to state any material fact. Copies of all documents referred to in herein
have been delivered or made available to ICG and constitute true and complete
copies thereof and include all amendments, schedules, appendices, supplements
or
modifications thereto or waivers thereunder.
3.8 Other
Indebtedness.
On and
as of the date hereof and on and as of each Closing Date, the Company does
not
and will not have any outstanding Senior Debt other than the CIWMB Loan and
the
amount due and owning the Elevation Fund. For so long as the Note(s) (or any
note issued upon transfer of the Note(s), in whole or in part) remains
outstanding, the Company shall not incur, create or enter into any agreement
to
incur or create indebtedness ranking on a parity or parri
passu
with the
Note(s) (“Parity
Debt”),
other
than the investors participating in the current financing under the Company’s
2006 Private Placement Memorandum and certain other ICG investors, identified
in
Schedule
A
to the
Security Agreement, as defined below, without the prior written consent of
ICG,
which consent shall not be unreasonably withheld.
4
3.9 ICG
Board Representation.
Effective at the Closing of the Investment, the Company shall appoint a
representative of ICG (the “ICG
Representative”)
to the
Company’s Board of Directors. For so long as (i) the Note(s) (or any note issued
upon transfer of the Note(s), in whole or in part) remains outstanding, or
if
later (ii) one year from the Maturity Date, the Company shall nominate ICG
Representative for election to the Board at any and all times that the
stockholders of the Company take action (whether by meeting or written consent)
to elect members of the Board of Directors and shall use best efforts to secure
ICG Representative election to the Board.
3.10 Right
of Participation.
ICG
shall have the right in the event the Company proposes to offer equity
securities (the “New
Securities”)
to any
person or company to purchase any New Securities. ICG shall have the right
to
invest with current investors participating in the KW Securities Financing
pursuant to the Company’s 2006 Private Placement Memorandum (the “PPM”),
to
collectively subscribe to, in the aggregate, fifty percent (50%) of the New
Securities. The Company grants ICG this right for three (3) years. For purposes
of this section, “New Securities” shall mean any capital stock of the Company
whether now authorized or not, and rights options or warrants to purchase such
capital stock, and securities of any type whatsoever that are, or may become,
convertible into capital stock; provided that the term “New Securities” does not
include (i) securities purchased under any common stock purchase agreements;
(ii) securities issued upon any conversions; (iii) securities issued pursuant
to
the acquisition of another business entity or business segment of any such
entity by the Company by merger, purchase of substantially all the assets or
other reorganization whereby the Company will own more than fifty percent (50%)
of the voting power of such business entity or business segment of any such
entity; (iv) securities issued in connection with any borrowings, direct or
indirect, from financial institutions or other persons by the Company, whether
or not presently authorized, including any type of loan or payment evidenced
by
any type of debt instrument; (v) securities issued to employees, consultants,
officers, directors or advisors of the Company pursuant to any stock option,
stock purchase or stock bonus plan, agreement or arrangement approved by the
Board of Directors; (vi) securities issued in connection obtaining lease
financing, whether issued to a ICG, lessor, guarantor or other person and
approved by the Board of Directors; (vii) securities issued to leasing
companies, landlords, ICG and other providers of goods and services to the
Company and approved by the Board of Directors; (viii) securities issued in
a
pubic offering pursuant to a registration under the Securities Act; (ix)
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company; (x) securities issued in connection with
strategic transactions involving the Company and other entities, including,
(A)
joint ventures, manufacturing, marketing or distribution arrangements or (B)
technology license, transfer or development arrangements; provided that such
strategic transactions and the issuance of shares therein, have been approved
by
the Company’s Board of Directors; and (xi) any right, option or warrant to
acquire any security convertible into the securities excluded from the
definition of New Securities pursuant to subsections (i) through (x)
above.
5
ARTICLE
4
CONVERSION
4.1 Conversion
Right.
ICG in
its sole discretion may convert, via written notice to the Company, the full
amount of the principal plus any interest payable under the Note(s) and the
Funding Agreement into shares of common stock of the Company at a conversion
price of $0.0975 per share (the “Conversion
Right”).
All
conversion and exercise prices in this Funding Agreement shall be subject to
appropriate adjustment in the case of stock splits, stock dividends,
recapitalizations and the like.
ARTICLE
5
DEFAULT
5.1 Events
of Default.
The
occurrence of any of the following events (each an “Event
of Default”),
not
cured in the applicable cure period, if any, shall constitute an Event of
Default of the Company:
(a) a
breach
of any representation, warranty, covenant or other provision of this Agreement
or the Note(s), which, if capable of being cured, is not cured within ten days
following notice thereof to the Company;
(b) the
failure to make when due any payment described in this Agreement or the Note(s),
whether on or after the Maturity Date, by acceleration or otherwise;
(c) the
failure to make when due any payment on any Senior Debt or Parity Debt, whether
on or after the maturity date, by acceleration or otherwise;
(d) The
removal of ICG Representative from the Company’s Board of Directors or the
failure of ICG Representative to continue to serve on the Board of Directors
of
the Company for any reason other than his death or voluntary resignation;
and
(e) (i)
the
application for the appointment of a receiver or custodian for the Company
or
the property of the Company, (ii) the entry of an order for relief or the filing
of a petition by or against the Company under the provisions of any bankruptcy
or insolvency law, (iii) any assignment for the benefit of creditors by or
against the Company, or (iv) the Company becomes insolvent.
5.2 Effect
of Default.
Upon
the occurrence of any Event of Default that is not cured within any applicable
cure period, ICG may elect, by written notice delivered to the Company, to
take
any or all of the following actions: (i) declare the outstanding amounts under
the Note(s) to be forthwith due and payable, whereupon the entire unpaid Amount,
together with accrued and unpaid Interest thereon (including the Default
Interest Rate), and all other cash obligations hereunder, shall become forthwith
due and payable, without presentment, demand, protest or any other notice of
any
kind, all of which are hereby expressly waived by the Company, anything
contained herein or in any of the Note(s) to the contrary notwithstanding,
and
(ii) exercise any and all other remedies provided hereunder or available at
law
or in equity upon the occurrence and continuation of an Event of Default.
6
ARTICLE
6
ISSUANCE
OF SECURITIES
6.1 Issuance
of Shares and Warrants.
As set
forth in Section 2.1, the Company shall issue to ICG (i) a warrant for that
number of shares equal to eight percent (8%) of the securities issued pursuant
to the Investment (the “Investment Warrant”); and (ii) a warrant for that number
of shares equal to eight percent (8%) of the securities issued pursuant to
the
Additional Investment (the “Additional Investment Warrant”), in the form
attached hereto as Exhibit
A
(the
“Warrant”).
The
Warrant shall be immediately exercisable by ICG (or its assigns) on the Closing
Date and at an exercise price of Six Cents ($0.06) per share. The Warrant shall
be exercisable for a period of four (4) years following the Closing Date. The
number of shares purchasable upon Exercise of the Warrant and the exercise
price
thereof shall be subject to appropriate adjustment in the case of stock splits,
stock dividends, recapitalizations and will contain antidilution protection
identical to those contained in the Note(s). Further, upon conversion of the
Note(s) from debt to equity the Company shall issue to ICG that number of shares
equal to eight percent (8%) of the securities issued in connection with the
conversion of the Note(s) into equity (the “Conversion Shares”)
6.2 Registration
of Registrable Securities.
Within
twelve (12) months after the Closing Date,
the
Company, at its expense, shall have registered pursuant to one or more effective
registration statements filed with the SEC under
the
Securities Act the
resale by ICG or any successor thereto any and all Company shares issued or
issuable (x) pursuant to the Conversion Right or otherwise with respect to
the
Investment and (y) upon exercise or conversion of the Warrants and the
Conversion Warrant (collectively, the “Registrable
Securities”),
and
the Company agrees to maintain the effectiveness
and currency
of each
such
registration statement, including any related prospectus until the earlier
to
occur of (i) the resale of the Registrable Securities by ICG or any successor
thereto in the manner contemplated by such registration statement or (ii) such
time as all of the Registrable Securities may be sold by ICG or any successor
thereto pursuant to Rule 144(k) under the Securities Act (or any successor
provision thereto); and the Company shall take all such further action
(including, without limitation, any registration of such shares under applicable
state securities laws
and the
listing of such shares on any and all trading markets or stock exchanges as
the
Company’s Common Shares may trade from time to time)
as
shall permit the resale of such shares, or any portion thereof, as aforesaid.
The Company agrees to amend such registration statements from time to time
upon
request of ICG to reflect any successors of ICG’s rights hereunder. The Company
shall from time to time furnish to ICG or any successor thereto sufficient
copies of any such prospectus, and any supplements thereto, so as to permit
the
resale of such Registrable Securities, or any portion thereof, in the manner
prescribed by ICG or any successor thereto. If,
at any
time prior to twelve (12) months after the Closing Date, the Company files
a
registration statement with the SEC for the purpose of registering the sale
of
its equity securities under the Securities Act (other than on Form S-4 or Form
S-8), the Company agrees to include the registration of the resale of the
Registrable Securities in such registration statement and the other applicable
covenants and agreements of the Company set forth in this Section 6.2 shall
apply to such registration statement.
7
ARTICLE
7
MISCELLANEOUS
7.1 Successors
and Assigns; Third Party Beneficiary.
Subject
to the exceptions specifically set forth in this Agreement, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective executors, administrators, heirs, successors and permitted
assigns of the parties. This Agreement may not be assigned (whether by operation
of law or otherwise) by the Company without the prior written consent of ICG.
ICG’s rights under this Agreement and the related agreements of the Company
contemplated hereby (including the Note(s) and the Security Agreement) may
be
assigned, in whole or in part, by ICG without the consent of the
Company.
7.2 Titles
and Subtitles.
The
titles and subtitles of the Sections of this Agreement are used for convenience
only and shall not be considered in construing or interpreting this agreement.
7.3 Notices.
Any
notice, request or other communication required or permitted hereunder shall
be
in writing and shall be delivered personally or by facsimile (receipt confirmed
electronically) or shall be sent by a reputable express delivery service or
by
certified mail, postage prepaid with return receipt requested, addressed as
follows:
if
to
the Company, to:
Itec
Environmental Group, Inc.
0000
Xxxxx Xxxx, Xxx 000
Xxxxxxxxx,
XX 00000
Attn: Xxxx
X.
De Laurentiis
Fax: (000)
000-0000
with
a
copy to:
The
Xxxx
Law Group, PLLC
000
Xxxxx
Xxxxxx, Xxxxx 0000
Xxxxxxx,
XX 00000
Attn:
Xxxxx
X.
Xxxx
Fax: (000)
000-0000
if
to
ICG, to:
Itec
Capital Group, LLC
000
Xxxxx
Xxxxxx, Xxxxx 0000
Xxxxxxx,
XX 00000
Either
party hereto may change the above specified recipient or mailing address by
notice to the other party given in the manner herein prescribed. All notices
shall be deemed given on the day when actually delivered as provided above
(if
delivered personally or by facsimile, provided that any such facsimile is
received during regular business hours at the recipient's location) or on the
day shown on the return receipt (if delivered by mail or delivery
service).
8
7.4 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of California without giving effect to any choice of law
or
conflict of law provision or rule (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
7.5 Waiver
and Amendment.
Any
term of this Agreement may be amended, waived or modified with the written
consent of the Company and ICG.
7.6 Remedies.
No
delay or omission by ICG in exercising any of its rights, remedies, powers
or
privileges hereunder or at law or in equity and no course of dealing between
the
ICG and the undersigned or any other person shall be deemed a waiver by ICG
of
any such rights, remedies, powers or privileges, even if such delay or omission
is continuous or repeated, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise thereof
by ICG or the exercise of any other right, remedy, power or privilege by ICG.
The rights and remedies of ICG described herein shall be cumulative and not
restrictive of any other rights or remedies available under any other
instrument, at law or in equity.
7.7 Expenses.
The
Company agrees to reimburse ICG for fees and expenses incurred by ICG in
connection with the preparation of this Agreement and the transactions
contemplated hereby, including reasonable attorneys fess, up to a maximum amount
of Twenty Thousand Dollars ($20,000.00).
7.8 Enforcement.
In
the
event an action is instituted to enforce or interpret any of the terms of this
Agreement including but not limited to any action or participation by ICG in,
or
in connection with, a case or proceeding under the Bankruptcy Code or any
successor statute, the prevailing party shall be entitled to recover all
expenses reasonably incurred at, before and after trial and on appeal or review,
whether or not taxable as costs, including, without limitation, attorney fees,
witness fees (expert and otherwise), deposition costs, copying charges and
other
expenses.
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remainder of this page intentionally left blank]
9
IN
WITNESS WHEREOF, the Company has caused this Funding Agreement to be signed
in
its name on the date first set forth above.
ITEC
ENVIRONMENTAL GROUP, INC.
By: ________________________
Xxxx
X.
De Laurentiis
Chief
Executive Officer
10
IN
WITNESS WHEREOF, the ICG has caused this Funding Agreement to be signed in
its
name on the date first set forth above.
ITEC
CAPITAL GROUP, LLC
By: ________________________
Name: Xxxxx
X.
Xxxx
Title:
Manager
11
Exhibit
A
Form
of Warrant
12
