LOAN AGREEMENT
THIS
LOAN
AGREEMENT (this "Agreement"),
is
executed as of September ___, 2005, by and between Itec Environmental Group,
Inc., a Delaware corporation (the "Company"),
and
the Lenders whose names appear on the signature page hereto (the "Lenders").
WHEREAS,
the Company is preparing to conduct a private placement whereby it will offer
$7,500,000 of senior cumulative debentures and warrants (the "Private
Placement");
WHEREAS,
in order to fund the Company’s operations until such Private Placement is
completed, the Company wishes to borrow $150,000 from the Lenders
as a
short term bridge loan; and
WHEREAS,
the Lenders are willing to provide such financing 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 the Lenders,
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 Loan is made to the Company.
"Encumbrance"
means
any lien, charge, security interest, mortgage, deed of trust, pledge or other
encumbrance of any nature whatsoever.
“Excluded
Securities”
shall
mean (i) securities issued in connection with the Private Placement; (ii)
securities issued upon conversion of any securities outstanding on the Closing
Date; (iii) securities issued pursuant to the acquisition of another business
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 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 of the Company; (v) securities issued
in
connection with obtaining lease financing, whether issued to Lenders, lessor,
guarantor or other person and approved by the Board of Directors of the Company;
(vi) securities issued to leasing companies, landlords and other providers
of
goods and services to the Company and approved by the Board of Directors;
(vii)
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company; (viii) 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 Board of Directors of the Company; and (ix) any right, option or warrant
to
acquire any security convertible into the securities pursuant to subsections
(i)
through (viii) above.
“Interest
Rate”
shall
mean ten percent (10%).
"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
LOAN
2.1 Loan.
According to the terms and subject to the conditions of this Agreement, the
Lenders shall loan to the Company on the Closing Date in the aggregate amount
of
$150,000 (the "Loan").
The
Loan shall be evidenced by a promissory note in the form attached hereto
as
Exhibit
A
("Note"),
duly
executed on behalf of the Company and dated as of the Closing Date.
2.2 Interest.
(a) Interest
Rate.
The
Loan shall bear interest ("Interest")
from
the date of payment by the Lenders 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 Loan amount at the rate
per
annum equal to the lower of 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 2.3(a) and the Default
Interest Rate.
2.3 Conversion
of the Loan.
The
Loan may be converted into the common stock of the Company pursuant to the
provisions of Section 8.7 hereof.
2.4 Maturity
Date.
Unless
the Loan is earlier accelerated pursuant to the terms hereof or converted
into
common stock pursuant to the provisions of Section 8.7 hereof, the Loan and
all
accrued Interest thereon shall be due and payable in full on the earlier
of (a)
the date that is 120 days following the Closing Date or (b) the closing date
of
the Private Placement (the “Maturity
Date”).
In
the event that the Private Placement is not consummated within 120 days after
the Closing Date, the Lenders may, at the Lenders' option, extend the Maturity
Date on such terms and conditions as determined by the Lenders in their sole
discretion.
2
ARTICLE
3
CONDITIONS
PRECEDENT TO THE LOAN
3.1 Conditions
on the Closing Date.
The
obligation of the Lenders to make the Loan pursuant to Section 2.1 shall
be
subject to the satisfaction, on or before the 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 Closing Date, the Lenders shall have no obligation
to
make the Loan.
(a) The
Company shall have duly executed and delivered to the Lenders the Notes
representing the Loan.
ARTICLE
4
REPRESENTATIONS
AND WARRANTIES
4.1 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
necessary to give effect to the provisions of this Agreement and to consummate
the transactions contemplated hereunder. 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.
4.2 Capitalization.
All of
the Company's authorized and outstanding equity securities (including securities
convertible into equity securities) are identified on Exhibit
B
attached
hereto (the “Company
Securities”).
Other
than as set forth on Exhibit
B,
there
are no outstanding shares of capital stock or any options, warrants or other
preemptive rights, rights of first refusal or similar rights to purchase
equity
securities of the Company. There are no outstanding obligations of the Company
to repurchase, redeem or otherwise acquire any securities of the Company
or pay
any dividend or make any other distribution in respect thereof. Except as
set
forth in Section 4.3, the Company owns no securities of any other entity
and no
rights to acquire any securities from any other entity. All outstanding Company
Securities have been duly authorized and validly issued and are fully paid,
non-assessable and free and clear of all Encumbrances. Upon issuance, the
Warrant issued to the Lenders pursuant to Section 7.1 will be duly authorized,
validly issued, fully paid, non-assessable and free and clear of all
Encumbrances.
3
4.3 Subsidiaries.
With
the exception of the one share of common stock of ITec Acquisitions, Inc.,
a
Delaware corporation and wholly-owned subsidiary of the Company, held by
the
Company, the Company owns no securities of any other entity, and, except
as set
forth in this Section 4.3, there are no outstanding shares of capital stock
or
any options, warrants or other preemptive rights, rights of first refusal
or
similar rights to purchase equity securities of any other entity.
4.4 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.
4.5 Absence
of Conflicts.
The
execution, delivery and performance by the Company of this Agreement, 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.
4.6 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. 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.
4.7 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
such Proprietary Rights. 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.
4.8 Company's
SEC Reports.
The
Company has timely filed with the Securities and Exchange Commission (the
“SEC”)
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”),
or
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
As of
their respective filing dates or, if amended, 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, 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.
4
4.9 No
Omissions or Misstatements.
None of
the information included in this Agreement, other documents or information
furnished or to be furnished 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 the Lenders
and
constitute true and complete copies thereof and include all amendments,
schedules, appendices, supplements or modifications thereto or waivers
thereunder.
ARTICLE
5
COVENANTS
5.1 Negative
Covenants of the Company.
The
Company covenants and agrees that, from the Closing Date until the Maturity
Date
(and, in any event, during such time as any portion of the Loan or any Interest
thereon is outstanding), without the consent of the Lenders, the Company
will
not:
(a) create,
incur, assume or suffer to exist any indebtedness that is in any way senior
or
superior to this Agreement or the indebtedness represented hereby except
as set
forth in Section 3.1(b);
(b) merge
or
consolidate with or into any other corporation or sell or otherwise convey
25%
or more of its assets; provided, however, that notwithstanding anything in
this
Agreement or the Note to the contrary, the Company shall not be prohibited
from
consummating that certain Agreement and Plan of Merger by and among the Company,
ITec Acquisitions, Inc. and Rose Waste Systems, Inc. (the “Merger”);
(c) in
a
single transaction or series of related transactions, effect a significant
acquisition of any business or entity (for purposes hereof, a “significant”
acquisition shall be determined in accordance with Instructions 2, 3 and
4 or
Item 2 of Form 8-K of the Securities and Exchange Commission); provided,
however, that notwithstanding anything in this Agreement or the Note to the
contrary, the Company shall not be prohibited from consummating the
Merger;
(d) engage
in
any business other than the business conducted by the Company on the Closing
Date;
(e) declare,
set aside or pay any dividend or other distribution on any of its capital
stock;
(f) engage
in
any transaction with any Affiliate (as such term is defined in Rule 501(b)
of
the Securities Act of 1933, as amended) on terms less favorable to the Company
than could be obtained from an unrelated party; or
5
(g) amend
its
Certificate of Incorporation or Bylaws in any manner that adversely affects
the
rights associated with this Agreement, the Warrant issued to the Lenders
pursuant to Section 7.1 hereof or the Registrable Securities.
The
Company will give notice to the Lenders of any default under any provisions
of
this Agreement within three business days after the discovery by the Company
of
such default.
5.2 Affirmative
Covenants of the Company.
The
Company covenants and agrees that, from the Closing Date until the Maturity
Date
(and, in any event, during such time as any portion of the Loan or any Interest
thereon is outstanding), the Company shall:
(a) operate
its business only in the ordinary course and maintain its properties and
assets
in good repair, working order and condition;
(b) cause
to
be done all things reasonably necessary to maintain, preserve and renew its
corporate existence and all material licenses, authorizations and permits
necessary to the conduct of its businesses;
(c) comply
with all applicable laws, rules and regulations of all governmental authorities,
the violation of which could reasonably be expected to have a material adverse
effect on its business, properties or prospects;
(d) deliver
to the Lenders within 10 days after the end of each fiscal month and within
30
days of the end of each fiscal quarter, unaudited consolidated financial
statements (including balance sheets, statements of income and loss, statements
of cash flow and statements of shareholders' equity) all in reasonable detail,
fairly presenting the financial position and the results of operations of
the
Company as of the end of and through such periods, prepared in accordance
with
generally accepted accounting principles, consistently applied in the United
States and consistent with past practice;
(e) deliver
to the Lenders the Company's audited annual financial statements and the
Company's annual budget, and allow the Lenders reasonable access during normal
business hours to visit the Company and inspect the financial records of
the
Company; and
(f) provide
the Lenders with at least 10 days' written notice of any meeting of the Board
of
Directors of the Company and permit the Lenders to designate an individual
to
attend such meeting, including any adjournment thereof, as an observer. In
addition, the Lenders' designees shall receive all written material disseminated
to the Board of Directors in advance, during or following any meeting, whether
or not the designee was in attendance. The Lenders' designees shall receive
the
same compensation as is paid to the members of the Board of Directors in
connection with such designee's attendance of meetings of the Board of
Directors.
5.3 Additional
Covenant Regarding Registration Statements on Form S-8.
During
the period from the Closing Date until the date that is 30 days following
the
closing of the Private Placement, the Company shall not issue any stock options
or warrants that are subject to or covered by the Company’s registration
statements on Form S-8 on file with the Securities and Exchange
Commission.
6
ARTICLE
6
DEFAULT
6.1 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 and Event of
Default of the Company:
(a) a
breach
of any representation, warranty, covenant or other provision of this Agreement
or the Note, which, if capable of being cured, is not cured within three
days
following notice thereof to the Company;
(b) the
failure to make when due any payment described in this Agreement or the Note,
whether on or after the Maturity Date, by acceleration or otherwise;
and
(c) (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.
6.2 Effect
of Default.
Upon
the occurrence of any Event of Default that is not cured within any applicable
cure period, the Lenders may elect, by written notice delivered to the Company,
to take any or all of the following actions: (i) declare this Agreement
terminated and the outstanding amounts under the Note to be forthwith due
and
payable, whereupon the entire unpaid Loan, 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 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. In addition, during the occurrence
of
any Event of Default, the Company shall not pay make any payment on any other
outstanding indebtedness of the Company (other than indebtedness of the Company
to which the Lenders have agreed in writing to subordinate this Agreement
and
the Note hereunder).
ARTICLE
7
ISSUANCE
OF STOCK
7.1 Issuance
of Warrant.
Unless
the Loan is converted into common stock pursuant to the provisions of Section
8.7 hereof, the Company shall issue to the Lender on a pro-rata basis warrant
to
purchase in the aggregate, the Company shall issue to the Lenders on a pro-rate
basis warrant to purchase in the aggregate 150,000 shares of common stock
of the
Company in the form attached hereto as Exhibit
C
(the
“Warrant”).
The
Warrant shall be immediately exercisable by the Lenders (or their assigns)
at an
exercise price of $.13 per share. The Warrant shall be exercisable for a
period
of ten years following the Effective Date.
7
7.2 Registration
of Registrable Securities.
(a) The
Company shall prepare and, as soon as practicable, but in no event later
than 75
days following the closing date of the Private Placement (the “Filing
Deadline”),
file
with the Securities and Exchange Commission (the “SEC”)
a
registration statement on Form SB-2 covering the resale of all shares of
common
stock underlying the Note (the “Note
Shares”);
provided,
however;
that in
the event the Loan is not converted prior to the Maturity Date (the “Note
Repayment”), the registration statement on Form SB-2 shall cover instead the
shares of common stock underlying the Warrant (the “Warrant
Shares”)
(the
shares of common stock required to be registered pursuant to this Section
7.2(a), the “Registrable
Securities”).
In
the event that Form SB-2 is unavailable for such a registration, the
Company
shall
register the resale of the Registrable Securities on another appropriate
form
reasonably acceptable to the holders of at least a majority of the Registrable
Securities and undertake to register the Registrable Securities on Form SB-2
as
soon as such form is available, provided that the Company
shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form SB-2 covering the Registrable
Securities has been declared effective by the SEC.
The
Company shall use its reasonable best efforts to have such registration
statement declared effective by the SEC as soon as practicable, but in no
event
later than the date which is 180 days following the closing date of the Private
Placement (the “Effectiveness
Deadline”).
(b) In
the
event the registration statement required to be filed with the SEC pursuant
to
Section 7.2(a) is not filed with the SEC by the Filing Deadline, (a
"Filing
Failure"),
then,
as partial relief for the damages to any holder by reason of any such delay
in
or reduction of its ability to sell the Registrable Securities (which remedy
shall not be exclusive of any other remedies available at law or in equity),
the
Company shall pay to Lenders an amount in stock equal to one and one-half
percent (1.5%) of the Loan on the following dates the day of a Filing Failure
and on every thirtieth day (pro rated for periods totaling less than thirty
days) thereafter until such Filing Failure is cured. The payments to which
the
Lenders shall be entitled pursuant to this Section 7.2(b) are referred to
herein
as "Filing
Failure Delay Payments."
Filing
Failure Delay Payments shall be paid on the earlier of (I) the last day of
the
calendar month during which such Filing Failure Delay Payments are incurred
and
(II) the third Business Day after the event or failure giving rise to the
Filing
Failure Delay Payments is cured. In the event the Company fails to make Filing
Failure Delay Payments in a timely manner, such Registration Delay Payments
shall bear interest at the rate of 1.5% per month (prorated for partial months)
until paid in full.
(c) All
expenses incident to the filing of the registration statement required by
Section 7.2, including without limitation all registration and filing fees,
fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for
the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other professionals retained by
the
Company will be borne by the Company. In no event shall the Company be obligated
to pay any discounts or commissions with respect to the shares sold by any
holder of Registrable Securities. In connection with any registration statement,
the Company shall reimburse the holders of Registrable Securities covered
by
such registration for the reasonable fees and disbursements of one counsel
chosen by the holders of a majority of the Registrable Securities initially
requesting such registration.
8
ARTICLE
8
MISCELLANEOUS
8.1 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
the
Lenders. This Agreement may be assigned by the Lenders without the consent
of
the Company.
8.2 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.
8.3 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
the Lenders, to:
The
address set forth
on
the
signature page hereto
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).
9
8.4 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 Colorado or any
other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California.
8.5 Waiver
and Amendment.
Any
term of this Agreement may be amended, waived or modified with the written
consent of the Company and the Lenders.
8.6 Remedies.
No
delay or omission by the Lenders in exercising any of its rights, remedies,
powers or privileges hereunder or at law or in equity and no course of dealing
between the Lenders and the undersigned or any other person shall be deemed
a
waiver by the Lenders 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 the Lenders or the exercise of any other right,
remedy, power or privilege by the Lenders. The rights and remedies of the
Lenders described herein shall be cumulative and not restrictive of any other
rights or remedies available under any other instrument, at law or in equity.
8.7 Conversion.
In the
event the Lenders elects to convert the Note, all principal and interest
due
pursuant to the Note shall convert into common stock of the Company at a
price
per share of the lesser of seventy five percent (75%) of (i) $.13, or (ii)
the
price
of
the common stock of the Company on the Over The Counter Bulletin Board on
the
day the Lenders elect to convert.
[the
remainder of this page intentionally left blank]
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IN
WITNESS WHEREOF, the Company has caused this Loan 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
11
IN
WITNESS WHEREOF, the Lender has caused this Loan Agreement to be signed in
its
name on the date first set forth above.
By: ________________________
Name: Xxxxx
X.
Xxxx
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Schedule
of Lenders
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of Lender
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of Loan
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Information
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of Warrants
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Representative
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Address:
Fax:
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Address:
Fax:
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Address:
Fax:
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Address:
Fax:
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Address:
Fax:
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Address:
Fax:
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Address:
Fax:
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Address:
Fax:
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