UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended: September 30, 2016 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission File Number: 000-55656
CLEAN ENERGY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Nevada |
20-2675800 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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2990 Redhill Avenue, Costa Mesa, CA 92626 |
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(Address of principal executive offices)
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(949) 273-4990
(Registrant ’ s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “ large accelerated filer, ” “ accelerated filer ” and “ smaller reporting company ” in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer [ ] |
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Accelerated filer [ ] |
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Non-accelerated filer [ ] |
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(Do not check if a smaller reporting company) |
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Smaller reporting company [X] |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]Yes [X] No
As of November 15, 2016, there were 153,978,083 shares of the Registrant ’ s $0.001 par value common stock issued and outstanding.
Page 2 of 35
CLEAN ENERGY TECHNOLOGIES, INC.
(A Nevada Corporation)
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
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ITEM 1. |
CONSOLIDATED FINANCIAL STATEMENTS |
4 |
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ITEM 2. |
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
17 |
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ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
18 |
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ITEM 4. |
CONTROLS AND PROCEDURES |
18 |
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PART II. OTHER INFORMATION
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ITEM 1. |
LEGAL PROCEEDINGS |
20 |
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ITEM 1A. |
RISK FACTORS |
20 |
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ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
20 |
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ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
20 |
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ITEM 4. |
MINE SAFETY DISCLOSURES |
20 |
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ITEM 5. |
OTHER INFORMATION |
20 |
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ITEM 6. |
EXHIBITS |
20 |
Page 3 of 35
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ( “ Securities Act ” ), and Section 21E of the Securities Exchange Act of 1934, as amended ( “ Exchange Act ” ). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Clean Energy Technologies, Inc. (the “ Company ” ), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “ may, ” “ will, ” “ should, ” “ expect, ” “ anticipate, ” “ estimate, ” “ believe, ” “ intend, ” or “ project ” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that possible future events included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of numerous factors, including the Risk Factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the U.S. Securities and Exchange Commission. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
* Please note that throughout this Quarterly Report, and except as otherwise indicated by the context, references in this report to “ Company, ” “ CETY, ” PMFI, ” “ Probe, ” “ Clean Energy, ” “ we, ” “ us, ” and “ our ” are references to Clean Energy Technologies, Inc., (f/k/a Probe Manufacturing Inc. ). All references to “ USD ” or United States Dollars refer to the legal currency of the United States of America.
Page 4 of 35
Part I – Financial Information
Item 1. Consolidated Financial Statements
Clean Energy Technologies, Inc.
As of and for the three and nine months ended September 30, 2016
(Unaudited)
Financial Statement Index
Consolidated Balance Sheets as of September 30, 2016 (unaudited)
and December 31, 2015 (audited)
6
Consolidated Statements of Operations (unaudited)
7
Consolidated Statements of Cash Flows (unaudited)
8
Notes to the Consolidated Financial Statements (unaudited)
9
Page 6 of 35
The accompanying footnotes are an integral part of these financial statements
Clean Energy Technologies, Inc. |
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Consolidated Statement of Operations |
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For the three and nine months ended September 30,
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three months ended September 30, |
nine months ended September 30, |
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2016 |
2015 |
2016 |
2015 |
Sales |
$ 280,299 |
$ 235,838 |
$ 1,687,656 |
$ 1,848,854 |
Cost of Goods Sold |
199,943 |
188,250 |
906,612 |
1,212,969 |
Gross Profit |
80,356 |
47,588 |
781,044 |
635,885 |
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General and Administrative |
205,381 |
233,554 |
539,669 |
397,421 |
Salaries |
203,002 |
159,257 |
628,856 |
457,539 |
Moving Expense |
2,194 |
31,492 |
77,202 |
31,492 |
Professional fees |
65,927 |
5,961 |
137,996 |
44,584 |
Rent |
20,830 |
24,905 |
173,774 |
126,523 |
Share Based Expense |
85,347 |
66,250 |
101,347 |
73,450 |
Total Expenses |
582,681 |
521,419 |
1,658,844 |
1,131,009 |
Net Profit / (Loss) From Operations |
(502,325) |
(473,831) |
(877,800) |
(495,124) |
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Loss on disposal of fixed assets |
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(41,459) |
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Loss on derivative liability |
(96,923) |
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(96,923) |
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Change in derivative liability |
40,373 |
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40,373 |
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Interest Expense |
(44,157) |
(69,379) |
(236,466) |
(229,959) |
Net Profit / (Loss) Before Income Taxes |
(603,032) |
(543,210) |
(1,212,275) |
(725,083) |
Income Tax Expense |
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Net Profit / (Loss) |
$ (603,032) |
$ (543,210) |
$ (1,212,275) |
$ (725,083) |
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Per Share Information: |
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Basic and diluted weighted average number |
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of common shares outstanding |
141,436,164 |
33,344,054 |
140,347,605 |
32,667,452 |
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Net Profit / (Loss) per common share basic and diluted |
(0.00) |
(0.02) |
(0.01) |
(0.02) |
The accompanying footnotes are an integral part of these financial statements
Page 9 of 35
The accompanying footnotes are an integral part of these financial statements
Page 10 of 35
Clean Energy Technologies, Inc.
(f/k/a Probe Manufacturing, Inc.)
Notes to Consolidated Financial Statements (Unaudited)
Notes 1- GENERAL
Business Overview
We design, build, and market clean energy products focused on energy efficiency and environmentally sustainable technologies and we perform electronics manufacturing services for third parties. Our principal products are based upon the Clean Cycle ™ heat recovery system, offered by our wholly owned subsidiary Clean Energy HRS LLC. Our Clean Cycle ™ captures waste heat from a variety of sources and turns it into electricity that users can use, store, or export, such as to an external or utility power grid. The proven, cutting-edge Clean Cycle ™ technology allows commercial and industrial heat generators or sources to boost their overall energy efficiency with no additional fuel, no pollutants, and virtually no maintenance. The engineering and manufacturing resources from our electronics manufacturing services business support our heat recovery solutions business. We intend also to leverage these capabilities to identify and exploit other clean energy technologies and opportunities.
The Clean Cycle ™ heat recovery solution is an Organic Rankine Cycle, or ORC, system. An ORC system is a closed-loop heat recovery steam generator system, sometimes referred to as an HRS or an HRSG, that utilizes heat from a heat source, such as an existing power generation system, to heat a fluid to produce steam. The steam then passes through a turbine generator, and turbine generator converts the kinetic energy in the steam to produce electrical energy, which can be used, stored, or exported. The ORC cycle then recycles and further cools the fluid medium to again use heat from the external heat source to continue the power-generation cycle.
The technology at the heart of the Clean Cycle ™ is a magnetic levitation bearing generator, which requires no oil or other lubricants and has no gear box. The turbine generator and related power management electronics are what convert the kinetic energy in the steam cycle into electrical energy. There are over 100 Clean Cycle ™ HRS units installed globally with more than one million fleet operating hours in diesel, gas, and biomass applications.
The magnetic levitation bearing generator technology was originally developed by Calnetix, Inc. General Electric International, Inc. acquired the rights to the technology in certain applications from Calnetix in 2010. In September 2015, our CE HRS subsidiary acquired General Electric ’ s rights to the technology in those applications, together with General Electric ’ s related HRS technology and improvements, pursuant to an Asset Purchase Agreement with General Electric International, Inc. and General Electric Company that was filed as Exhibit 10.1 to the Company ’ s Current Report on Form 8K dated September 11, 2015 and a concurrent Transaction Completion and Financing Agreement with ETI Partners IV, LLC. CE HRS made an initial purchase price payment of $300,000 at closing and issued a three-year $1.2 million promissory note to GEII with respect to payment of the balance of the cash portion of the purchase price. CE HRS also assumed certain liabilities of GEII related to the acquired assets. In connection with the Asset Purchase Agreement, the Company also entered into various ancillary agreements customary for asset acquisition transactions of this type. Pursuant to the companion Transaction Completion and Financing Agreement facilitating our acquisition of the GE HRS assets, we issued 100,910,321 restricted shares of our common stock to ETI Partners IV, LLC (representing approximately 70% of the post-acquisition outstanding common stock). Concurrently, we entered into a Loan, Guarantee, and Collateral Agreement and a Registration Rights Agreement with ETI Partners IV, LLC to provide a framework for further financing in the Company.
Pursuant to our license agreement with Calnetix (which General Electric assigned to us in connection with the Asset Purchase Agreement), we market and sell our Clean Cycle ™ products world-wide to ORC-based application where heat is sourced from reciprocating combustion engines, of any type (other than those employed on transiting marine vessels), gas or steam turbine systems used for power generation, and biomass boiler systems. Our rights in these applications are exclusive. We also market our Clean Cycle ™ products world-wide on a non-exclusive basis in the following applications, whether or not ORC-based: reciprocating combustion engines, of any type (except those employed on transiting marine vessels or in the automotive application for cars, trucks, and other motor vehicles); gas or steam turbine systems with an ISO rated power
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output above one megawatt (1 MW); and applications that use biomass as a source of heat. We have also periodically negotiated to obtain additional non-exclusive marketing rights to the technology from Calnetix as commercial opportunities have arisen that are not in conflict with other licensees of Calnetix.
Our growth strategy is to scale up our business by focusing on the significant installed base of power generation and biomass boiler systems ideally suited to ORC-based heat recovery systems, exploiting market segments and regions where there are significantly high electricity prices, and identifying and exploiting incentive markets as they are available. We sell equipment and complete heat recovery systems globally directly to end customers and also through distributors. We also commercialize our heat recovery systems through lease and energy-based programs where appropriate. We are also developing technology co-ventures with owners of compatible power generation technology to develop integrated energy production systems to exploit additional potential customers.
The GE HRS asset acquisition and related financing transactions resulted in a change of control of the Company according to FASB No. 2014-17 Business Combinations (Topic 805). As a result, the transactions qualify as a business combination. In accordance with Topic 805, the Company elected to apply pushdown accounting, using the valuation date of September 30, 2015. As a result we recognized $747,976 in goodwill.
ETI Recognized |
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Assets Acquired |
2,949,592 |
Liabilities Acquired |
3,589,558 |
Cash paid |
300,000 |
Non-controlling interest |
191,990 |
Goodwill recognized |
747,976 |
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CETY - Push down accounting election |
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Cash Received |
300,000 |
Goodwill recognized |
747,976 |
Equity |
1,047,976 |
Following completion of the acquisition and integration of the GE HRS into our business, on November 13, 2015 we changed our name to “ Clean Energy Technologies, Inc. ” to better reflect the focus of our new business and business strategies.
Previously, in March 2013, we acquired 100% of the issued and outstanding common stock of Trident Manufacturing, Inc., a Utah corporation engaged in electronics manufacturing services focused on industrial, aerospace, military, instrumentation, and medical markets, in exchange for 1,600,000 restricted shares of our common stock. As of the Trident acquisition, we recognized $420,673 in goodwill. For the year ended December 31, 2015, we impaired the goodwill in the amount of $420,673.
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Going Concern
The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder ’ s deficit of $2,269,746 and a working capital deficit of $3,034,231 as of September 30, 2016. The company also had an accumulated deficit of $6,087,415 as of September 30, 2016. Therefore, there is substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and reach a profitable operating stand and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.
Plan of Operation
Management is taking the following steps to sustain profitability and growth: (i) pursuing increased sales through existing global distribution channels and utilization of direct sales; (ii) pursuing lease and energy-based contracts with customers, including targeted island or isolated locations where the economics, energy production, and emissions reduction profiles are attractive; (iii) pursuing stable and higher-margin electronics manufacturing services contracts where the terms are favorable to the Company; (iv) arranging financing partnerships and relationships to facilitate increased lease and energy-based commercialization of our HRS products; (v) leveraging core competencies to acquire or integrate other technologies and entertain equity opportunities; and (vi) pursuing licenses of our patented technology and proprietary processes and developing cogeneration and OEM opportunities.
Our future success is likely dependent on our ability to sustain profitable growth and attain additional capital to support growth. There can be no assurance that we will be successful in obtaining any such financing, or that it will be able to generate sufficient positive cash flow from operations. The successful outcome of these or any future activities cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute its business plans. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.
Our Products and Services
Our main product, the Clean Cycle ™ HRS system, converts heat from variety of heat sources into clean, affordable electricity. Our heat recovery solution system generates electricity from heat with zero additional fuel required, zero additional emissions produced, and low maintenance. The Clean Cycle ™ HRS system is also re-deployable with continuous 24x7 operation.
Sales and Marketing
Our marketing approach is to position the Company, our products and our services under our new “ Clean Energy Technologies, Inc. ” and “ CETY ” identity and brand. We intend to market our Heat Recovery Solutions products specifically using the market-recognized Clean Cycle ™ brand name. We also intend to utilize our relationships to identify new market segments and regions in which we can expand the commercialization of our products. We intend to offer our products for sale and also to commercialize them under leases, energy-based contracts and other financing structures to accelerate customer adoption and increase market penetration. We also intend to explore licensing opportunities for our patented and other proprietary technologies. We utilize both direct sales force and global distributors with expertise in clean energy.
Corporate Information
We were originally incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We reincorporated in Nevada in April 2005 under the name Probe Manufacturing, Inc. In November 2015, following our acquisition of heat recovery solutions assets from General Electric, we changed our name to Clean Energy Technologies, Inc. Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. Our telephone number is (949) 273-4990. Our common stock is listed on the OTC Market Group ’ s Pink Open Market under the symbol “ CETY. ”
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Our internet website address is www.cetyinc.com . The information contained on our website is not incorporated by reference into this document, and you should not consider any information contained on, or that can be accessed through, our website as part of this document.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The summary of significant accounting policies of Clean Energy Technologies, Inc. (formerly Probe Manufacturing, Inc.) is presented to assist in the understanding of the Company's financial statements. The financial statements and notes are representations of the Company ’ s management, who is responsible for their integrity and objectivity.
The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instructions to Form 10Q. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2015 included in the Company ’ s Annual Report on Form 10-K filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Annual Report on Form 10K. In the opinion of management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets, the collection of accounts receivable and valuation of inventory and reserves.
Cash and Cash Equivalents
We maintain the majority of our cash accounts at a commercial bank. The total cash balance is insured by the Federal Deposit Insurance Corporation ( “ FDIC ” ) up to $250,000 per commercial bank. For purposes of the statement of cash flows we consider all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.
Accounts Receivable
We grant credit to our customers located within the United States of America; and do not require collateral. Our ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect amounts due, actual collections may differ from the estimated amounts. As of December 31, 2015 and September 30, 2016, we had a reserve for potentially un-collectable accounts of $7,000. Five (5) customers accounted for approximately 93% of accounts receivable at September 30, 2016 and one customer accounted for 28% and no other customer accounted for more than 10% of the accounts receivable balance. Our trade accounts primarily represent unsecured receivables. Historically, our bad debt write-offs related to these trade accounts have been insignificant.
Inventory
Inventories are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete inventories based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional
Page 14 of 35
provisions are made. Any inventory write offs are charged to the reserve account. As of September 30, 2016 and December 31, 2015, we had a reserve for potentially obsolete inventory of $250,000.
Property and Equipment
Property and equipment are recorded at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets. The cost of ordinary maintenance and repairs is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the related assets:
Furniture and fixtures 3 to 7 years
Equipment 7 to 10 years
Long – Lived Assets
Our management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment if any, is measured based on fair value and is charged to operations in the period in which long-lived assets impairment is determined by management. There can be no assurance however, that market conditions will not change or demand for our services will continue, which could result in impairment of long-lived assets in the future.
Revenue Recognition
Revenue from product and services are recognized at the time goods are shipped or services are provided to the customer, with an appropriate provision for returns and allowances. Terms are generally FOB origination with the right of inspection and acceptance. We have not experienced a material amount of rejected or damaged product.
The Company provides services for its customers that range from contract design to original product design to repair services. The Company recognizes service revenue when the services have been performed, and the related costs are expensed as incurred.
Fair Value of Financial Instruments
The carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of these financial instruments.
Other Comprehensive Income
We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.
Net Profit (Loss) per Common Share
Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At September 30, 2016, we had outstanding common shares of 143,478,083 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents for the nine months ended September 30, 2016 and 2015 were 140,347,605 and 32,667,452 respectively. As of September 30, 2016, we had outstanding warrants to purchase 750,000 additional common shares and options to purchase 2,625,122 additional common shares. Fully diluted weighted average common shares and equivalents for the three months ended September 30, 2016 were 143,794,838 and 32,847,574 for the same period in 2015, however were withheld from the calculation, as they were considered anti-dilutive.
Research and Development
Research and development costs incurred in association with the alternative fuels technology development (which include salaries and equipment) were expensed as incurred. We had no amounts of research and development R&D during the nine months ended September 30, 2016 and 2015.
Segment Disclosure
FASB Codification Topic 280, Segment Reporting , establishes standards for reporting financial and descriptive information about an enterprise ’ s reportable segments. The Company has two reportable
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segments: Clean Energy HRS(HRS) and the legacy electronic manufacturing services division. The segments are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics. Refer to note 1 for a description of the various product categories manufactured under each of these segments. Prior to March 31, 2016 we only had one reporting segment.
An operating segment's performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include amortization of intangibles, stock-based compensation, other charges (income), net and interest and other, net.
Selected Financial Data :
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nine months ended |
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September 30, 2016 |
Net Sales |
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Electronics Assembly |
$ 856,285 |
Clean Energy HRS |
831,371 |
Total Sales |
$ 1,687,656 |
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Segment income and reconciliation before tax |
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Electronics Assembly |
$ 100,294 |
Clean Energy HRS |
680,750 |
Total Segment income |
781,044 |
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Reconciling items |
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General and Administrative |
(1,544,921) |
Share Based Expense |
(101,347) |
Loss on disposal of fixed assets |
(41,459) |
Loss on Derivative liability |
(96,923) |
Change in derivative liability |
40,373 |
Interest expense |
(236,466) |
Net Loss before income tax |
$ (1,212,275) |
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September 30, 2016 |
Total Assets |
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Electronics Assembly |
$ 1,382,398 |
Clean Energy HRS |
1,698,064 |
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$ 3,080,462 |
Share-Based Compensation
The Company has adopted the use of Statement of Financial Accounting Standards No. 123R, “ Share-Based Payment ” (SFAS No. 123R) (now contained in FASB Codification Topic 718, Compensation-Stock Compensation ), which supersedes APB Opinion No. 25, “ Accounting for Stock Issued to Employees, ” and its related implementation guidance and eliminates the alternative to use Opinion 25 ’ s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The
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Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the “ risk-free interest rate, ” we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.
We re-evaluate the assumptions used to value our share-based awards on a quarterly basis and, if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share-based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the award — the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For the nine months ended September 30, 2016 and 2015 we had $101,347 and $73,450 respectively, in share based expense, due to the issuance of common stock. As of September 30, 2016 we had no further non-vested expense to be recognized.
Income Taxes
The Company accounts for income taxes under SFAS No. 109 (now contained in FASB Codification Topic 740-10-25, Accounting for Uncertainty in Income Taxes), which requires the asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. As of September 30, 2016, we had a net operating loss carry-forward of approximately $(6,087,415) and a deferred tax asset of approximately $2,069,721 using the statutory rate of 34%. The deferred tax asset may be recognized in future periods, not to exceed 20 years. However, due to the uncertainty of future events we have booked valuation allowance of $(2,069,721). FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At September 30, 2016 the Company had not taken any tax positions that would require disclosure under FASB ASC 740.
|
September 30, 2016 |
December 31, 2015 |
Deferred Tax Asset |
$ 2,069,721 |
$ 1,731,293 |
Valuation Allowance |
(2,069,721) |
(1,731,293) |
Deferred Tax Asset (Net) |
$ - |
$ - |
On September 15, 2015, the Company entered into a Transaction Completion and Financing Agreement with ETI Partners IV LLC, and Company agreed to issue to ETI 100,910,321 shares of restricted common stock, representing 70% of the fully diluted common stock of the Company. This resulted in a change in control. We are in the process of analyzing the effect on the deferred tax asset and the numbers above may change as a result, however the Deferred Tax Asset (net) will remain unchanged.
We are subject to taxation in the U.S. and the states of California and Utah. Further, the Company currently has no open tax years ’ subject to audit prior to December 31, 2013. The Company is current on its federal and state tax returns.
Page 17 of 35
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income, total assets, or stockholders ’ equity as previously reported.
Business Combination and Goodwill
On March 20, 2013, we completed the acquisition of Trident whereby we acquired 100% of the issued and outstanding common stock shares of Trident in exchange for 1,600,000 shares of our restricted shares of common stock. As a result of the acquisition, Trident has become a wholly-owned subsidiary of the Company. As a result, we recognized $420,673 in goodwill. On January 2, 2016 we closed the Trident facility in Utah and as for the year ended December 31, 2015 we booked an impairment of the goodwill in the amount of $420,673.
Recently Issued Accounting Standards
The Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material effect upon the financial statements.
·
Update 2016-12 — Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
·
Update 2016-10 — Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
·
Update 2016-09 — Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
·
Update 2016-08 — Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
·
Update 2016-07 — Investments — Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
·
Update 2016-03 — Intangibles — Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a consensus of the Private Company Council)
·
Update 2015-16 — Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
·
Update 2015-15 — Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)
·
Update 2015-14 — Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
·
Update 2015-11 — Inventory (Topic 330): Simplifying the Measurement of Inventory
·
Update 2015-08 — Business Combinations (Topic 805): Pushdown Accounting — Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update)
·
Update No. 2015-03 — Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
·
Update No. 2015-02 — Consolidation (Topic 810): Amendments to the Consolidation Analysis.
Page 18 of 35
NOTE 3 – ACCOUNTS AND NOTES RECEIVABLE
|
September 30, 2016 |
December 31, 2015 |
Accounts Receivable |
$ 508,858 |
$ 481,699 |
Less Reserve for uncollectable accounts |
(7,000) |
(7,000) |
Accounts Receivable (Net) |
$ 501,858 |
$ 474,699 |
NOTE 4 – ASSET ACQUISITION
On September 11, 2015, we issued a promissory note in the initial principal amount of $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with the Company ’ s acquisition from General Electric International, Inc., a Delaware corporation ( “ GEII ” ) of certain GEII ’ s heat recovery solutions, or HRS, assets, including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures.
Acquired Assets |
|
Inventory |
$ 848,029 |
Leased asset |
217,584 |
Property and Equipment |
130,887 |
Intellectual Property |
545,112 |
Assumed warranty Liability |
(241,612) |
Net Assets Acquired |
$ 1,500,000 |
Page 19 of 35
NOTE 5 – INVENTORY
Inventories by major classification were comprised of the following at:
|
September 30, 2016 |
December 31, 2015 |
Raw Material |
$ 1,173,275 |
$ 1,311,069 |
Work in Process |
88,263 |
143,119 |
Finished Goods |
2,282 |
3,221 |
Total |
1,263,790 |
1,457,409 |
Less reserve for excess or obsolete inventory |
(250,000) |
(250,000) |
Total Inventory |
$ 1,013,820 |
$ 1,207,409 |
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 |
December 31, 2015 |
Capital Equipment |
$ 1,809,132 |
$ 1,842,329 |
Leasehold improvements |
75,436 |
- |
Accumulated Depreciation |
(1,654,054) |
(1,626,574) |
Net Fixed Assets |
$ 230,514 |
$ 215,755 |
NOTE 7 – ACCRUED EXPENSES
|
September 30, 2016 |
December 31, 2015 |
|
|
|
Accrued Wages |
$ 506,702 |
$ 339,329 |
Accrued Interest |
233,811 |
27,592 |
Customer Deposit |
5,780 |
204,763 |
Accrued Payable to GE - Estimate |
935,450 |
792,868 |
Accrued Rent |
196,456 |
48,190 |
Total Accrued Expenses |
$ 1,878,199 |
$ 1,412,742 |
NOTE 8 – NOTES PAYABLE
Notes payable
The Company issued a short-term note payable to an individual, secured by the assets of the Company, dated September 6, 2013 in the amount of $50,000 and fixed fee amount of $3,500. As of September 30, 2016 the outstanding balance was $38,500 .
On November 11, 2013, we entered in to an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts outstanding under the agreement bear interest at the rate of
Page 20 of 35
2.5% per month. It is secured by the assets of the Company. In addition, it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of September 30, 2016, the outstanding balance was $790,959 compared to $786,227 at December 31, 2015.
On November 3, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14. At March 31, 2016, the outstanding balance was $4,332. On May 13, 2016 the remaining principal balance of this note and accrued interest were converted into common stock at $.08
On December 24, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14. At March 31, 2016, the outstanding balance was $4,332. On May 13, 2016 the remaining Principal balance of this note and accrued interest were converted into common stock at $.08
On August 28, 2014, we issued an unsecured note for $100,000 with a fixed fee of $20,000, amortized over 7 months. On December 22, 2014, the outstanding balance of this note including remaining fees was $58,441, when the outstanding balance was rolled into a new note in the initial principal amount of $150,000, with fees in the amount of $28,500. The new note amortizes over 18 months. The outstanding balance at September 30, 2016 was $7,388
On September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with our acquisition of the heat recovery solutions, or HRS, assets of General Electric International, Inc., a Delaware corporation ( “ GEII ” ), including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures. The note bears interest at the rate of 2.66% per annum. The note is payable on the following schedule: (a) $200,000 in principal on September 30, 2015 and (b) thereafter, the remaining principal amount of $1,200,000, together with interest thereon, payable in equal quarterly installments of principal and interest of $157,609.02, commencing on September 30, 2016 and continuing until September 30, 2018, at which time the remaining unpaid principal amount of this note and all accrued and unpaid interest thereon shall be due and payable in full.
On March 11, 2016, we entered into a three-year convertible note payable in the initial face amount of $75,000, which accrues interest at the rate of 1.46% per annum. It was not convertible until six months after its issuance and has a conversion rate of sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of common stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion. On September 15, 2016 we issued shares at a price of $.006 per share for a partial conversion of this note in the amount of $15,000. Subsequently, on November 1, 2016 the Company exercised its right to redeem the note, assigned its redemption right to a third-party investor, agreed to amend the conversion price of a replacement note to $.005 per share, and that investor now holds the replacement note in the principal amount of $84,000.
On June 6, 2016, we entered into a one-year convertible note payable for $87,500, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion.
On June 15, 2016, Meddy Sahebi, Chairman of our Board of Directors, advanced the Company $5,000. There were no specified terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of September 30, 2016 the outstanding balance was $5,000.
On July 6, 2016, we entered into a six-month convertible note payable for $77,500, which accrues interest at the rate of 10% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion.
On August 12, 2016, we entered into a six-month convertible note payable for $57,000, which accrues interest at the rate of 12% per annum. It is not convertible until six months after its issuance and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of our common stock for the twenty (20) Trading Days immediately preceding the date of conversion.
Page 21 of 35
Note 9 – Derivative Liabilities
On March 11, 2016, we entered into a 3-year convertible note payable with Peak One Investments for $75,000, which accrues interest at the rate of 1.46% per annum. It is not convertible for 6 months and has a conversion rate of sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion. On September 15, 2016 we issued shares @ $.006 for a partial conversion of this note in the amount of $15,000. Subsequently on October 31, 2016 the balance of this note was paid in full.
|
September 30, 2016 |
December 31, 2015 |
Derivative Liabilities on Convertible Loans: |
|
|
Convertible note dated March 11, 2016 |
$ 56,550 |
$ 0 |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Operating Rental Leases
On February 21, 2012 Trident Manufacturing, Inc. entered into a five-year lease for the facility in Salt Lake City, Utah with First Industrial Realty Trust, Inc. with a commencement date of February 21, 2012. The facility is approximately 15,040 square feet and located at 440 West Lawndale Drive, Salt Lake City UT 84115.
|
|
Year |
Rent |
2016 |
40,608 |
2017 |
13,536 |
In April 2015, Trident entered into a sublease agreement for the facility with Lucky Spoon, LLC. The term of the sublease commenced on April 1, 2015 and expires on the last day of Trident ’ s lease.
On August 27, 2015, we entered into a sublease agreement with Rosenson Properties, LLC, a California limited liability company, as landlord, and General Electric International, Inc., a Delaware corporation, as tenant and assignor, for the premises located at 150 Baker Street East, Costa Mesa, California. GEII had entered into a lease dated as of December 17, 2010, as amended by a First Amendment to Lease dated March 11, 2014, wherein Rosenson Properties leased the premises to GEII. The premises consist of approximately 35,704 square feet of space and the lease provides for monthly triple-net lease payments of $22,973. The lease term ended on September 30, 2016.
On March 10, 2016, we signed a lease agreement for a 18,200 square-foot CTU Industrial Building at 2990 Redhill Unit A, Costa Mesa, CA. On May 1, 2016 we moved out of the Baker Street facility and moved our operations and headquarters to the new facility. The lease term at the new facility is seven years and two months beginning October 1, 2016. Rental is $179,090 for the first twelve months.
Page 22 of 35
Year |
|
Lease Payment |
|
|
|
2016 |
|
$65,603 |
2017 |
|
$221,352 |
2018 |
|
$228,000 |
2019 |
|
$234,840 |
2020 |
|
$241,884 |
2021 |
|
$249,132 |
2022 |
|
$256,608 |
2023 |
|
$44,052 |
Severance Benefits
Effective at September 30, 2016, Mr. Mahdi, was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled to receive period of (1) year, at an annual salary of $275,000.
Effective at September 30, 2016, Mr. Bennett, was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder of his employment period or two (2) years, whichever is greater, at an annual salary of $140,000.
NOTE 11 – CAPITAL STOCK TRANSACTIONS
On April 21, 2005, our Board of Directors and shareholders approved the re-domicile of the Company in the State of Nevada, in connection with which we increased the number of our authorized common shares to 200,000,000 and designated a par value of $.001 per share.
On May 25, 2006, our Board of Directors and shareholders approved an amendment to our Articles of Incorporation to authorize a new series of preferred stock, designated as Series C, and consisting of 15,000 authorized shares.
On June 30, 2016, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 400,000,000 and in the number of our authorized preferred shares to 10,000,000. The amendment effecting the increase in our authorized capital was filed and effective on July 5, 2016.
Stock Repurchase Program
On November 1, 2011, the Company adopted a plan to repurchase up to 500,000 shares of its issued and outstanding common stock in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended.
The plan allows the Company to purchase its issued and outstanding common shares in the open market or in negotiated transactions, from time to time, depending on market conditions and other factors as well as being in compliance with applicable securities laws. The plan does not obligate the Company to make any purchases, at any specific time or in any particular situation. The plan may be suspended or discontinued at any time at the sole discretion of the Company. Share repurchases will be funded with the Company ’ s available cash, after determining the working capital requirements of the Company. Accordingly, there is no guarantee as to the exact number of shares that will be repurchased under the plan.
The Company ’ s Board of Directors authorized the repurchase plan because it believed market conditions at the time of the plan ’ s adoption or thereafter may cause the Company ’ s common stock to be undervalued and
Page 23 of 35
repurchases of Company common stock to be in the best interests of the Company and its stockholders. The timing and number of any shares repurchased will depend on the terms and conditions of the plan and no assurance can be given that any specific amount of common stock will be repurchased.
As of September 30, 2016, we had repurchased an aggregate total of 11,500 shares of our common stock under the plan.
Common Stock Transactions
Beginning with the year 2015, we issued the following securities without registration under the Securities Act of 1933, as amended. These securities were issued on the reliance of an exemption provided by Section 4(a)(2) or 4(a)(5) of the Securities Act.
On February 2, 2015, we issued 40,000 shares of common stock for services at $.08
On February 24, 2015, we issued 1,845,000 shares of common stock for cash in the amount of $116,698, of which $70,699 was received in 2014 and the balance included in “ to be issued. ”
On March 6, 2015, we issued 450,000 shares of common stock for services to related parties at $.05 per share, which was accrued for in 2014.
On March 6, 2015, we issued 50,000 shares of common stock for services at $.05 per share.
On April 1, 2015 we issued 25,000 shares of common stock for consulting services at $.05 per share.
On September 11, 2015, we issued 1,300,000 shares of common stock for compensation at $.05 per share.
On October 1, 2015, we issued 104,910,321 shares of common stock to two investors for $500,000 in cash.
On March 11, 2016 we issued 400,000 shares of our common stock @ $.05 for financing fees.
On May 5, 2016 we issued 387,866 to a previous employee @ $.08 for $8,644 in notes payable, $11,332 in accrued interest and $11,030 for past due payroll.
On August 15, 2016 we issued 562,500 shares @ $.08 to a consultant for past due amounts owed of $45,000.
On July 1, 2016 we entered into a consulting agreement with Uptick capital for 300,000 a term of 45 days. For these services, we agreed to issue a total of 300,000 shares of our common stock.
Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, we made the following stock option grants to members of our Board of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015 and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on June 29, 2016 and (b) we issued to each of our non-employee members of our Board of Directors currently serving on the Board (six persons) options to purchase 300,000 shares of our common stock with an exercise price of $.03 per share.
On September 15, 2016 we issued shares @ $.006 for a partial conversion of the convertible note dated March 11, 2016 in the amount of $15,000.
Subsequently Pursuant to a subscription agreement dated October 31, 2016, Clean Energy Technologies, Inc., a Nevada corporation (the “ Company ” ) closed a private placement pursuant to Section 4(a) (2) of the Securities Act to one investor, Cyberfuture One LP, ( “ Subscriber ” ) of an aggregate of 10,500,000 restricted common shares ( “ Shares ” ) at a price of US$0.04 per Share, for total gross proceeds of US $420,000. The offering provides that Subscriber obtains piggyback registration rights on the Shares, so long as the Subscriber holds at least 8% of the outstanding Common Stock. Also, the subscription agreement provides that if the Company and the Subscriber enter a joint venture that the Subscriber will be entitled to nominate a person to be elected to and to serve on the Board of Directors of the Company. The restricted common shares were offered by the Company pursuant to an exemption from registration under Regulation S of the Securities Act of 1933, as amended. The private placement was fully subscribed to by one non-U.S. person.
Page 24 of 35
Common Stock
Our Articles of Incorporation authorize us to issue 400,000,000 shares of common stock, par value $0.001 per share. As of September 30, 2016 there were 143,478,083 shares of common stock outstanding. All outstanding shares of common stock are, and the common stock to be issued will be, fully paid and non-assessable. Each share of our common stock has identical rights and privileges in every respect. The holders of our common stock are entitled to vote upon all matters submitted to a vote of our shareholders and are entitled to one vote for each share of common stock held. There are no cumulative voting rights.
The holders of our common stock are entitled to share equally in dividends and other distributions that our Board of Directors may declare from time to time out of funds legally available for that purpose, if any, after the satisfaction of any prior rights and preferences of any outstanding preferred stock. If we liquidate, dissolve or wind up, the holders of common stock shares will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and our obligations to holders of our outstanding preferred stock.
Preferred Stock
Our Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock, par value $0.001 per share. Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.
Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.
We previously authorized 440 shares of Series A Convertible Preferred Stock, 20,000 shares of Series B Convertible Preferred Stock, and 15,000 shares Series C Convertible Preferred Stock. As of August 20, 2006, all series A, B, and C preferred had been converted into common stock.
Effective August 7, 2013, our Board of Directors designated a series of our preferred stock as Series D Preferred Stock, authorizing 15,000 shares. Our Series D Preferred Stock offering terms authorized us to raise up to $1,000,000 with an over-allotment of $500,000 in multiple closings over the course of six months. We received an aggregate of $750,000 in financing in subscription for Series D Preferred Stock, or 7,500 shares.
The following are primary terms of the Series D Preferred Stock. The Series D Preferred holders were initially entitled to be paid a special monthly divided at the rate of 17.5% per annum. Initially, the Series D Preferred Stock was also entitled to be paid special dividends in the event cash dividends were not paid when scheduled. If the Company does not pay the dividend within five (5) business days from the end of the calendar month for which the payment of such dividend to owed, the Company will pay the investor a special dividend of an additional 3.5%. Any unpaid or accrued special dividends will be paid upon a liquidation or redemption. For any other dividends or distributions, the Series D Preferred Stock participates with common stock on an as-converted basis. The Series D Preferred holders may elect to convert the Series D Preferred Stock, in their sole discretion, at any time after a one year (1) year holding period, by sending the Company a notice to convert. The conversion rate is equal to the greater of $0.08 or a 20% discount to the average of the three (3) lowest closing market prices of the common stock during the ten (10) trading day period prior to conversion. The Series D Preferred Stock is redeemable from funds legally available for distribution at the option of the individual holders of the Series D Preferred Stock commencing any time after the one (1) year period from the offering closing at a price equal to the initial purchase price plus all accrued but unpaid dividends, provided, that if the Company gave notice to the investors that it was not in a financial position to redeem the Series D Preferred, the Company and the Series D Preferred holders are obligated to negotiate in good faith for an extension of the redemption period. The Company timely notified the investors that it was not in a financial position to redeem the Series D Preferred and the Company and the investors have engaged
Page 25 of 35
in ongoing negotiations to determine an appropriate extension period. The Company may elect to redeem the Series D Preferred Stock any time at a price equal to initial purchase price plus all accrued but unpaid dividends, subject to the investors ’ right to convert, by providing written notice about its intent to redeem. Each investor has the right to convert the Series D Preferred Stock at least ten (10) days prior to such redemption by the Company.
In connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of 375,000 shares of our common stock at $.10 per share and series G warrants to purchase an aggregate of 375,000 shares of our common stock at $.20 per share.
On August 21, 2014, a holder holding 5,000 shares of Preferred Series D Preferred agreed to lower the dividend rate to 13% on its Series D Preferred. In September 2015, all holders of Series D Preferred signed and delivered estoppel agreements, whereby the holders agreed, among other things, that the Series D Preferred was not in default and to reduce (effective as of September 30, 2015) the dividend rate on the Series D Preferred Stock to six percent per annum and to terminate the 3.5% penalty in respect of unpaid dividends accruing on or after such date.
Warrants
Series E – Common stock warrants
On April 8, 2011, we issued 300,000 series E Warrants. Each warrant gives the holder the right to purchase one share of common stock (300,000 total shares) at $0.50 per share. The Series E Warrants expired on April 8, 2016.
Series F – Common stock warrants
On June 25, 2013, we issued 250,000 series F warrants. Each warrant gives the holder the right to purchase one share of common stock at $.10.
On September 19, 2013, we issued 125,000 series F warrants. Each warrant gives the holder the right to purchase one share of common stock at $.10.
Series G – Common stock warrants
On June 25, 2013, we issued 250,000 series G warrants. Each warrant gives the holder the right to purchase one share of common stock at $.20.
On September 19, 2013, we issued 125,000 series G warrants. Each warrant gives the holder the right to purchase one share of common stock at $.20.
A summary of warrant activity for the periods is as follows:
|
|
Warrants - Common Share Equivalents |
Weighted Average Exercise price |
|
Warrants exercisable - Common Share Equivalents |
Weighted Average Exercise price |
Outstanding December 31, 2015 |
1,050,000 |
0.25 |
|
1,050,000 |
0.25 |
|
|
Granted |
- |
- |
|
- |
- |
|
Expired |
300,000 |
.50 |
|
300,000 |
.50 |
|
Exercised |
- |
- |
|
- |
- |
Outstanding September 30, 2016 |
750,000 |
0.15 |
|
750,000 |
0.15 |
|
Warrants Outstanding |
|
Warrants Exercisable |
|||
Range of Warrant Exercise Price |
Warrants - Common Share Equivalents |
Weighted Average Exercise price |
Weighted Average Remaining Contractual life in years |
|
Warrants - Common Share Equivalents |
Weighted Average Exercise price |
$ 0.10 |
250,000 |
$ 0.10 |
1.75 |
|
250,000 |
$ 0.10 |
$ 0.20 |
250,000 |
$ 0.20 |
1.75 |
|
250,000 |
$ 0.20 |
$ 0.10 |
125,000 |
$ 0.10 |
2.00 |
|
125,000 |
$ 0.10 |
$ 0.20 |
125,000 |
$ 0.20 |
2.00 |
|
125,000 |
$ 0.20 |
Total |
750,000 |
$ 0.15 |
|
|
750,000 |
$ 0.15 |
Stock Options
On February 8, 2007 pursuant to our 2006 Qualified Incentive Option Plan, we granted to Company employees incentive stock options to purchase 406,638 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company ’ s common stock at the time of the grant. These options expire on February 8, 2017. At September 30, 2016 there were 15,122 outstanding options under this plan.
On February 8, 2008, we granted stock options to our key employees to purchase up to 750,000 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company ’ s common stock at the time of the grant. These options expire on February 8, 2017. As of September 30, 2016 the balance of the outstanding options under this plan is 30,000.
On February 28, 2008, we granted stock options to a key employee to purchase up to 30,000 shares of our common stock. These options were granted at $.033 cents, the fair market value of the Company ’ s common stock at the time of the grant. These options expire on February 8, 2017. As of September 30, 2016, the balance of the outstanding options under this plan was 30,000.
Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, we made the following stock option grants to members of our Board of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015 and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on June 29, 2016 and (b) we issued to each of our non-employee members of our Board of Directors currently serving on the Board (six persons) options to purchase 300,000 shares of our common stock with an exercise price of $.03 per share.
NOTE 12 – RELATED PARTY TRANSACTIONS
Kevin Scott, one of the Board of Directors members, owns SK Polymers. SK Polymers is a supplier to the Company. Our Board of Directors has approved the supply transactions between SK Polymers and the Company. On June 7, 2016 Mr. Scott resigned from our Board of Directors
Kambiz Mahdi, our Chief Executive Officer, owns Billet Electronics, which is distributor of electronic components. From time to time, we purchase parts from Billet Electronics. In addition, from time to time, we provide assembly and value-added services to Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former customers of the Company. Our Board of Directors has approved the transactions between Billet Electronics and the Company.
On September 11, 2015, we issued 400,000 shares of common stock to John Bennett, our Chief Financial Officer, as additional compensation at $.05 per share.
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On September 11, 2015, we issued 150,000 shares of common stock at $.05 per share for Board of Director compensation to each of Kam Mahdi our Chief Executive officer, Robert Young, Shervin Talieh, Kevin Scott, Juhani Taskinen, and John Bennett our Chief Financial Officer.
On June 15, 2016 Meddy Sahebi Chairman of our Board of Directors advanced the Company $5,000. There were no specified terms for repayment of this loan other than that it was to be repaid within a reasonable time. As of September 30, 2016, the outstanding balance was $5,000.
Pursuant to our 2016 Stock Compensation Program, effective July 1, 2016, we made the following stock option grants to members of our Board of Directors: (a) we issued to each of our non-employee members of our Board of Directors first joining the Board in October 2015 and who had not received any compensation for serving as directors of the Company (five persons) options to purchase 150,000 shares of our common stock with an exercise price of $.03 per share, the last sale price of our common stock on June 29, 2016 and (b) we issued to each of our non-employee members of our Board of Directors currently serving on the Board (six persons) options to purchase 300,000 shares of our common stock with an exercise price of $.03 per share.
NOTE 13 – SUBSEQUENT EVENTS
On November 1, 2016, we issued in a private placement to one investor, Cyberfuture One LP, an aggregate of 10,500,000 restricted common shares at a price of $0.04 per share, for total gross proceeds of US $420,000. The Company also granted the subscriber piggyback registration rights on all shares of common stock held by the subscriber, so long as the subscriber holds at least 8% of the outstanding common stock, and we granted the subscriber a board observer right. If the Company and a party introduced by the subscriber enter into a joint venture for manufacturing and marketing the Company ’ s HRS products, in lieu of such board observer, the subscriber will be entitled to nominate a person to be elected to and to serve on the Board of Directors of the Company. The Company concurrently entered into a memorandum of agreement with a party introduced by the subscriber regarding a potential joint venture for manufacturing and marketing the Company ’ s HRS products in China. The Company has not yet entered into a definitive joint venture agreement and there is no assurance that it will do so.
On November 1, 2016, we exercised our right to redeem the note, assigned our redemption right to a third-party investor, agreed to the terms of a $.005 per share fixed price conversion for a replacement note, and that investor now holds the replacement note in the principal amount of $84,000.
Management has reviewed and evaluated subsequent events and transactions occurring after the balance sheet date through the filing of this Quarterly Report on Form 10-Q and determined that no other subsequent events occurred.
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Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operation (unaudited)
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms or other variations on these words or comparable terminology. These statements are only present statements about possible future events and are not predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements, including the Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 3015 filed with the U.S. Securities and Exchange Commission. Although we believe that the assumptions on which the forward-looking statements are based are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
OVERVIEW
Going Concern
The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder ’ s deficit of $2,269,746 and a working capital deficit of $3,034,231 as of September 30, 2016. The Company also had an accumulated deficit of $6,087,415 as of September 30, 2016. Therefore, there is substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and reach a profitable operating stand and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.
Results for the three and nine months ended September 30, 2016, Compared to the same periods in 2015.
Net Sales
For the three months ended September 30, 2016, our revenue was $280,299 compared to $235,838 for the same period in 2015. Our revenue increased by $44,461 for the three months ended September 30, 2016, compared to the same period in 2015 mainly due to the shut down and relocation of our facility in the third quarter of 2015.
For the nine months ended September 30, 2016, our revenue was $1,687,656 compared to $1,848,854 for the same period in 2015. Our revenue decreased by $161,198 for the nine months ended September 30, 2016, compared to the same period in 2015. Our revenue decrease was mainly due to the relocation of our operating facility and the corresponding shut down in operations from April through June, 2016.
Major Customers
Our top five customers accounted for approximately 98% of our net sales for the three months ended September 30, 2016, compared to 85%, for the same period in 2015. Our top five customers accounted for approximately 80% of our net sales for the nine months ended September 30, 2016, compared to 81%, for the same period in 2015.
We believe that our ability to grow our core business depends on increasing sales to existing customers, and on successfully attracting new customers. Customer contracts can be canceled and volume levels can be
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changed or delayed based on our customer ’ s performance and the end users ’ markets they serve which we have no control over. The timely replacement of delayed, canceled or reduced orders with new business cannot be ensured. In addition, we cannot assume that any of our current customers will continue to utilize our services. Consequently, our results of operations may be materially adversely affected.
Gross Profit
For the three months ended September 30, 2016 , our gross profits in creased to 29% from 20 % for the same period in 20 15 , mainly due to the increase in sales in 2016 and higher utilization of our direct labor in 2016 .
For the nine months ended September 30, 2016 , our gross profits incr eased to 4 6 % from 3 4 % for the same period in 20 15, the increase was mainly due to HRS division Revenue with very low cost of sales in the first quarter of 2016 .
Our gross profits could vary from period to period and is affected by a number of factors, including product mix, production efficiencies, component availability and costs, pricing, competition, customer requirements and unanticipated restructuring or inventory charges and potential scrap of materials .
Selling, General and Administrative (SG&A) Expenses
For the three months ended September 30, 2016 , our SG&A cost was 208 % compared to 221 % for the same period in 201 5 . The decrease was mainly due to the increase in sales, as the SG&A expense did not increase at the same rate .
For the nine months ended September 30, 2016 , our SG&A cost was 9 8 % compared to 61 % for the same period in 201 5 . The in crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations in the second Quarter of 2016 .
Net ( l oss) from operations
For the three months ended September 30, 2016 , our net profit from operations was ( 1 79 % ) compared to net loss from operations of ( 20 1 % ) for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresp onding shut down in operations in the third quarter of 2015 .
For the nine months ended September 30, 2016 , our net profit from operations was ( 52 %) compared to net loss from operations of ( 27 % ) for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations in the second quarter of 2016 .
Net Income (loss)
For the three months ended September 30, 2016 , our net loss was ( 215 %) compared to net loss of ( 230 ) % for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresp onding shut down in operations.
For the nine months ended September 30, 2016 , our net loss was ( 72 %) compared to net loss of ( 39 ) % for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations.
Loss on Disposal of Fixed Assets
For the three and nine months ended September 30, 2016, we relocated our facility and as a result recognized a net loss of $41,459 on the abandonment of certain assets related to the previous facility.
Loss on Derivative liability
On March 11, 2016, we entered into a 3-year convertible note payable for $75,000, which accrues interest at the rate of 1.46% per annum. It is not convertible for 6 months and has a conversion rate of sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion. As a result, for the three and nine months ended September 30, 2016, we recognized a net loss from derivative liability of $56,550.
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Interest Expense
For the three months ended September 30, 2016 interest expense was $ 4 4,154 compared to $ 69,379 for the same period in 201 5 . The decrease was mainly due to the decrease in the use of our line of credit .
For the nine months ended September 30, 2016 interest expense was $ 236,466 compared to $ 229,959 for the same period in 201 5 . The increase was mainly due to the increase in the line of credit usage in the first quarter of 2016.
Liquidity and Capital Resources
Condensed Consolidated Statements of Cash Flows |
||
for the nine months ended September 30,
|
||
|
||
|
|
|
|
Un-audited |
Un-audited |
|
2016 |
2015 |
Net Cash provided / (Used) In Operating Activities |
$ (154,070) |
$ (1,094,202) |
Cash Flows Used In Investing Activities |
(89,262) |
(675,999) |
Cash Flows Provided / (used) By Financing Activities |
239,435 |
1,743,519 |
Net (Decrease) Increase in Cash and Cash Equivalents |
$ (3,897) |
$ (26,682) |
Capital Requirements for long-term Obligations
|
2016 |
2017 |
2018 |
Note payable General Electric |
315,218 |
630,436 |
254,346 |
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense s during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Future Financing
We will continue to rely on equity sales of our common shares and the issuance of debt securities or establishment of other credit facilities to continue to fund our business operations. Issuances of additional shares or securities convertible or exchangeable for shares may result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our business operations.
Off-balance Sheet Arrangement
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
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Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ” ) is recorded, processed, summarized and reported, within the time periods specified in the SEC ’ s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2016, due to the material weaknesses resulting from the fact that none of our present directors qualifies as a “ financial expert ” as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (as filed with the SEC on April 14, 2016) for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.
Changes in Internal Control over Financial Reporting
Our management has also evaluated our internal control over financial reporting, and have added four independent members to our Board of Directors, there have been no other significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
PART II--OTHER INFORMATION
Item 1.
Legal Proceedings
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 1A. Risk Factors.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A., “ Risk Factors ” in our Annual Report on Form 10-K, for the fiscal year ended
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December 31, 2015. The information set forth in these Reports could materially affect the Company ’ s business, financial position and results of operations. There are no material changes from the risk factors set forth in Part I, Item 1A, “ Risk Factors, ” of our Annual Report on Forms 10-K for the fiscal year ended December 31, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 5, 2016 we issued 387,866 shares of common stock to a previous employee at a price of $.08 for $8,644 in notes payable, $11,332 in accrued interest and $11,030 for past due payroll.
On August 15, 2016 we issued 562,500 shares of common stock at a price of $.08 to a consultant for past due amounts owed of $45,000.
On July 1, 2016 we entered into a consulting agreement with Uptick capital for 300,000 a term of 45 days. For these services, we will issue a total of 300,000 shares of our common stock.
On September 15, 2016 we issued shares @ $.006 for a partial conversion of the convertible note dated March 11, 2016 in the amount of $15,000.
Subsequently Pursuant to a subscription agreement dated October 31, 2016, Clean Energy Technologies, Inc., a Nevada corporation (the “ Company ” ) closed a private placement pursuant to Section 4(a) (2) of the Securities Act to one investor, Cyberfuture One LP, ( “ Subscriber ” ) of an aggregate of 10,500,000 restricted common shares ( “ Shares ” ) at a price of US$0.04 per Share, for total gross proceeds of US $420,000. The offering provides that Subscriber obtains piggyback registration rights on the Shares, so long as the Subscriber holds at least 8% of the outstanding Common Stock. Also, the subscription agreement provides that if the Company and the Subscriber enter into a joint venture that the Subscriber will be entitled to nominate a person to be elected to and to serve on the Board of Directors of the Company. The restricted common shares were offered by the Company pursuant to an exemption from registration under Regulation S of the Securities Act of 1933, as amended. The private placement was fully subscribed to by one non-U.S. person.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
Item 3.
Defaults upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not Applicable.
Item 5.
Other Information
None.
Item 6. Exhibits
The exhibit listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Articles of Incorporation (included as exhibit 3.1 to the Current Report on Form 8-K filed July 6, 2016 and incorporated herein by reference).
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3.2 Amended Bylaws (included as exhibit 3.2 to the Current Report on Form 8-K filed July 6, 2016 and incorporated herein by reference).
4.1 Registration Rights Agreement, by and between the Registrant and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 4.1 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).
10.1 Asset Purchase Agreement, by and between the Registrant and General Electric International, Inc., dated as of September 11, 2015 (included as exhibit 10.1 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).
10.2 Transaction Completion and Financing Agreement, by and between the Company and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 10.2 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).
10.3 Loan, Guarantee, and Collateral Agreement, by and between the Company and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 10.3 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).
10.4* Securities Purchase agreement between the company and Peak One Opportunity Fund, LP
10.5* Securities Purchase agreement between the company and EMA Financial, LLC, dated June 6, 2016.
10.6* Convertible note payable between the company and Auctus Fund, LLC, dated July 6, 2016.
10.7* Convertible note payable between the company and JSJ Investments, Inc., dated August 15, 2016.
14.1 Code of Ethics (included as exhibit 14.1 to the Form 10-KSB on April 5, 2007 and incorporated herein by reference).
31.1* Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
_________________
* Filed herewith
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** Furnished herewith
** Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/ Kambiz Mahdi
Chief Executive Officer
November 18, 2016
Kambiz Mahdi
/s/ John Bennett
Chief Financial Officer
November 18, 2016
John Bennett
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the “ Agreement ” ), dated as of March 11, 2016, is entered into by and between CLEAN ENERGY TECHNOLOGIES, INC., a Nevada corporation, (the “ Company ” ) and PEAK ONE OPPORTUNITY FUND, L.P., a Delaware limited partnership (the “ Buyer ” ).
WITNESSETH:
WHEREAS , the Company and the Buyer are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, inter alia , by Rule 506 under Regulation D ( “ Regulation D ” ) as promulgated by the United States Securities and Exchange Commission (the “ SEC ” ) under the Securities Act of 1933, as amended (the “ 1933 Act ” ), and/or Section 4(a)(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase from the Company, and the Company wishes to sell the Buyer, upon the terms and subject to the conditions of this Agreement, securities consisting of the Company ’ s Convertible Debentures due three years from the respective dates of issuance (the “ Debentures ” ), each of which are in the form of Exhibit A hereto, which will be convertible into shares of the Company ’ s common stock, par value $0.001 per share (the “ Common Stock ” ), in the aggregate principal amount of up to Three Hundred Fifty Thousand and 00/100 Dollars ($350,000.00), for an aggregate Purchase Price of up to Three Hundred Fifteen Thousand and 00/100 Dollars ($315,000.00), all upon the terms and subject to the conditions of this Agreement, the Debentures, and other related documents;
NOW THEREFORE , in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS; AGREEMENT TO PURCHASE.
a. Certain Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:
(i) “ Affiliate ” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.
(ii) “ Certificates ” means certificates representing the Conversion Shares issuable hereunder, each duly executed on behalf of the Company and issued hereunder.
(iii) “ Closing Date ” means the date on which one of the three (3) Closings are held, which are the Signing Closing Date, the Second Closing Date and the Third Closing Date.
(iv) Intentionally Omitted.
(v)
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1 |
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“ Commitment Fee ” shall have the meaning ascribed to such term in Section 12(a).
(vi) “ Common Stock ” shall have the meaning ascribed to such term in the Recitals.
(vii) “ Conversion Amount ” shall mean the Conversion Amount as defined in the Debentures, provided, however that for purposes of the foregoing calculation, the full indebtedness under the Debentures shall be deemed immediately convertible, notwithstanding the one hundred eighty (180) day waiting period or 4.99% limitation on ownership set forth in the Debentures.
(viii) “ Conversion Price ” means the Conversion Price as defined in the Debentures.
(ix) “ Conversion Shares ” means the shares of Common Stock issuable upon conversion of the Debentures.
(x) “ DWAC Operational ” means that the Common Stock is eligible for clearing through the Depository Trust Company ( “ DTC ” ) via the DTC ’ s Deposit Withdrawal Agent Commission or “ DWAC ” system and active and in good standing for DWAC issuance by the Transfer Agent.
(xi) “ Dollars ” or “ $ ” means United States Dollars.
(xii) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
(xiii) “ Investments ” means Peak One Investments, LLC, the general partner of the Buyer.
(xiv) “ Irrevocable Resolutions ” has the meaning set forth in Section 8(i).
(i) “ Market Price of the Common Stock ” means (x) the closing bid price of the Common Stock for the period indicated in the relevant provision hereof (unless a different relevant period is specified in the relevant provision), as reported by Bloomberg, LP or, if not so reported, as reported on the OTCQB, OTCQX or OTC Pink or (y) if the Common Stock is listed on a stock exchange, the closing price on such exchange, as reported by Bloomberg LP.
(ii) “ Material Adverse Effect ” means a material adverse effect on the business, operations or condition (financial or otherwise) or results of operation of the Company and its Subsidiaries taken as a whole, in the reasonable commercial discretion of the Buyer, irrespective of any finding of fault, magnitude of liability (or lack of financial liability). Without limiting the generality of the foregoing, the occurrence of any of the following, in the reasonable commercial discretion of the Buyer, shall be considered a Material Adverse Effect: (i) any final money, judgment, writ or warrant of attachment, or similar process (including an arbitral determination) in excess of Fifty Thousand Dollars ($50,000) shall be entered or filed against the
2
Company or any of its Subsidiaries (including, in any event, products liability claims against the Company or its Subsidiaries), (ii) the suspension or withdrawal of any governmental authority or permit pertaining to a material amount of the Company ’ s or any Subsidiary ’ s products or services, (iii) the loss of any material insurance coverage (including, in any case, comprehensive general liability coverage, products liability coverage or directors and officers coverage, in each case in effect at the time of execution and delivery of this Agreement), (iv) an action by a regulatory agency or governmental body affecting the Common Stock (including, without limitation, (1) the commencement of any regulatory investigation of which the Company is aware, the suspension of trading of the Common Stock by the Financial Industry Regulation Authority ( “ FINRA ” ), the SEC, the OTC Bulletin Board ( “ OTCBB ” ) or the OTC Markets Group, Inc., the failure of the Common Stock to be DTC eligible or the placing of the Common Stock on the DTC “ chill list ” or (2) the engaging in any market manipulation or other unlawful or improper trading or other activity by any Affiliate), (v) the Company ’ s independent registered accountants shall resign under circumstances where a disagreement exists between the Company and its independent registered accountants, (vi) the Company shall fail to timely file any disclosure document as required by applicable federal or state securities laws and regulations or by the rules and regulations of any exchange, trading market or quotation system to which the Company or the Common Stock is subject, or (vii) the Chief Executive Officer of the Company or any other key full-time officer or director of the Company, shall, for any reason (including, without limitation, termination, resignation, retirement, death or disability) cease to act on behalf of the Company in the same role and to the same extent as his or her involvement as of the date of execution and delivery of this Agreement.
(iii) “ Person ” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.
(iv) “ Purchase Price ” means the price that the Buyer pays for the Debentures at each respective Closing, which are the Signing Purchase Price, the Second Purchase Price and the Third Closing Price, as the case may be.
(v) “ Registrable Securities ” shall mean the Conversion Shares, the Restricted Stock issued to Investments pursuant to Section 12(a) and, to the extent applicable, any other shares of capital stock or other securities of the Company or any successor to the Company that are issued upon exchange of Conversion Shares and/or such Restricted Stock.
(vi) “ Registration Statement ” shall mean a registration statement on Form S-1 (or any successor thereto) filed or contemplated to be filed by the Company with the SEC under the Securities Act.
(vii) “ Restricted Stock ” shall mean shares of Common Stock which are not freely trading shares when issued.
(viii) “ Securities ” means the Debentures and the Shares.
(ix) “ Shares ” means the Conversion Shares.
(x)
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3 |
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“ Second Closing Date ” shall have the meaning ascribed to such term in Section 6(b).
(xi) “ Second Debenture ” means the second of the three (3) Debentures, in the principal amount of One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00), which is issued by the Company to the Buyer on the Second Closing Date.
(xii) “ Second Purchase Price ” shall be One Hundred Twelve Thousand Five Hundred and 00/100 Dollars ($112,500.00)
(xiii) “ Signing Closing Date ” shall have the meaning ascribed to such term in Section 6(a).
(xiv) “ Signing Debenture ” means the first of the three (3) Debentures, in the principal amount of Seventy Five Thousand and 00/100 Dollars ($75,000.00), to be issued by the Company to the Buyer on the Signing Closing Date.
(xv) “ Signing Purchase Price ” shall be Sixty Seven Thousand Five Hundred and 00/100 Dollars ($67,500.00).
(xvi) “ Subsidiary ” shall have the meaning ascribed to such term in Section 3(b).
(xvii) “ Third Closing Date ” shall have the meaning ascribed to such term in Section 6(c).
(xviii) “ Third Debenture ” means the third of the three (3) Debentures, in the principal amount of One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00), which is issued by the Company to the Buyer on the Third Closing Date.
(xix) “ Third Purchase Price ” shall be One Hundred Thirty Five Thousand and 00/100 Dollars ($135,000.00).
(xx) “ Transaction Documents ” means, collectively, this Agreement, the Debentures, the Transfer Agent Instruction Letter, the Irrevocable Resolutions and the other agreements, documents and instruments contemplated hereby or thereby.
(xxi) “ Transfer Agent ” shall have the meaning ascribed to such term in Section 4(a).
(xxii) “ Transfer Agent Instruction Letter ” shall have the meaning ascribed to such term in Section 5(a).
a. Purchase and Sale of Debentures .
(i)
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The Buyer agrees to purchase from the Company, and the Company agrees to sell to the Buyer, the Debentures on the terms and conditions set forth below in this Agreement and the other Transaction Documents.
(ii) Subject to the terms and conditions of this Agreement and the other Transaction Documents, the Buyer will purchase the Debentures at certain closings (each, a “ Closing ” ) to be held on certain respective Closing Dates.
b. Intentionally Omitted
1. BUYER ’ S REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with, the Company as follows:
a. Investment Purpose. Without limiting the Buyer ’ s right to sell the Shares pursuant to a Registration Statement, Buyer is purchasing the Debentures, and will be acquiring the Conversion Shares, for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.
b. Accredited Investor Status. Buyer is (i) an “ accredited investor ” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities.
c. Subsequent Offers and Sales. All subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the Shares under the 1933 Act or pursuant to an exemption from registration and compliance with applicable states ’ securities laws.
d. Reliance on Exemptions. Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer ’ s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
e. Information. Buyer and its advisors have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer. Buyer and its advisors have been afforded the opportunity to ask questions of the Company and have received complete
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and satisfactory answers to any such inquiries. Without limiting the generality of the foregoing, Buyer has also had the opportunity to obtain and to review the Company ’ s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2015, June 30, 2015 and September 30, 2015 and the Company ’ s Current Report on Form 8-K filed with the SEC on September 21, 2015 and (collectively, the “ SEC Documents ” ).
f. Investment Risk. Buyer understands that its investment in the securities constitutes high risk investment, its investment in the Securities involves a high degree of risk, including the risk of loss of the Buyer ’ s entire investment.
g. Governmental Review. Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.
h. Organization; Authorization. Buyer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. This Agreement and the other Transaction Documents have been duly and validly authorized, executed and delivered on behalf of the Buyer and create a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors ’ rights generally.
i. Residency. The state in which any offer to sell Securities hereunder was made to or accepted by the Buyer is the state shown as the Buyer ’ s address contained herein, and Buyer is a resident of such state only.
2. COMPANY REPRESENTATIONS AND WARRANTIES, ETC.
The Company represents and warrants to the Buyer that:
a. Concerning the Debentures and the Shares. There are no preemptive rights of any stockholder of the Company to acquire the Debentures or the Shares.
b. Organization; Subsidiaries; Reporting Company Status. Attached hereto as Schedule 3(b) is an organizational chart describing all of the Company ’ s wholly-owned and majority-owned subsidiaries (the “ Subsidiaries ” ) and other Affiliates, including the relationships among the Company and such Subsidiaries, including as to each Subsidiary its jurisdiction of organization and the percentage of ownership held by the Company, and the parent company of the Subsidiary, including the percentage of ownership of the Company held by it. The Company and each Subsidiary is a corporation or other form of businesses entity duly organized, validly existing and in good standing under the laws its respective jurisdiction of organization, and each of them has the requisite corporate or other power to own its properties and to carry on its business as now being conducted. The Company and each Subsidiary is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction
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where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. The Common Stock is listed and traded on the OTCBQ Market of the OTC Markets Group, Inc. (trading symbol: PMFI). The Company has received no notice, either oral or written, from FINRA, the SEC, or any other organization, with respect to the continued eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing. The Company is an operating company in that, among other things (A) it primarily engages, wholly or substantially, directly or indirectly through a majority owned Subsidiary or Subsidiaries, in the production or sale, or the research or development, of a product or service other than the investment of capital, (B) it is not an individual or sole proprietorship, (C) it is not an entity with no specific business plan or purpose and its business plan is not to engage in a merger or acquisition with an unidentified company or companies or other entity or person, and (D) it intends to use the proceeds from the sale of the Debentures solely for the operation of the Company ’ s business and uses other than personal, family, or household purposes.
c. Authorized Shares . Schedule 3(c) sets forth all capital stock and derivative securities of the Company that are authorized for issuance and that are issued and outstanding. All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares, assuming the prior issuance and exercise, exchange or conversion, as the case may be, of all derivative securities authorized, as indicated in Schedule 3(c) . The Shares have been duly authorized and, when issued upon conversion of, or as interest on, the Debentures, the Shares will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. At all times, the Company shall keep available and reserved for issuance to the holders of the Debentures shares of Common Stock duly authorized for issuance against the Debentures.
d. Authorization. This Agreement, the issuance of the Debentures (including without limitation the incurrence of indebtedness thereunder), the issuance of the Conversion Shares under the Debentures and the other transactions contemplated by the Transaction Documents, have been duly, validly and irrevocably authorized by the Company, and this Agreement has been duly executed and delivered by the Company. The Company ’ s board of directors, in the exercise of its fiduciary duties, has irrevocably approved the entry into and performance of the Transaction Documents, including, without limitation the sale of the Debentures and the issuance of Conversion Shares, based upon a reasonable inquiry concerning the Company ’ s financing objectives and financial situation. Each of the Transaction Documents, when executed and delivered by the Company, are and will be, valid, legal and binding agreements of the Company, enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors ’ rights generally.
e. Non-contravention. The execution and delivery of the Transaction Documents, the issuance of the Securities and the consummation by the Company of the other transactions contemplated by this Agreement and the Debentures (including without limitation
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the incurrence of indebtedness thereunder) do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock, except as herein set forth or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the triggering of any anti-dilution rights, rights of first refusal or first offer on the part of holders of the Company ’ s securities, (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv) the Company ’ s listing agreement for its Common Stock (if applicable).
f. Approvals. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the entering into and performing this Agreement and the other Transaction Documents (including without limitation the issuance and sale of the Securities to the Buyer as contemplated by this Agreement) except such authorizations, approvals and consents that have been obtained, or such authorizations, approvals and consents, the failure of which to obtain would not have a Material Adverse Effect.
g. SEC Filings; Rule 144 Status. None of the SEC Documents contained, at the time they were filed, 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 light of the circumstances under which they were made, not misleading. The Company timely filed all requisite forms, reports and exhibits thereto with the SEC as required. The Company is not aware of any event occurring on or prior to the execution and delivery of this Agreement that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after such time. The Company satisfies the requirements of Rule 144(i)(2), and the Company shall continue to satisfy all applicable requirements of Rule 144 (or any successor thereto) for so long as any Securities are outstanding and not registered pursuant to an effective registration statement filed with the SEC.
h. Absence of Certain Changes. Since September 30, 2015, when viewed from the perspective of the Company and its Subsidiaries taken as a whole, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company and its Subsidiaries (including, without limitation, a change or development which constitutes, or with the passage of time is reasonably likely to become, a Material Adverse Effect), except as disclosed in the SEC Documents. Since September 30, 2015, except as provided in the SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or
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distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the SEC Documents) that has not been disclosed in writing to the Buyer that (i) would reasonably be expected to have a Material Adverse Effect, (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Transaction Documents, or (iii) would reasonably be expected to materially and adversely affect the value of the rights granted to the Buyer in the Transaction Documents.
j. Absence of Litigation. Except as described in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents. The Company is not a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could reasonably be expected to have a Material Adverse Effect.
k. Absence of Liens. The Company ’ s assets are not encumbered by any liens or mortgages except as described in the SEC Documents and Schedule 3(k) .
l. Absence of Events of Default. No event of default (or its equivalent term), as defined in the respective agreement, indenture, mortgage, deed of trust or other instrument, to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an event of default (or its equivalent term) (as so defined in such document), has occurred and is continuing, which would have a Material Adverse Effect.
m. No Undisclosed Liabilities or Events. The Company has no liabilities or obligations other than those disclosed in the SEC Documents or those incurred in the ordinary course of the Company ’ s business since September 30, 2015, and which individually or in the aggregate, do not or would not have a Material Adverse Effect. No event or circumstances has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed. There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive
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officers of the Company which proposal would (x) change the articles of incorporation, by-laws or any other charter document of the Company, each as currently in effect, with or without shareholder approval, which change would reduce or otherwise adversely affect the rights and powers of the shareholders of the Common Stock or (y) materially or substantially change the business, assets or capital of the Company.
n. No Integrated Offering. Neither the Company nor any of its affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time during the six month period immediately prior to the date of this Agreement made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Rule 506 of Regulation D in connection with the offer and sale of the Securities as contemplated hereby.
o. Dilution. The number of Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the Market Price of the Common Stock declines prior to the conversion of the Debentures. The Company ’ s executive officers and directors have studied and fully understand the nature of the securities being sold hereby and recognize that they have a potential dilutive effect and further that the conversion of the Debentures and/or sale of the Conversion Shares may have an adverse effect on the Market Price of the Common Stock. The Board of Directors of the Company has concluded, in its good faith business judgment that such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Debentures is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.
p. Regulatory Permits. The Company has all such permits, easements, consents, licenses, franchises and other governmental and regulatory authorizations from all appropriate federal, state, local or other public authorities ( “ Permits ” ) as are necessary to own and lease its properties and conduct its businesses in all material respects in the manner described in the SEC Documents and as currently being conducted. All such Permits are in full force and effect and the Company has fulfilled and performed all of its material obligations with respect to such Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or will result in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be disclosed in the SEC Documents. Such Permits contain no restrictions that would materially impair the ability of the Company to conduct businesses in the manner consistent with its past practices. The Company has not received notice or otherwise has knowledge of any proceeding or action relating to the revocation or modification of any such Permit.
q. Residency. The state in which any offer to sell Securities hereunder was made or accepted by the Seller is the state shown as the Seller ’ s address contained herein, and Seller is a resident of such state only.
r.
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Hazardous Materials. The Company is in compliance with all applicable Environmental Laws in all respects except where the failure to comply does not have and could not reasonably be expected to have a Material Adverse Effect. For purposes of the foregoing:
“ Environmental Laws ” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other “ Superfund ” or “ Superlien ” law or any other applicable federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, the environment or any Hazardous Material.
“ Hazardous Material ” means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.
s. Independent Public Accountants. The Company ’ s auditor, MartinelliMick PLLC, is an independent registered public accounting firm with respect to the Company, as required by the 1933 Act, the Exchange Act and the rules and regulations promulgated thereunder.
t. Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (1) transactions are executed in accordance with management ’ s general or specific authorization; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management ’ s general or specific authorization; and (4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
s.
Brokers. No Person (other than the Buyer and its principals, employees and agents) is entitled to receive any consideration from the Company or the Buyer arising from any finder ’ s agreement, brokerage agreement or other agreement to which the Company is a party.
3. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The parties acknowledge and agree that (1) the Debentures have not been registered under the provisions of the 1933 Act and the Shares have not been registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act ( “ Rule 144 ” ) may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder, (3)
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at the request of the Buyer, the Company shall, from time to time, within two (2) business days of such request, at the sole cost and expense of the Company, either (i) deliver to its transfer agent and registrar for the Common Stock (the “ Transfer Agent ” ) a written letter instructing and authorizing the Transfer Agent to process transfers of the Shares at such time as the Buyer has held the Securities for the minimum holding period permitted under Rule 144, subject to the Buyer ’ s providing to the Transfer Agent certain customary representations contemporaneously with any requested transfer, or (ii) at the Buyer ’ s option or if the Transfer Agent requires further confirmation of the availability of an exemption from registration, furnish to the Buyer an opinion of the Company ’ s counsel in favor of the Buyer (and, at the request of the Buyer, any agent of the Buyer, including but not limited to the Buyer ’ s broker or clearing firm) and the Transfer Agent, reasonably satisfactory in form, scope and substance to the Buyer and the Transfer Agent, to the effect that a contemporaneously requested transfer of shares does not require registration under the 1933 Act, pursuant to the 1933 Act, Rule 144 or other regulations promulgated under the 1933 Act and (4) neither the Company nor any other Person is under any obligation to register the Securities (other than pursuant to this Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the Debentures, and, until such time as the Shares have been registered under the 1933 Act as contemplated hereby and sold in accordance with an effective Registration Statement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ” ), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
c. Piggy-Back Registration Rights. From and after the Signing Closing Date and until eighteen (18) months after the Signing Closing Date, if the Company contemplates making an offering of Common Stock (or other equity securities convertible into or exchangeable for Common Stock) registered for sale under the Securities Act or proposes to file a Registration Statement covering any of its securities, the Company shall at each such time give prompt written notice to Investments and Buyer of its intention to do so and of the registration
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rights granted under this Agreement. Upon the written request of Investments and/or Buyer made within thirty (30) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by Investments and/or Buyer and the intended method of disposition thereof), the Company shall, at its sole cost and expense, use its best efforts to effect the registration of all Registrable Securities which the Company has been so requested to register by Investments and/or Buyer, to the extent requisite to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities by Investments and/or Buyer, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the Company proposes to register; provided, that if the Company is unable to register the full amount of Registrable Securities in an “ at the market offering ” under SEC rules and regulations due to the high percentage of the Company ’ s Common Stock the Registrable Securities represents (giving effect to all other securities being registered in the Registration Statement), then the Company may reduce, on a pro rata basis, the amount of Registrable Securities subject to the Registration Statement to a lesser amount which equals the maximum number of Registrable Securities that the Company is permitted to register in an “ at the market offering ” ; and provided, further, that if, at any time after giving written notice of its intention to register any Registrable Securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such Registrable Securities, the Company may, at its election, give written notice of such determination to Investments and/or the Buyer and, thereupon, (i) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the expenses of registration in connection therewith), and (ii) in the case of a determination to delay registering such Registrable Securities, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. If Buyer shall have transferred all or part of its Registrable Securities, then for purposes of this Section, the term “ Buyer ” shall reference Buyer and/or such transferee(s).
d. Securities Filings. The Company undertakes and agrees to make all necessary filings (including, without limitation, a Form D) in connection with the sale of the Securities to the Buyer required under any United States laws and regulations applicable to the Company (including without limitation state “ blue sky ” laws), or by any domestic securities exchange or trading market, and to provide a copy thereof to the Buyer promptly after such filing.
e. Reporting Status; Public Trading Market; DTC Eligibility. So long as the Buyer and/or Investments beneficially own any Securities, (i) the Company shall timely file, prior to or on the date when due, all reports that would be required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if the Company had securities registered under Section 12(b) or 12(g) of the Exchange Act; (ii) the Company shall not be operated as, or report, to the SEC or any other Person, that the Company is a “ shell company ” or indicate to the contrary to the SEC or any other Person; (iii) the Company shall take all other action under its control necessary to ensure the availability of Rule 144 under the 1933 Act for the sale of Shares by the Buyer at the earliest possible date; and (iv) the Company shall at all times while any Securities are outstanding maintain its engagement of an independent registered public
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accounting firm. Except as otherwise set forth in Transaction Documents, the Company shall take all action under its control necessary to obtain and to continue the listing and trading of its Common Stock (including, without limitation, all Registrable Securities) on the OTC Markets, Inc. ( “ OTCM ” ) at the mid-tier ( “ OTCQB ” ) or top-tier ( “ OTCQX ” ), and will comply in all material respects with the Company ’ s reporting, filing and other obligations under the by-laws or rules of the Financial Industry Regulatory Authority ( “ FINRA ” ). If, so long as the Buyer and/or Investments beneficially own any of the Securities, the Company receives any written notice from the OTCM, FINRA, or the SEC with respect to either any alleged deficiency in the Company ’ s compliance with applicable rules and regulations (including without limitation any comments from the SEC on any of the Company ’ s documents filed (or the failure to have made any such filing) under the 1933 Act or the Exchange Act) (each, a “ Regulatory Notice ” ), then the Company shall promptly, and in any event within two (2) business days, provide copies of the Regulatory Notice to the Buyer, and shall promptly, and in any event within five (5) business days of receipt of the Regulatory Notice (a “ Regulatory Response ” ), respond in writing to the OTCM, FIRNA and/or SEC (as the case may be), setting forth the Company ’ s explanation and/or response to the issues raised in the Regulatory Notice, with a view towards maintaining and/or regaining full compliance with the applicable rules and regulations of the OTCM, FIRNA and/or SEC and maintaining or regaining good standing of the Company with the OTCM, FINRA and/or SEC, as the case may be, the intent being to ensure that the Company maintain its reporting company status with the SEC and that its Common Stock be and remain available for trading on the OTCQB or OTCQX (for the avoidance of doubt, excluding the bottom-tier OTC Pink (or, “ pink sheets ” ). Further, at all times while any Securities are outstanding, the Common Stock shall be DWAC Operational, and the Common Stock shall not be subject to any DTC “ chill ” designation or similar restriction on the clearing of the Common Stock through DTC.
f. Use of Proceeds. The Company shall use the proceeds from the sale of the Debentures for working capital purposes only and will be subject to customary restrictions. Absent the prior written approval of a majority of the principal amount of the Debentures then outstanding, the Company shall not use any portion of the proceeds of the sale of the Debentures to (i) repay any indebtedness or other obligation of the Company incurred prior to the date of this Agreement outside the normal course of business, (ii) pay any dividends or redemption amount on any of the Company ’ s equity or equity equivalents, (iii) pay any amounts, whether on account of debt obligations of the Company or otherwise, except for compensation, to any officer, director or other related party of the Company or (iv) pay deferred compensation or any compensation to any of the directors or officers of the Company in excess of the rate or amount paid or accrued during the fiscal year ended December, 2014 (as base compensation and excluding any discretionary amounts), other than modest increases consistent with prior practice that are approved by the Company ’ s Board of Directors.
g. Available Shares. Commencing on the date of execution and delivery of this Agreement, the Company shall have and maintain authorized and reserved for issuance, free from preemptive rights, that number of shares equal to Five Hundred percent (500%) of the number of shares of Common Stock (1) issuable based upon the conversion of the then-outstanding Debentures (including accrued interest thereon) as may be required to satisfy the conversion rights of the Buyer pursuant to the terms and conditions of the Debenture (without giving effect to the 4.99% limitation on ownership or One Hundred Eighty (180) day delay in
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convertibility, as set forth in the Debentures), provided, however that for purposes of the foregoing calculation, the full indebtedness under the Debentures shall be deemed immediately convertible and (2) issuable to the Buyer on future Closing Dates, based upon the lowest closing bid price per share of the Common Stock on the date before the most recent Closing Date (as reported by Bloomberg LP). The Company shall monitor its compliance with the foregoing requirements on an ongoing basis. If at any time the Company does not have available an amount of authorized and non-issued Shares required to be reserved pursuant to this Section, then the Company shall, without notice or demand by the Buyer, call within thirty (30) days of such occurrence and hold within sixty (60) days of such occurrence a special meeting of shareholders, for the sole purpose of increasing the number of shares authorized. Management of the Company shall recommend to shareholders to vote in favor of increasing the number of Common Stock authorized at the meeting. Members of the Company ’ s management shall also vote all of their own shares in favor of increasing the number of Common Stock authorized at the meeting. If the increase in authorized shares is approved by the stockholders at the meeting, the Company shall implement the increase in authorized shares within one (1) business day following approval at such meeting. Alternatively, to the extent permitted by applicable law, in lieu of calling and holding a meeting as described above, the Company may, within thirty (30) days of the date when the Company does not have available an amount of authorized and non-issued Shares required to be reserved as described above, procure the written consent of stockholders to increase the number of shares authorized, and provide the stockholders with notice thereof as may be required under applicable law (including without limitation Section 14(c) of the Exchange Act and Regulation 14C thereunder). Upon obtaining stockholder approval as aforesaid, the Company shall cause the appropriate increase in its authorized shares of Common Stock within one (1) business day (or as soon thereafter as permitted by applicable law). Company ’ s failure to comply with these provisions will be an Event of Default (as defined in the Debentures).
h. Reimbursement. If (i) Buyer and/or Investments becomes a party defendant in any capacity in any action or proceeding brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Buyer and/or Investments is impleaded in any such action, proceeding or investigation by any Person, or (ii) the Buyer and/or Investments, other than by reason of its own gross negligence, willful misconduct or breach of law (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), becomes a party defendant in any capacity in any action or proceeding brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Buyer or Investments is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall promptly reimburse the Buyer and/or Investments for its or their reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of the Buyer and/or Investments who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling Persons (if any), as the case may be, of the Buyer, Investments and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and
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personal representatives of the Company, the Buyer, Investments and any such Affiliate and any such Person. Except as otherwise set forth in the Transaction Documents, the Company also agrees that neither any Buyer, Investments nor any such Affiliate, partners, directors, agents, employees or controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of the Transaction Documents.
i. The Company shall provide the Transfer Agent and/or the Buyer, Investments or their respective brokerage and/or clearing firm with all relevant legal opinions and other documentation requested by the Buyer or Investments in connection with the issuance of the Conversion Shares or the Restricted Stock, or the sale thereof, to confirm the share issuance(s) such that the Conversion Shares and/or Restricted Stock may be deposited with the applicable brokerage and/or clearing firm.
j. No Payments to Affiliates or Related Parties. So long as any of the Debentures remain outstanding, if the Debentures are in default, the Company shall not, absent the prior written consent of the holders of all Debentures then outstanding, make any payments to any of the Company ’ s or the Subsidiaries ’ respective affiliates or related parties, including without limitation payments or prepayments of principal or interest accrued on any indebtedness or obligation in favor of affiliates or related parties. Notwithstanding anything to the contrary contained herein, the provisions of this Section 4(j) shall not apply to payments to the Subsidiaries, or other businesses in which affiliates have an interest, made in the ordinary course of business and consistent with past practice as disclosed in the SEC Documents.
k. Notice of Material Adverse Effect. The Company shall notify the Buyer (and any subsequent holder of the Debentures), as soon as practicable and in no event later than three (3) business days of the Company ’ s knowledge of any Material Adverse Effect on the Company. For purposes of the foregoing, “ knowledge ” means the earlier of the Company ’ s actual knowledge or the Company ’ s constructive knowledge upon due inquiry.
l. Public Disclosure. Except to the extent required by applicable law, absent the Buyer ’ s prior written consent, the Company shall not reference the name of the Buyer in any press release, securities disclosure, business plan, marketing or funding proposal.
m. Nature of Transaction; Savings Clause. It is the parties ’ express understanding and agreement that the transactions contemplated by the Transaction Documents constitute an investment and not a loan. If nonetheless such transactions are deemed to be a loan (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), the Company shall not be obligated or required to pay interest at a rate that could subject Buyer to either civil or criminal liability as a result of such rate exceeding the maximum rate that the Buyer is permitted to charge under applicable law, and the Company ’ s obligations under the Transaction Documents shall not be void or voidable on the basis of the Buyer ’ s lack of any license or registration as a lender with any governmental authority. It is expressly understood and agreed by the parties that neither the amounts payable pursuant to Section 12, any redemption premium, remedy upon an Event of Default (as defined in the Debentures) or any Acceleration Amount (as defined in the Debentures), original issue discount nor any investment returns of the Buyer on the sale of the Debentures or the sale of any Conversion
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Shares (whether unrealized or realized) shall be construed as interest. If, by the terms of the Debentures, any other Transaction Document or any other instrument, Buyer is at any time required or obligated to pay interest at a rate exceeding such maximum rate, interest payable under the Debenture and/or such other Transaction Documents or other instrument shall be computed (or recomputed) at such maximum rate, and the portion of all prior interest payments (if any) exceeding such maximum shall be applied to payment of the outstanding principal of the Debentures.
4. TRANSFER AGENT INSTRUCTIONS.
a. Transfer Agent Instruction Letter. On or before the Signing Closing Date, the Company shall irrevocably instruct its Transfer Agent in writing using the letter substantially in the form of Exhibit B annexed hereto, with only such modifications as the Buyer agrees to, executed by the Company, the Buyer and the Transfer Agent (the “ Transfer Agent Instruction Letter ” ), to (i) reserve that number of shares of Common Stock as is required under Section 4(g) hereof, and (ii) issue Common Stock from time to time upon conversion of the Debentures in such amounts as specified from time to time by the Buyer to the Transfer Agent in a Notice of Conversion, in such denominations to be specified by the Buyer in connection with each conversion of the Debentures. The Transfer Agent shall not be restricted from issuing shares from only the allotment reserved hereunder for the Conversion Amount (as defined in the Debentures), but instead may, to the extent necessary to satisfy the amount of shares issuable upon conversion, issue shares above and beyond the amount reserved on account of the Conversion Amount, without any additional instructions or authorization from the Company, and the Company shall not provide the Transfer Agent with any instructions or documentation contrary to the foregoing. As of the date of this Agreement, the Transfer Agent is Colonial Stock Transfer Company, Inc. The Company shall at all times while any Debentures are outstanding engage a Transfer Agent which is a party to the Transfer Agent Instruction Letter. The Company shall not terminate the Transfer Agent or otherwise change Transfer Agents without at least fifteen (15) days prior written notice to the Buyer and with the Buyer ’ s prior written consent to such change, which the Buyer may grant or withhold in its sole discretion. The Company shall continuously monitor its compliance with the share reservation requirements and, if and to the extent necessary to increase the number of reserved shares to remain and be at least Five Hundred percent (500%) of the Conversion Amount to account for any decrease in the Market Price of the Common Stock, the Company shall immediately (and in any event within two (2) business days) notify the Transfer Agent in writing of the reservation of such additional shares, provided that in the event that the number of shares reserved for conversion of the Debentures is less than Five Hundred percent (500%) of the Conversion Amount, the Buyer may also directly instruct the Transfer Agent to increase the reserved shares as necessary to satisfy the minimum reserved share requirement, and the Transfer Agent shall act accordingly, provided, further, that the Company shall within two (2) business days provide any written confirmation, assent or documentation thereof as the Transfer Agent may request to act upon a share increase instruction delivered by the Buyer. The Company shall provide the Buyer with a copy of all written instructions to the Company ’ s Transfer Agent with respect to the reservation of shares simultaneously with the issuance of such instructions to the Transfer Agent. The Company covenants that no instruction other than such instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 4(a) hereof prior to registration and sale of the
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Conversion Shares under the 1933 Act will be given by the Company to the Transfer Agent and that the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and applicable law. If the Buyer provides the Company and/or the Transfer Agent with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the 1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of this Agreement) permit the de-legending or transfer of the Securities and, in the case of the Conversion Shares, instruct the Company ’ s Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer.
b. Conversion. (i) The Company shall permit the Buyer to exercise the right to convert the Debentures by faxing, emailing or delivering overnight an executed and completed Notice of Conversion to the Company or the Transfer Agent. If so requested by the Buyer or the Transfer Agent, the Company shall within one (1) business day respond with its endorsement so as to confirm the outstanding principal amount of any Debenture submitted for conversion or shall reconcile any difference with the Buyer promptly after receiving such Notice of Conversion.
(i) The term “ Conversion Date ” means, with respect to any conversion elected by the holder of the Debentures, the date specified in the Notice of Conversion, provided the copy of the Notice of Conversion is given either via mail or facsimile to or otherwise delivered to the Transfer Agent and/or the Company in accordance with the provisions hereof so that it is received by the Transfer Agent and/or the Company on or before such specified date.
(i) The Company shall deliver (or will cause the Transfer Agent to deliver) the Conversion Shares issuable upon conversion (i) if the Company is then DWAC Operational, in electronic form by DWAC pursuant to the Buyer ’ s instructions, or (ii) if the Company is not then DWAC Operational, then in certificated form to the Buyer at the address specified in the Notice of Conversion (which may be the Buyer ’ s address for notices as contemplated by Section 10 hereof or a different address) via express courier, by electronic transfer or otherwise, within two (2) business days (the “ Delivery Date ” ) after (A) the business day on which the Buyer delivered the Notice of Conversion to the Company or Transfer Agent (by facsimile, email or other delivery) or (B) the date on which payment of interest and principal on the Debentures, which the Company has elected to pay by the issuance of Common Stock, as contemplated by the Debentures, was due, as the case may be.
a. Failure to Timely Issue Conversion Shares or De-Legended Shares. The Company ’ s failure to issue and deliver Conversion Shares to the Buyer (either by DWAC or in certificated form, as required by Section 5(b)) on or before the Delivery Date shall be considered an Event of Default, which shall entitle the Buyer to certain remedies set forth in the Debentures and provided by applicable law . Similarly, the Company ’ s failure to issue and deliver Common Stock in unrestricted form without a restrictive legend when required under the Transaction Documents shall entitle the Buyer to damages for the diminution in value (if any) of the relevant shares between the date delivery was due versus the date ultimately delivered in unrestricted form. The Company acknowledges that its failure to timely honor a Notice of Conversion (or the occurrence of any other Event of Default) shall cause definable financial hardship on the
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Buyer(s) and that the remedies set forth herein and in the Debentures are reasonable and appropriate.
b. Duties of Company; Authorization. The Company shall inform the Transfer Agent of the reservation of shares contemplated by Section 4(g) and this Section 5, and shall keep current in its payment obligations to the Transfer Agent such that the Transfer Agent will continue to process share transfers and the initial issuance of shares of Common Stock upon the conversion of Debentures. The Company hereby authorizes and agrees to authorize the Transfer Agent to correspond and otherwise communicate with the Buyer or their representatives in connection with the foregoing and other matters related to the Common Stock. Further, the Company hereby authorizes the Buyer or its representative to provide instructions to the Transfer Agent that are consistent with the foregoing and instructs the Transfer Agent to honor any such instructions. Should the Company fail for any reason to keep current in its payment obligations to the Transfer Agent, the Buyer and/or Investments may pay such amounts as are necessary to compensate the Transfer Agent for performing its duties with respect to share reservation, issuance of Conversion Shares and/or de-legending certificates representing Restricted Stock, and all amounts so paid shall be promptly reimbursed by the Company. If not so reimbursed within thirty (30) days, such amounts shall, at the option of the Buyer and without prior notice to or consent of the Company, be added to the principal amount due under the Debenture(s) held by the Buyer, whereupon interest will begin to accrue on such amounts at the rate specified in the Debentures.
c. Effect of Bankruptcy. The Buyer shall be entitled to exercise its conversion privilege with respect to the Debentures notwithstanding the commencement of any case under 11 U.S.C. §101 et seq. (the “ Bankruptcy Code ” ). In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the Buyer ’ s conversion privilege. The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Debentures. The Company agrees, without cost or expense to the Buyer, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. §362.
1. CLOSINGS.
a. Signing Closing. Promptly upon the execution and delivery of this Agreement, the Signing Debenture, and all conditions in Sections 7 and 8 herein are met (the “ Signing Closing Date ” ), (A) the Company shall deliver to the Buyer the following: (i) the Signing Debenture; (ii) the Transfer Agent Instruction Letter; (iii) duly executed counterparts of the Transaction Documents; and (iv) an officer ’ s certificate of the Company confirming the accuracy of the Company ’ s representations and warranties contained herein, and (B) the Buyer shall deliver to the Company the following: (i) the Signing Purchase Price and (ii) duly executed counterparts of the Transaction Documents (as applicable). The Company shall immediately pay the fees due under Section 12 of this Agreement upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12.
b.
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Second Closing. At any time sixty one (61) to ninety (90) days following the Signing Closing Date, subject to the mutual agreement of the Buyer and the Company, for the “ Second Closing Date ” and subject to satisfaction of the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the Buyer the following: (i) the Second Debenture; (ii) an amendment to the Transfer Agent Instruction Letter instructing the Transfer Agent to reserve that number of shares of Common Stock as is required under Section 4(g) hereof, if necessary; and (iii) an officer ’ s certificate of the Company confirming, as of the Second Closing Date, the accuracy of the Company ’ s representations and warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the Second Closing Date, and (B) the Buyer shall deliver to the Company the Second Purchase Price.
c. Third Closing. At any time sixty one (61) to ninety (90) days following the Second Closing Date, subject to the mutual agreement of the Buyer and the Company, for the “ Third Closing Date ” and subject to satisfaction of the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the Buyer the following: (i) the Third Debenture; (ii) an amendment to the Transfer Agent Instruction Letter instructing the Transfer Agent to reserve that number of shares of Common Stock as is required under Section 4(g) hereof, if necessary; and (iii) an officer ’ s certificate of the Company confirming, as of the Third Closing Date, the accuracy of the Company ’ s representations and warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the Third Closing Date, and (B) the Buyer shall deliver to the Company the Third Purchase Price.
d. Location and Time of Closings. Each Closing shall be deemed to occur on the related Closing Date at the office of the Buyer ’ s counsel and shall take place no later than 5:00 P.M., New York time, on such day or such other time as is mutually agreed upon by the Company and the Buyer.
2. CONDITIONS TO THE COMPANY ’ S OBLIGATION TO SELL.
The Company ’ s obligation to sell the Debentures to the Buyer pursuant to this Agreement on each Closing Date is conditioned upon:
a. Purchase Price. Delivery to the Company of good funds as payment in full of the respective Purchase Price for the Debentures at each Closing in accordance with this Agreement;
b. Representations and Warranties; Covenants. The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date; and
c. Laws and Regulations; Consents and Approvals. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.
3.
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CONDITIONS TO THE BUYER ’ S OBLIGATION TO PURCHASE.
The Buyer ’ s obligation to purchase the Debentures at each Closing is conditioned upon:
a. Transaction Documents. The execution and delivery of this Agreement by the Company;
b. Debenture(s). Delivery by the Company to the Buyer of the Debentures to be purchased in accordance with this Agreement;
c. Section 4(a)(2) Exemption. The Debentures and the Conversion Shares shall be exempt from registration under the Securities Act of 1933 (as amended), pursuant to Section 4(a)(2) thereof;
d. DWAC Status . The Common Stock shall be DWAC Operational;
e. Representations and Warranties; Covenants. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;
f. Good-faith Opinion. It should be Buyer ’ s reasonable belief that (i) no Event of Default under the terms of any outstanding indebtedness of the Company shall have occurred or would likely occur with the passage of time and (ii) no material adverse change in the financial condition or business operations of the Company shall have occurred;
g. Legal Proceedings. There shall be no litigation, criminal or civil, regulatory impairment or other legal and/or administrative proceedings challenging or seeking to limit the Company ’ s ability to issue the Securities or the Common Stock;
h. Intentionally Omitted.
i. Corporate Resolutions. Delivery by the Company to the Buyer a copy of resolutions of the Company ’ s board of directors, approving and authorizing the execution, delivery and performance of the Transaction Documents and the transactions contemplated thereby in the form attached hereto as Exhibit C (the “ Irrevocable Resolutions ” );
j. Officer ’ s Certificate. Delivery by the Company to the Buyer of a certificate of the Chief Executive Officer of the Company in the form attached hereto as Exhibit D ;
k. Search Results. Delivery by the Company to the Buyer of copies of UCC search reports, issued by the Secretary of State of the state of incorporation of the Company and each Subsidiary, dated such a date as is reasonably acceptable to Buyer, listing all effective financing statements which name the Company or Subsidiary (as applicable), under its present name and any previous names, as debtor, together with copies of such financing statements;
l.
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Certificate of Good Standing. Delivery by the Company to the Buyer of a copy of a certificate of good standing with respect to the Company, issued by the Secretary of State of the state of incorporation of the Company, dated such a date as is reasonably acceptable to Buyer, evidencing the good standing thereof;
m. Laws and Regulations; Consents and Approvals. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and
n. Adverse Changes. From and after the date hereof to and including each Closing Date, (i) the trading of the Common Stock shall not have been suspended by the SEC, FINRA, or any other governmental or self-regulatory organization, and trading in securities generally on OTCM shall not have been suspended or limited, nor shall minimum prices been established for securities traded on the OTCM; (ii) there shall not have occurred any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyer makes it impracticable or inadvisable to purchase the Debentures.
4. GOVERNING LAW; MISCELLANEOUS.
a. MANDATORY FORUM SELECTION. ANY DISPUTE ARISING UNDER, RELATING TO, OR IN CONNECTION WITH THE AGREEMENT OR RELATED TO ANY MATTER WHICH IS THE SUBJECT OF OR INCIDENTAL TO THE AGREEMENT (WHETHER OR NOT SUCH CLAIM IS BASED UPON BREACH OF CONTRACT OR TORT) SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS LOCATED IN MIAMI-DADE COUNTY, FLORIDA. THIS PROVISION IS INTENDED TO BE A “ MANDATORY ” FORUM SELECTION CLAUSE AND GOVERNED BY AND INTERPRETED CONSISTENTLY WITH FLORIDA LAW.
b. Governing Law. Except in the case of the Mandatory Forum Selection clause above, this Agreement shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the internal laws of the State of Florida, and for all purposes shall be construed in accordance with the laws of the State of Floridaa, without giving effect to the choice of law provisions. To the extent determined by the applicable court described above, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under any of the Transaction Documents.
c. Waivers. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
d. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.
e.
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Construction. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.
f. Facsimiles; E-mails. A facsimile or email transmission of this signed Agreement or a Notice of Conversion under the Debentures shall be legal and binding on all parties hereto. Such electronic signatures shall be the equivalent of original signatures.
g. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.
h. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.
i. Enforceability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.
j. Amendment. This Agreement may be amended only by the written consent of a majority in interest of the holders of the Debentures and an instrument in writing signed by the Company.
k. Entire Agreement. This Agreement, together with the other Transaction Documents, supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.
l. No Strict Construction. This Agreement shall be construed as if both Parties had equal say in its drafting, and thus shall not be construed against the drafter.
m. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
5. NOTICES.
Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:
a. the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile or email transmission,
b. the third (3 rd ) business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or
c.
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the first (1 st ) business day after deposit with a recognized courier service (e.g. FedEx, UPS, DHL, US Postal Service) for delivery by next-day express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days ’ advance written notice similarly given to each of the other parties hereto):
COMPANY : |
Clean Energy Technologies, Inc. 150 Baker Street East Costa Mesa, CA 92626 Attention: Kambiz Mahdi, Chief Executive Officer Facsimile: 949-273-4990 x 814 Email: kmahdi@ceti.io
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With copies to (which shall not constitute notice):
Law Office of Andrew Coldicutt 1220 Rosecrans Street, PMB 258 San Diego, CA 92106 Attention: Andrew Coldicutt, Esq. Email: Andrew@ColdicuttLaw.com
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BUYER: |
Peak One Opportunity Fund, L.P. 333 South Hibiscus Drive Miami Beach, FL 33139 Attention: Jason Goldstein Email: jgoldstein@peakoneinvestments.com
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With copies to (which shall not constitute notice):
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Zabatta Group, LLP 91 Central Park West, Suite 1H New York, NY 10023 Attention: Patrick G. Zabatta, Esq. Email: pzabatta@gmail.com |
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company ’ s representations and warranties herein shall survive for so long as any Debentures are outstanding, and shall inure to the benefit of the Buyer, its successors and assigns.
7. FEES; EXPENSES.
a. Commitment Fee . The Company shall pay to Investments a non-accountable fee (the “ Commitment Fee ” ) of (i) Two Thousand Five Hundred and 00/100 Dollars ($2,500.00)
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and (ii) Four Hundred Thousand (400,000) shares of Restricted Stock for Investments ’ expenses and analysis performed in connection with the analysis of the Company and the propriety of the Buyer ’ s making the contemplated investment. The Commitment Fee shall be paid on the Signing Closing Date immediately upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12(c).
b. Legal Fees . The Company shall pay the legal fees of the Buyer ’ s counsel (the “ Legal Fees ” ) in the amount of Two Thousand Five Hundred and 00/100 Dollars ($2,500.00). The foregoing legal fees shall be paid on the Signing Closing Date immediately upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12(c). The Company further agrees to pay in full the reasonable legal fees of the Buyer ’ s counsel incurred after the Signing Closing Date incurred in connection with the Transaction Documents (including addressing any purported breach(es) or default(s) by the Company, enforcement of the Company ’ s obligations or the exercise of the Buyer ’ s remedies thereunder).
c. Disbursements. In furtherance of the foregoing, the Company hereby authorizes the Buyer to deduct the cash portion of the Commitment Fee and the Legal Fees from the Signing Purchase Price and transmit same to the respective payee. The Company shall pay disbursements of the Buyer ’ s legal counsel and legal fees incurred after the Signing Closing Date (within ten (10) days of invoice therefor (if applicable).
[Signature Page Follows]
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IN WITNESS WHEREOF , this Agreement has been duly executed by the Buyer and the Company as of the date first set forth above.
COMPANY:
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CLEAN ENERGY TECHNOLOGIES, INC.
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By: ______________________________________ |
Name: Kambiz Mahdi Title: Chief Executive Officer |
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BUYER:
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PEAK ONE OPPORTUNITY FUND, L.P.
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By: Peak One Investments, LLC, General Partner
By: ___________________________________ Name: Jason Goldstein Title: Managing Member |
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this “ Agreement ” ), dated as of June 6,
2016, is entered into by and between CLEAN ENERGY TECHNOLOGIES, INC., a Nevada
corporation (the “ Company ” ), and EMA Financial, LLC, a Delaware limited liability company
(the “ Purchaser ” ).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant
to Section 4(2) of the Securities Act of 1933, as amended (the “ Securities Act ” or “ 1933 Act ” ),
and Rule 506 promulgated thereunder by the United States Securities and Exchange Commission
(the “ SEC ” ), the Company desires to issue and sell to the Purchaser, and the Purchaser desires to
purchase from the Company a 12% Convertible Note of the Company, in the form attached
hereto as Exhibit A, in the principal amount of $87,500.00 (together with any note(s) issued in
replacement thereof or as interest thereon or otherwise with respect thereto in accordance with
the terms thereof, the “ Note ” ), convertible into shares ( “ Conversion Shares ” ) of common stock,
$0.001 par value per share (the “ Common Stock ” ), of the Company, upon the terms and subject
to the limitations and conditions set forth in such Note.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and the Purchaser agree as follows:
1. Purchase and Sale of Note.
a)
Purchase of Note. On the Closing Date (as defined below), the Company
shall issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company,
the Note for an aggregate purchase price of $80,000.00 ( “ Purchase Price ” ).
b)
Form of Payment. On the Closing Date (i) the Purchaser shall pay the
Purchase Price by wire transfer of immediately available funds to the Company, in accordance
with the Company ’ s written wiring instructions, simultaneously with delivery of the Note, and
(ii) the Company shall deliver such Note duly executed on behalf of the Company to the
Purchaser, simultaneously with delivery of such Purchase Price.
c)
Closing Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the closing of the transactions
contemplated by this Agreement (the “ Closing ” ) shall occur on the first business day following
the date hereof or such other mutually agreed upon time (the “ Closing Date ” ) at the offices of
Purchaser ’ s counsel.
2. Purchaser ’ s Representations and Warranties. The Purchaser represents and
warrants to the Company that:
a)
Investment Purpose. Purchaser is acquiring the Securities for its own
account and not with a view towards, or for resale in connection with, the public sale or
distribution thereof in violation of applicable securities laws; provided, however, by making the
representations herein, Purchaser does not agree, or make any representation or warranty, to
hold any of the Securities for any minimum or other specific term and reserves the right to
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SPA – CETY, T1, 2016-06-06
dispose of the Securities at any time in accordance with or pursuant to a registration statement
or an exemption under the 1933 Act. The Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. The Purchaser does not presently have any agreement or
understanding, directly or indirectly, with any person to distribute any of the Securities in
violation of applicable securities laws.
b)
Accredited Investor Status. The Purchaser is an “ accredited investor ” as
that term is defined in Rule 501(a) of Regulation D (an “ Accredited Investor ” ).
c)
Reliance on Exemptions. The Purchaser understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the registration
requirements of United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Purchaser ’ s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of the Purchaser to
acquire the Securities.
d)
Information. The Purchaser and its advisors, if any, have been, and for so
long as the Securities remain outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company and materials relating to the
offer and sale of the Securities which have been reasonably requested by the Purchaser or its
advisors, provided that the Purchaser has not been furnished with, and the Company shall not in
the future deliver to the Purchaser without its consent, any material non-public information
concerning the Company. The Purchaser and its advisors, if any, have been, and for so long as
the Securities remain outstanding will continue to be, afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence investigation conducted by
Purchaser or any of its advisors or representatives shall modify, amend or affect Purchaser ’ s
right to rely on the Company ’ s representations and warranties contained in Section 3 below.
The Purchaser understands that its investment in the Securities involves a significant degree of
risk.
e)
Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.
f)
Transfer or Re-sale. The Purchaser understands that (i) the sale or re-sale
of the Securities has not been and is not being registered under the 1933 Act or any applicable
state securities laws, and the Securities may not be transferred unless (a) the Securities are sold
pursuant to an effective registration statement under the 1933 Act, (b) the Purchaser shall have
delivered to the Company an opinion of counsel that shall be in form, substance and scope
customary for opinions of counsel in comparable transactions to the effect that the securities to
be sold or transferred may be sold or transferred pursuant to an exemption from such
registration, which opinion shall be reasonably acceptable to the Company, (c) the Securities are
sold or transferred to an “ affiliate ” (as defined in Rule 144 promulgated under the 1933 Act (or
a successor rule) ( “ Rule 144 ” ) of the Purchaser who agrees to sell or otherwise transfer the
Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S
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SPA – CETY, T1, 2016-06-06
under the 1933 Act (or a successor rule) ( “ Regulation S ” ) and the Purchaser shall have delivered
to the Company an opinion of counsel reasonably acceptable to the Company relating to such
Regulation S; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of such Rule and further, if such Rule is not applicable, any re-sale of
such Securities under circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder (in each case). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending arrangement.
g)
Legends. The Purchaser understands that the Securities have been issued
(or will be issued in the case of the Conversion Shares) pursuant to an exemption from
registration or qualification under the 1933 Act and applicable state securities laws, and except
as set forth below, the Securities shall bear any legend as required by the “ blue sky ” laws of any
state and a restrictive legend in substantially the following form (and a stop-transfer order may
be placed against transfer of such stock certificates):
“ NEITHER THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
[EXERCISABLE]
HAVE
BEEN][THE
SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE
REGISTRATION
STATEMENT
FOR
THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO
RULE
144
OR
RULE
144A
UNDER
SAID
ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ”
The legend set forth above shall be removed and the Company shall issue a certificate
without such legend to the holder of any Security upon which it is stamped, if, unless otherwise
required by applicable state securities laws, (a) such Security is registered for sale under an
effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to
Rule 144 or Regulation S without any restriction as to the number of securities as of a particular
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SPA – CETY, T1, 2016-06-06
date that can then be immediately sold, or (b) such holder provides the Company with an opinion
of counsel at the Company ’ s expense, in the form, substance and scope customary for opinions
of counsel in comparable transactions, to the effect that a public sale or transfer of such Security
may be made without registration under the 1933 Act, which opinion shall be reasonably
accepted by the Company so that the sale or transfer is effected. The Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable prospectus delivery requirements, if any.
h)
Authorization; Enforcement. This Agreement has been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf of the Purchaser,
and this Agreement constitutes a valid and binding agreement of the Purchaser enforceable in
accordance with its terms.
3. Representations and Warranties of the Company. The Company represents and
warrants to the Purchaser, as of the date hereof and the Closing Date, that:
a)
Organization and Qualification. The Company and each of its Subsidiaries
(as defined below), if any, is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry on its business as
and where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth a list of
all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The
Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which its ownership or use of property or the
nature of the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse Effect.
“ Material Adverse Effect ” means any material adverse effect on the business, operations, assets,
financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or
on the transactions contemplated hereby or by the agreements or instruments to be entered into
in connection herewith. “ Subsidiaries ” means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest.
b)
Authorization; Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement and the Note and to consummate
the transactions contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of this Agreement and the Note by
the Company and the consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Note and the issuance and reservation for
issuance of the Conversion Shares issuable upon conversion and exercise thereof) have been
duly authorized by the Company ’ s Board of Directors and no further consent or authorization of
the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has
been duly executed and delivered by the Company by its authorized representative, and such
authorized representative is the true and official representative with authority to sign this
Agreement and the other documents executed in connection herewith and bind the Company
accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the
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SPA – CETY, T1, 2016-06-06
Company of the Note and each of such instruments will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its terms.
c)
Capitalization. As of the date hereof, the authorized capital stock of the
Company, and number of shares issued and outstanding, is as set forth in the Company ’ s most
recent periodic report filed with the SEC. Except as disclosed on Schedule 3(c) hereof, no
shares are reserved for issuance pursuant to the Company ’ s stock option plans. Except as
disclosed in the SEC Documents no shares are reserved for issuance pursuant to securities
exercisable for, or convertible into or exchangeable for shares of Common Stock. All of such
outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and non-assessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company. As of the effective
date of this Agreement, and except as disclosed in the SEC Documents, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any character whatsoever
relating to, or securities, notes or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of
the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale of any of its or
their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of any of the Securities. The
Company has furnished to the Purchaser true and correct copies of the Company ’ s Certificate of
Incorporation as in effect on the date hereof ( “ Certificate of Incorporation ” ), the Company ’ s
By-laws, as in effect on the date hereof (the “ By-laws ” ), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto.
d)
Issuance of Shares. The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Note, as the case may be, in accordance with
their respective terms, will be validly issued, fully paid and non-assessable, and free from all
taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject
to preemptive rights or other similar rights of shareholders of the Company and will not impose
personal liability upon the holder thereof.
e)
Acknowledgment of Dilution. The Company ’ s executive officers and
directors understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity holdings of other
holders of the Company ’ s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment that the issuance of
the Securities is in the best interests of the Company. The Company specifically acknowledges
that its obligation to issue the Conversion Shares upon conversion of the Notes is binding upon
the Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other stockholders of the Company or parties entitled to receive equity of
the Company.
5
SPA – CETY, T1, 2016-06-06
f)
No Conflicts. The execution, delivery and performance of this Agreement,
the Note by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and reservation for
issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any
provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result
in a breach of any provision of, or constitute a default (or an event which with notice or lapse of
time or both could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or
instrument to which the Company or any of its Subsidiaries is a part y and that is not filed as an
SEC Document or other document filed with the SEC, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state securities laws and
regulations and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws
or other organizational documents and neither the Company nor any of its Subsidiaries is in
default (and no event has occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that would give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party or by which any property
or assets of the Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not
be conducted so long as the Purchaser owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self regulatory
organization or stock market or any third party in order for it to execute, deliver or perform any
of its obligations under this Agreement and the Note in accordance with the terms hereof or
thereof or to issue and sell the Securities in accordance with the terms hereof and thereof and to
issue the Conversion Shares. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of the listing
requirements of the Over-the-Counter Bulletin Board (the “ OTCBB ” ), or OTCQB, or OTC Pink
and does not reasonably anticipate that the Common Stock will be delisted by the OTCBB, or
OTCQB, or OTC Pink in the foreseeable future. The Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing.
g)
SEC Documents; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with the SEC (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 to such documents)
incorporated by reference therein, being hereinafter referred to herein as the “ SEC
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SPA – CETY, T1, 2016-06-06
Documents ” ). Upon written request the Company will deliver to the Purchaser true and
complete copies of the SEC Documents, except for such exhibits and incorporated documents.
As of their respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended ( “ 1934 Act ” or “ Exchange
Act ” ), and none of the SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the statements made in any such SEC Documents is,
or has been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date hereof). As of
their respective dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the SEC Documents,
the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business, and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted accounting principles
to be reflected in such financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. The Company is subject
to the reporting requirements of the 1934 Act.
h)
Absence of Certain Changes. Since March 31, 2016, there has been no
material adverse change and no material adverse development in the assets, liabilit ies, business,
properties, operations, financial condition, results of operations, prospects or 1934 Act reporting
status of the Company or any of its Subsidiaries.
i)
Absence of Litigation. There is no action, suit, claim, proceeding, inquiry
or investigation before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse Effect. Schedule 3(i)
contains a complete list and summary description of any pending or, to the knowledge of the
Company, threatened proceeding against or affecting the Company or any of its Subsidiaries,
without regard to whether it would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to any of the
foregoing.
j)
Patents, Copyrights, etc. The Company and each of its Subsidiaries owns
or possesses the requisite licenses or rights to use all patents, patent applications, patent rights,
inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service
names, trade names and copyrights ( “ Intellectual Property ” ) necessary to enable it to conduct its
business as now operated (and, as presently contemplated to be operated in the future); there is
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SPA – CETY, T1, 2016-06-06
no claim or action by any person pertaining to, or proceeding pending, or to the Company ’ s
knowledge threatened, which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to conduct its business as now
operated (and, as presently contemplated to be operated in the future); to the best of the
Company ’ s knowledge, the Company ’ s or its Subsidiaries ’ current and intended products,
services and processes do not infringe on any Intellectual Property or other rights held by any
person and/or entity; and the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
k)
No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company ’ s officers has or is
expected in the future to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of the Company ’ s
officers has or is expected to have a Material Adverse Effect.
l)
Tax Status. The Company and each of its Subsidiaries has made or filed
all federal, state and foreign income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent that the Company and
each of its Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for periods subsequent to
the periods to which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. None of the Company ’ s tax returns is presently being audited
by any taxing authority.
m)
Certain Transactions. Except for arm ’ s length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its Subsidiaries could obtain
from third parties and other than the grant of any stock options disclosed on Schedule 3(c), none
of the officers, directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any officer, director, or
any such employee has a substantial interest or is an officer, director, trustee or partner.
n)
Disclosure. All information relating to or concerning the Company or any
of its Subsidiaries set forth in this Agreement and provided to the Purchaser pursuant to Section
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SPA – CETY, T1, 2016-06-06
2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or any of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
o)
Acknowledgment Regarding Purchaser ’ Purchase of Securities. The
Company acknowledges and agrees that the Purchaser is acting solely in the capacity of arm ’ s
length purchaser with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that the Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any statement made by the Purchaser or any of its
respective representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental to the
Purchaser ’ s purchase of the Securities.
p)
No Integrated Offering. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any offers or sales in any
security or solicited any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to the Purchaser. The issuance
of the Securities to the Purchaser will not be integrated with any other issuance of the
Company ’ s securities (past, current or future) for purposes of any shareholder approval
provisions applicable to the Company or its securities.
q)
Brokers. The Company hereby represents and warrants that it has not
hired, retained or dealt with any broker, finder, consultant, person, firm or corporation in
connection with the negotiation, execution or delivery of this Agreement or the transactions
contemplated hereunder. The Company covenants and agrees that should any claim be made
against Purchaser for any commission or other compensation by any broker, finder, person, firm
or corporation, including without limitation, the Broker, based upon the Company ’ s engagement
of such person in connection with this transaction, the Company shall indemnify, defend and
hold Purchaser harmless from and against any and all damages, expenses (including attorneys ’
fees and disbursements) and liability arising from such claim. The Company shall pay the
commission of the Broker, to the attention of the Broker, pursuant to their separate agreement(s)
between the Company and the Broker.
r)
Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted (collectively, the “ Company
Permits ” ), and there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits. Neither the Company nor
any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company
Permits, except for any such conflicts, defaults or violations which, individually or in the
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SPA – CETY, T1, 2016-06-06
aggregate, would not reasonably be expected to have a Material Adverse Effect. Since March
31, 2016, neither the Company nor any of its Subsidiaries has received any notification with
respect to possible conflicts, defaults or violations of applicable laws, except for notices relating
to possible conflicts, defaults or violations, which conflicts, defaults or violations would not
have a Material Adverse Effect.
s)
Environmental Matters.
i.
There are, to the Company ’ s knowledge, with respect to the
Company or any of its Subsidiaries or any predecessor of the Company, no past or present
violations of Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any liability
under the Comprehensive Environmental Response, Compensation and Liability Act of 1980
or similar federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company ’ s knowledge, threatened in connection with any of the foregoing.
The term “ Environmental Laws ” means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “ Hazardous
Materials ” ) into the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as
well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments,
licenses, notices or notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
ii.
Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its Subsidiaries, and no
Hazardous Materials were released on or about any real property previously owned, leased or
used by the Company or any of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except in the normal course of the
Company ’ s or any of its Subsidiaries ’ business.
iii.
There are no underground storage tanks on or under any real
property owned, leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
t)
Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as
are described in Schedule 3(t) or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its Subsidiaries are held by them
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SPA – CETY, T1, 2016-06-06
under valid, subsisting and enforceable leases with such exceptions as would not have a
Material Adverse Effect.
u)
Insurance. The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such coverage amounts
as are prudent and customary in the businesses in which the Company is engaged, including,
but not limited to, directors and officers insurance coverage with coverage amounts that are at
least equal to the aggregate Purchase Price. Neither the Company nor any 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 without a significant increase in cost.
v)
Internal Accounting Controls. Except as disclosed in the SEC Documents,
the Company and each of its Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company ’ s board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management ’ s general or
specific authorizations, (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in accordance with
management ’ s general or specific authorization and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
w)
Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of his actions for, or on behalf of, the
Company, used any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from corporate funds; violated or
is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
x)
Solvency. Except as disclosed in the SEC Documents, the Company (after
giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets
have a fair market value in excess of the amount required to pay its probable liabilities on its
existing debts as they become absolute and matured) and currently the Company has no
information that would lead it to reasonably conclude that the Company would not, after
giving effect to the transaction contemplated by this Agreement, have the ability to, nor does
it intend to take any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature.
y)
No Investment Company. The Company is not, and upon the issuance and
sale of the Securities as contemplated by this Agreement will not be, an “ investment
company ” required to be registered under the Investment Company Act of 1940 (an
“ Investment Company ” ). The Company is not controlled by an Investment Company.
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z)
No “ Shell ” . The Company is not , and has not at any time previously been
a Shell Company, as defined in Rule 144.
4. COVENANTS.
a)
Best Efforts. The parties shall use their best efforts to satisfy timely each
of the conditions described in Section 6 and 7 of this Agreement.
b)
Form D; Blue Sky Laws. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a copy thereof to
the Purchaser promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Purchaser at the applicable closing pursuant to this Agreement under
applicable securities or “ blue sky ” laws of the states of the United States (or to obtain an
exemption from such qualification), and shall provide evidence of any such action so taken to
the Purchaser on or prior to the Closing Date.
c)
Use of Proceeds. The Company shall use the proceeds from the sale of the
Securities for general corporate purposes, marketing and sales, product development, key
personnel recruiting and business development purposes.
d)
Financial Information. Upon written request of the Purchaser, the
Company agrees to send or make available the following reports to the Purchaser until the
Purchaser transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the
filing (or the applicable deadline to so file) with the SEC or OTC Markets Group, a copy of its
Annual Report and its Quarterly Reports and any Supplemental Reports; (ii) within one (1)
day after release, copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) contemporaneously with the making available or giving to the shareholders of the
Company, copies of any notices or other information the Company makes available or gives
to such shareholders. Notwithstanding the foregoing, the Company shall not disclose any
material nonpublic information to the Purchaser without its consent unless such information is
disclosed to the public prior to or promptly following such disclosure to the Purchaser.
e)
Listing. The Company will obtain and, so long as the Purchaser owns any
of the Securities, maintain the listing and trading of its Common Stock on the OTCBB, and
OTCQB, or OTC Pink or any equivalent replacement exchange, the NASDAQ Stock Market
( “ NASDAQ ” ), the New York Stock Exchange ( “ NYSE ” ), or the NYSE MKT, f/k/a American
Stock Exchange ( “ AMEX ” ), and will comply in all respects with the Company ’ s reporting,
filing and other obligations under the bylaws or rules of the Financial Industry Regulatory
Authority ( “ FINRA ” ) and such exchanges, as applicable. The Company shall promptly
provide to the Purchaser copies of any notices it receives from the SEC, OTC Markets Group
and any other exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such exchanges and
quotation systems, provided that it shall not provide any notices constituting material
nonpublic information.
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f)
Corporate Existence. So long as the Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company ’ s assets, except in the event of a merger or consolidation or
sale of all or substantially all of the Company ’ s assets, where the surviving or successor entity
in such transaction (i) assumes the Company ’ s obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on NASDAQ, NYSE or AMEX.
g)
No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require registration of the
Securities being offered or sold hereunder under the 1933 Act or cause the offering of the
Securities to be integrated with any other offering of securities by the Company for the
purpose of any stockholder approval provision applicable to the Company or its securities.
h)
Securities Laws Disclosure; Publicity. The Company shall comply with
applicable securities laws by filing a Current Report on Form 8-K, within four (4) Trading Days
following the date hereof, disclosing all the material terms of the transactions contemplated
hereby, if the Company deems the transactions contemplated hereby to constitute material non-
public information. The Company and Purchaser shall consult with each other in issuing any
other press releases with respect to the transactions contemplated hereby, and neither the
Company nor Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of Purchaser, with respect to any press release of the
Company, except if such disclosure is required by law, in which case the disclosing part y shall
promptly provide the other party with prior notice of such public statement or communication.
i)
Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by this Agreement, the Company covenants and
agrees that neither it nor any other person acting on its behalf will provide the Purchaser or its
agents or counsel with any information that the Company believes constitutes material non-
public information, unless prior thereto the Purchaser shall have executed a written agreement
regarding the confidentiality and use of such information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.
j)
Subsidiaries. So long as the Note remains outstanding, the Company shall
not transfer any assets or rights to any of its subsidiaries or permit any of its subsidiaries to
engage in any significant business or operations, whether such subsidiaries are currently existing
or hereafter created.
k)
Insurance. So long as the Note remains outstanding, the Company and its
Subsidiaries shall maintain in full force and effect insurance reasonably believed by the
Company to be adequate coverage (a) on all assets and activities, covering property loss or
damage and loss of income by fire or other hazards or casualty, and (b) against all liabilities,
claims and risks for which it is customary for companies similarly situated to the Company to
insure, including without limitation applicable product liability insurance, required workmen ’ s
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compensation insurance, and other insurance covering injury or damage to persons or property,
but excluding directors and officers insurance coverage. The Company shall promptly furnish or
cause to be furnished evidence of such insurance to the Purchaser, in form and substance
reasonably satisfactory to the Purchaser.
l)
Par Value. If the closing bid price at any time the Note is outstanding falls
below $0.005 , the Company shall cause the par value of its Common Stock to be reduced to
$0.0001 or less.
m)
[Intentionally Omitted].
n)
Future Financings: From the date hereof until such time as the Purchaser
no longer holds any of the Securities, in the event the Company issues or sells any shares of
Common Stock or securities directly or indirectly convertible into or exercisable for Common
Stock ( “ Common Stock Equivalents ” ) or amends the transaction documents relating to any sale
or issuance of Common Stock or Common Stock Equivalents, if the Purchaser reasonably
believes that the terms and conditions thereunder are more favorable to such investors as the
terms and conditions granted under the Transaction Documents, upon notice to the Company by
such Purchaser, the Transaction Documents shall be deemed automatically amended so as to give
the Purchasers the benefit of such more favorable terms or conditions. Promptly following a
request to the Company the Company shall provide Purchaser with all executed transaction
documents relating to any such sale or issue of Common Stock or Common Stock Equivalents.
Company shall deliver acknowledgment of such automatic amendment to the Transaction
Documents to Purchaser in form and substance reasonably satisfactory to the Purchaser ( the
“ Acknowledgment ” ) within three (3) business days of Company ’ s receipt of request from
Purchaser (the “ Deadline ” ), provided that Company ’ s failure to timely provide the
Acknowledgement shall not affect the automatic amendments contemplated hereby. If the
Acknowledgement is not delivered by the Deadline, Company shall pay to the Purchaser
$1000.00 per day in cash, for each day beyond the Deadline that the Company fails to deliver
such Acknowledgement.
5. Transfer Agent Instructions. Upon receipt of a duly executed Notice of
Conversion, the Company shall issue irrevocable instructions to its transfer agent to issue
certificates, registered in the name of the Purchaser or its nominee, for the Conversion Shares
in such amounts as specified from time to time by the Purchaser to the Company upon
conversion of the Note, or any part thereof, in accordance with the terms thereof (the
“ Irrevocable Transfer Agent Instructions ” ). In the event that the Company proposes to replace
its transfer agent, the Company shall provide, prior to the effective date of such replacement, a
fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant
to this Agreement and the Securities (including but not limited to the provision to irrevocably
reserve shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by
the successor transfer agent to Company and the Company. Prior to registration of the
Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be
sold pursuant to Rule 144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no
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instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and stop transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares, prior to registration of the Conversion Shares under the 1933 Act or the
date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction
as to the number of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent provided in this
Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair,
and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated
form) any certificate for Conversion Shares to be issued to the Purchaser upon conversion of
or otherwise pursuant to the Note as and when required by the Note and this Agreement; and
(iii) it will not fail to remove (or direct its transfer agent not to remove or impair, delay, and/or
hinder its transfer agent from removing) any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to
the Purchaser upon conversion of or otherwise pursuant to the Note as and when required by
the Note and this Agreement. Nothing in this Section shall affect in any way the Purchaser ’ s
obligations and agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If the Purchaser
provides the Company with (i) an opinion of counsel in form, substance and scope customary
for opinions in comparable transactions, to the effect that a public sale or transfer of such
Securities may be made without registration under the 1933 Act and such sale or transfer is
effected or (ii) the Purchaser provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the
Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free
from restrictive legend, in such name and in such denominations as specified by the
Purchaser. The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Purchaser, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section, that the
Purchaser shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. Injunction Posting of Bond. In the event the Purchaser shall elect to convert the
Note or any parts thereof, the Company may not refuse conversion or exercise based on any
claim that Purchaser or anyone associated or affiliated with Purchaser has been engaged in
any violation of law, or for any other reason. In connection with any injunction sought or
attempted by the Company, the Company shall be required to post a bond at least equal to the
greater of either: (i) the outstanding principal amount of the Note; and (ii) the market value of
the Conversion Shares sought to be converted, exercised or issued, based on the sale price per
share of Common Stock on the principal market on which it is traded.
7. Delivery of Unlegended Shares.
a)
Within three (3) business days (such third business day being the
“ Unlegended Shares Delivery Date ” ) after the business day on which the Company has
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received (i) a notice that Conversion Shares, or any other Common Stock held by the
Purchaser has been sold pursuant to a registration statement or Rule 144 under the 1933 Act,
(ii) a representation that the prospectus delivery requirements, or the requirements of Rule
144, as applicable and if required, have been satisfied, (iii) the original share certificates
representing the shares of Common Stock that have been sold, and (iv) in the case of sales
under Rule 144, customary representation letters of the Purchaser and, if required, Purchaser ’ s
broker regarding compliance with the requirements of Rule 144, the Company at its expense,
(y) shall deliver, and shall cause legal counsel selected by the Company to deliver to its
transfer agent (with copies to Purchaser) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends including the
legend set forth in Section 4(h) above (the “ Unlegended Shares ” ); and (z) cause the
transmission of the certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the submitted Common Stock certificate, if any, to the
Purchaser at the address specified in the notice of sale, via express courier, by electronic
transfer or otherwise on or before the Unlegended Shares Delivery Date.
b)
The Company understands that a delay in the delivery of the Unlegended
Shares later than the Unlegended Shares Delivery Date could result in economic loss to the
Purchaser. As compensation to Purchaser for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Purchaser for late delivery of
Unlegended Shares in the amount of $1,000.00 per business day after the Unlegended Shares
Delivery Date. If during any three hundred and sixty (360) day period, the Company fails to
deliver Unlegended Shares as required by this Section for an aggregate of thirty (30) days,
then Purchaser or assignee holding Securities subject to such default may, at its option,
require the Company to redeem all or any portion of the shares subject to such default at a
price per share equal to the greater of (i) 200% of the most recent closing price of the
Common Stock or (ii) a fraction in which the numerator is the highest closing price of the
Common Stock during the aforedescribed thirty (30) day period and the denominator of which
is the lowest conversion price during such thirty (30) day period, multiplied by the conversion
price or exercise price, as the case may be ( “ Unlegended Redemption Amount ” ). The
Company shall pay any payments incurred under this Section in immediately available funds
upon demand.
8. Conditions to the Company ’ s Obligation to Sell. The obligation of the Company
hereunder to issue and sell the Note to the Purchaser at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the following conditions thereto,
provided that these conditions are for the Company ’ s sole benefit and may be waived by the
Company at any time in its sole discretion:
a)
The Purchaser shall have executed this Agreement and delivered the same
to the Company.
b)
The Purchaser shall have delivered the Purchase Price to the Company.
c)
The representations and warranties of the Purchaser shall be true and
correct in all material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a specific date),
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and the Purchaser shall have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchaser at or prior to the Closing Date.
d)
No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in any court or
governmental authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation of any of
the transactions contemplated by this Agreement.
9. Conditions to The Purchaser ’ s Obligation to Purchase. The obligation of the
Purchaser hereunder to purchase the Note at the Closing is subject to the satisfaction, at or
before the Closing Date of each of the following conditions, provided that these conditions are
for the Purchaser ’ s sole benefit and may be waived by the Purchaser at any time in its sole
discretion:
a)
The Company shall have executed this Agreement and delivered the same
to the Purchaser.
b)
The Company shall have delivered to the Purchaser the duly executed
Note (in such denominations as the Purchaser shall request) in accordance with Section 1
above.
c)
The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Purchaser, shall have been delivered to and acknowledged in writing by the
Company ’ s Transfer Agent (a copy of which written acknowledgment shall be provided to
Purchaser simultaneously with Closing).
d)
The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as of a specific date)
and the Company shall have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. The Purchaser
shall have received a certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by the Purchaser including, but not limited to certificates with
respect to the Company ’ s Certificate of Incorporation, By-laws, incumbency, and Board of
Directors ’ resolutions relating to the transactions contemplated hereby.
e)
No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in any court or
governmental authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation of any of
the transactions contemplated by this Agreement.
f)
No event shall have occurred which could reasonably be expected to have
a Material Adverse Effect on the Company including but not limited to a change in the 1934
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Act reporting status of the Company or the failure of the Company to be timely in its 1934
Act reporting obligations.
g)
The Conversion Shares shall have been authorized for quotation on the
OTCBB, OTCQB, and OTC Pink, and trading of the Common Stock on the OTCBB,
OTCQB, and OTCPink shall not have been suspended by the SEC or the OTC Markets
Group.
10. Governing Law; Miscellaneous.
a)
Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles of conflicts of
laws thereof or any other State. Any action brought by any party against any other party
hereto concerning the transactions contemplated by this Agreement shall be brought only in
the state courts of New York or in the federal courts located in the state and county of New
York. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. The parties executing this
Agreement and other agreements referred to herein or delivered in connection herewith
on behalf of the Company agree to submit to the in personam jurisdiction of such courts
and hereby irrevocably waive trial by jury. The prevailing party shall be entitled to
recover from the other party its reasonable attorney ’ s fees and costs. In the event that any
provision of this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such provision shall
be deemed inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or enforceability of any
other provision of any agreement. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any suit, action or proceeding in
connection with this Agreement or any other transaction document contemplated hereby by
mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by law.
b)
Removal of Restrictive Legends. In the event that Purchaser has any
shares of the Company ’ s Common Stock bearing any restrictive legends, and Purchaser,
through its counsel or other representatives, submits to the Transfer Agent any such shares for
the removal of the restrictive legends thereon in connection with a sale of such shares
pursuant to any exemption to the registration requirements under the Securities Act, and the
Company and or its counsel refuses or fails for any reason (except to the extent that such
refusal or failure is based solely on applicable law that would prevent the removal of such
restrictive legends) to render an opinion of counsel or any other documents or certificates
required for the removal of the restrictive legends, then the Company hereby agrees and
acknowledges that the Purchaser is hereby irrevocably and expressly authorized to have
counsel to the Purchaser render any and all opinions and other certificates or instruments
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which may be required for purposes of removing such restrictive legends, and the Company
hereby irrevocably authorizes and directs the Transfer Agent to, without any further
confirmation or instructions from the Company, issue any such shares without restrictive
legends as instructed by the Purchaser, and surrender to a common carrier for overnight
delivery to the address as specified by the Purchaser, certificates, registered in the name of the
Purchaser or its designees, representing the shares of Common Stock to which the Purchaser
is entitled, without any restrictive legends and otherwise freely transferable on the books and
records of the Company.
c)
Filing Requirements. From the date of this Agreement until the Notes are
no longer outstanding, the Company will timely and voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered pursuant to
Section 12(g) of the 1934 Act, whether or not the Company is then subject to such reporting
requirements, and comply with all requirements related to any registration statement filed
pursuant to this Agreement. The Company will use reasonable efforts not to take any action
or file any document (whether or not permitted by the 1933 Act or the 1934 Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said acts until the Notes are no longer outstanding. The Company
will maintain the quotation or listing of its Common Stock on the OTCBB, OTCQB, and OTC
Pink, NYSE, or NASDAQ Stock Market (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock (the “ Principal Market ” ), and
will comply in all respects with the Company ’ s reporting, filing and other obligations under
the bylaws or rules of the Principal Market, as applicable. The Company will provide
Purchaser with copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market. As of the date of this
Agreement and the Closing Date, the OTC Pink, is the Principal Market. Until the Note is no
longer outstanding, the Company will continue the listing or quotation of the Common Stock
on a Principal Market and will comply in all respects with the Company ’ s reporting, filing and
other obligations under the bylaws or rules of the Principal Market.
d)
144 Default. In the event commencing twelve (12) months after the
Closing Date and ending twenty-four (24) months thereafter, the Purchaser is not permitted to
resell any of the Conversion Shares without any restrictive legend or if such sales are
permitted but subject to volume limitations or further restrictions on resale as a result of the
unavailability to Subscriber of Rule 144(b)(1)(i) under the 1933 Act or any successor rule (a
“ 144 Default ” ), for any reason except for Purchasers ’ status as an Affiliate or “ control
person ” of the Company, or as a result of a change in current applicable securities laws, then
the Company shall pay such Purchaser as liquidated damages and not as a penalty an amount
equal to two percent (2%) of the value of Conversion Shares (based on the closing sale of the
Common Stock) subject to such 144 Default during the pendency of the 144 Default of each
thirty day period thereafter (or portion thereof).
e)
Fees and Expenses. On or prior to the Closing, the Company shall pay or
reimburse to Purchaser a non-refundable, non-accountable sum equal to $5,000.00 as and for
the fees, costs and expenses (including without limitation legal fees and disbursements and
due diligence and administrative expenses) incurred by the Purchaser in connection with the
Purchaser ’ s due diligence and negotiation, preparation and execution of the Transaction
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Documents and consummation of the Transactions. The Purchaser may withhold and offset
the balance of such amount from the payment of its Purchase Price otherwise payable
hereunder at Closing, which offset shall constitute partial payment of such Purchase Price in
an amount equal to such offset. Except as expressly set forth in this Agreement or the Note to
the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement. The
Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in
connection with the delivery of any Securities to the Purchaser.
f)
Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist any and all
efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now
or at any time hereafter in force, in connection with any claim, action or proceeding that may
be brought by the Purchaser in order to enforce any right or remedy under the Note.
Notwithstanding any provision to the contrary contained in herein or under the Note, it is
expressly agreed and provided that the total liability of the Company under the Note for
payments in the nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the “ Maximum Rate ” ), and, without limiting the foregoing, in no event shall
any rate of interest or default interest, or both of them, when aggregated with any other sums
in the nature of interest that the Company may be obligated to pay under the Note or herein
exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed
by law and applicable to the Note is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Note from the effective date
forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Purchaser
with respect to indebtedness evidenced by the Note, such excess shall be applied by the
Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the
Company, the manner of handling such excess to be at the Purchaser ’ s election.
g)
Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this Agreement.
h)
Severability. In the event that any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be deemed modified
to conform with such statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of any other
provision hereof.
i)
Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or therein, neither the
Company nor the Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the Purchaser.
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j)
Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, email or
facsimile, addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery
by facsimile or email, with accurate confirmation generated by the transmitting facsimile
machine or computer, at the address, email or number designated below (if delivered on a
business day during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
Purchaser:
EMA Financial, LLC
40 Wall Street, Suite 1700
New York, NY 10005
Attn: Felicia Preston
admin@emafin.com
Company:
Clean Energy Technologies, Inc.
150 Bake Street E
Costa Mesa, CA 92626
Attn: Kam Mahdi, CEO
Email: ________________
Fax: ________________
Each party shall provide notice to the other party of any change in address.
k)
Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Neither the Company nor the
Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other. Notwithstanding the foregoing, subject to Section 2(f), the
Purchaser may assign its rights hereunder to any person that purchases Securities in a private
transaction from the Purchaser or to any of its “ affiliates, ” as that term is defined under the
1934 Act, without the consent of the Company.
l)
Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other person.
m)
Survival. The representations and warranties of the Company and the
agreements and covenants set forth in this Agreement shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of the Purchaser.
21
SPA – CETY, T1, 2016-06-06
The Company agrees to indemnify and hold harmless the Purchaser and all their officers,
directors, employees and agents for loss or damage arising as a result of or related to any
breach or alleged breach by the Company of any of its representations, warranties and
covenants set forth in this Agreement or any of its covenants and obligations under this
Agreement, including advancement of expenses as they are incurred.
n)
Further Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
o)
No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
p)
Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Agreement will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the provisions of
this Agreement, that the Purchaser shall be entitled, in addition to all other available remedies
at law or in equity, and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement and to enforce
specifically the terms and provisions hereof, without the necessity of showing economic loss
and without any bond or other security being required.
q)
Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be an original
and all of which together shall be deemed to be one and the same agreement.
r)
Signatures. Any signature transmitted by facsimile, e-mail, or other
electronic means shall be deemed to be an original signature.
(Remainder of page intentionally left blank)
22
SPA – CETY, T1, 2016-06-06
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
CLEAN ENERGY TECHNOLOGIES, INC.
By:
Name: Kam Mahdi
Title: CEO
EMA FINANCIAL, LLC
By:
Name: Felicia Preston
Title: Director
GUARANTY
Each of the undersigned subsidiaries of the Company jointly and severally, absolutely,
unconditionally and irrevocably, guarantees to the Purchaser and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and performance by the
Company when due (whether at the stated maturity, by acceleration or otherwise) of all amounts
due under, and all other obligations under, the Note. Each such subsidiary ’ s liability under this
Guaranty shall be unlimited, open and continuous for so long as this Guaranty remains in force.
TRIDENT MANUFACTURING, INC.
HEAT RECOVERY
SOLUTIONS
By:
Print Name/Title:
By:
Print Name/Title:
CLEAN ENERGY HRS, LLC.
By:
Print Name/Title:
23
SPA – CETY, T1, 2016-06-06
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION |
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
PRINCIPAL AMOUNT: US$77,750 ISSUE DATE: JULY 6, 2016
PURCHASE PRICE: US$77,750
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, CLEAN ENERGY TECHNOLOGIES, INC., a Nevada
corporation (hereinafter called the "Borrower"), hereby promises
to pay to the order of
AUCTUS FUND, LLC, a Delaware limited liability company, or
registered assigns (the
"Holder") the sum of US$77,750 together with any interest as set
forth herein, on April 6, 2017
(the "Maturity Date"), and to pay interest on the unpaid principal balance
hereof at the rate of ten
percent (10%) (the "Interest Rate") per annum from the date hereof
(the "Issue Date") until the
same becomes due and payable, whether at maturity or upon acceleration
or by prepayment or
otherwise. This Note may not be prepaid in whole or in part except
as otherwise explicitly set
forth herein with the written consent of the Holder which may be
withheld for any reason or for
no reason. Any amount of principal or interest on this Note which is not paid
when due shall bear interest at the rate of twenty-four percent (24%) per annum from the due date thereof until the same is paid (the "Default Interest"). Interest shall commence accruing on the date that the Note |
is fully paid and shall be computed on the basis of a 360-day year
and the actual number of days
elapsed. All payments due hereunder (to the extent not converted into common
stock, $0.001 par
value per share (the "Common Stock") in accordance with the terms
hereof) shall be made in
lawful money of the United States of America. All payments shall be
made at such address as
the Holder shall hereafter give to the Borrower by written notice
made in accordance with the
provisions of this Note. Whenever any amount expressed to be due by
the terms of this Note is
due on any day which is not a business day, the same shall instead be due on the
next succeeding
day which is a business day and, in the case of any interest payment date which
is not the date on
which this Note is paid in full, the extension of the due date
thereof shall not be taken into
account for purposes of determining the amount of interest due on
such date. As used in this
Note, the term "business day" shall mean any day other than a
Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are
authorized or required by law
or executive order to remain closed. Each capitalized term used
herein, and not otherwise
defined, shall have the meaning ascribed thereto in that certain
Securities Purchase Agreement
dated the date hereof, pursuant to which this Note was
originally issued (the "Purchase
Agreement").
This Note is free from all taxes, liens, claims and encumbrances
with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights of
shareholders of the
Borrower and will not impose personal liability upon the holder thereof.
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from
time to time, and at
any time following one hundred eighty (180) days after the date of
this Note and ending on the
later of (i) the Maturity Date and (ii) the date of payment of the
Default Amount (as defined in
Article III) pursuant to Section 1.6(a) or Article III, each in
respect of the remaining outstanding
principal amount of this Note to convert all or any part of the
outstanding and unpaid principal
amount of this Note into fully paid and non-assessable shares of
Common Stock, as such
Common Stock exists on the Issue Date, or any shares of capital
stock or other securities of the
Borrower into which such Common Stock shall hereafter be changed or
reclassified at the
Conversion Price (as defined below) determined as provided herein (a
"Conversion"); provided,
however, that in no event shall the Holder be entitled to convert
any portion of this Note in
excess of that portion of this Note upon conversion of which the sum of (1) the
number of shares
of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of
Common Stock which may be deemed beneficially owned through
the ownership of the
unconverted portion of the Notes or the unexercised or unconverted portion of
any other security
of the Borrower subject to a limitation on conversion or exercise
analogous to the limitations
contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion
of the portion of this Note with respect to which the determination of this
proviso is being made,
would result in beneficial ownership by the Holder and its affiliates
of more than 4.99% of the
outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding
sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such
proviso, provided, further,
however, that the limitations on conversion may be waived by the Holder upon, at
the election of
the Holder, not less than 61 days' prior notice to the Borrower, and
the provisions of the
conversion limitation shall continue to apply until such 61st
day (or such later date, as
determined by the Holder, as may be specified in such notice of
waiver). The number of shares
of Common Stock to be issued upon each conversion of this Note shall
be determined by
dividing the Conversion Amount (as defined below) by the applicable
Conversion Price then in
effect on the date specified in the notice of conversion, in the
form attached hereto as Exhibit A
(the "Notice of Conversion"), delivered to the Borrower by the Holder
in accordance with
Section 1.4 below; provided that the Notice of Conversion is submitted by
facsimile or e-mail (or
by other means resulting in, or reasonably expected to result in,
notice) to the Borrower before
6:00 p.m., New York, New York time on such conversion date (the
"Conversion Date"). The
term "Conversion Amount" means, with respect to any conversion of this
Note, the sum of (1)
the principal amount of this Note to be converted in such conversion
plus (2) at the Holder's
option, accrued and unpaid interest, if any, on such principal amount
at the interest rates
provided in this Note to the Conversion Date, provided however, that
the Borrower shall have
the right to pay any or all interest in cash plus (3) at the
Holder's option, Default Interest, if any,
on the amounts referred to in the immediately preceding clauses (1)
and/or (2) plus (4) at the
Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof.
1.2 Conversion Price.
(a) Calculation of Conversion Price. Subject to the
adjustments described
herein, and provided that no Event of Default (as defined in Article
III) has occurred, the
conversion price (the "Conversion Price") shall equal the lesser of
(i) 55% multiplied by the
lowest Trading Price (as defined below) (representing a discount rate
of 45%) during the
previous twenty (20) Trading Day period ending on the latest complete
Trading Day prior to the
date of this Note and (ii) the Variable Conversion Price (as defined
herein) (subject to equitable
adjustments for stock splits, stock dividends or rights offerings by
the Borrower relating to the
Borrower's securities or the securities of any subsidiary of
the Borrower, combinations,
recapitalization, reclassifications, extraordinary distributions and
similar events). The "Variable
Conversion Price" shall mean 55% multiplied by the Market
Price (as defined herein)
(representing a discount rate of 45%). "Market Price" means the
lowest Trading Price (as
defined below) for the Common Stock during the twenty (20) Trading
Day period ending on the
latest complete Trading Day prior to the Conversion Date. "Trading
Price" means, for any
security as of any date, the lesser of: (i) the lowest trade price
on the Over-the-Counter Bulletin
Board (the "OTCBB"), OTCQB or applicable trading market as reported by
a reliable reporting
service ("Reporting Service") designated by the Holder or, if the
OTCBB is not the principal
trading market for such security, the trading price of such security
on the principal securities
exchange or trading market where such security is listed or traded
or, if no trading price of such
security is available in any of the foregoing manners, the average of
the trading prices of any
market makers for such security that are listed in the "pink sheets"
by the OTC Markets Group,
Inc., or (ii) the closing bid price on the OTCBB, OTCQB or
applicable trading market as
reported by a Reporting Service designated by the Holder or, if the
OTCBB is not the principal
trading market for such security, the closing bid price of such
security on the principal securities
exchange or trading market where such security is listed or traded
or, if no closing bid price of
such security is available in any of the foregoing manners, the
average of the closing bid prices
of any market makers for such security that are listed in the "pink
sheets" by the OTC Markets
Group, Inc. To the extent the Conversion Price of the Borrower's
Common Stock closes below
the par value per share, the Borrower will take all steps necessary
to solicit the consent of the
stockholders to reduce the par value to the lowest value possible under law. The
Borrower agrees
to honor all conversions submitted pending this adjustment.
Furthermore, the Conversion Price
may be adjusted downward if, within three (3) business days of the
transmittal of the Notice of
Conversion to the Borrower, the Common Stock has a closing bid which is 5% or
lower than that
set forth in the Notice of Conversion. If the shares of the
Borrower's Common Stock have not
been delivered within three (3) business days to the Borrower, the Notice of Conversion may be rescinded. At any time after the Closing Date, if in the case that the Borrower's Common Stock |
is not deliverable by DWAC (including if the Borrower's transfer agent has a policy prohibiting
or limiting delivery of shares of the Borrower's Common Stock
specified in a Notice of
Conversion), an additional 10% discount will apply for all future conversions
under all Notes. If
in the case that the Borrower's Common Stock is "chilled" for deposit
into the DTC system and
only eligible for clearing deposit, an additional 15% discount
shall apply for all future
conversions under all Notes while the "chill" is in effect. If in the case of both of the above, an additional cumulative 25% discount shall apply. Additionally, if the Company ceases to be a |
reporting company pursuant to the 1934 Act or if the Note cannot be
converted into free trading
shares after one hundred eighty-one (181) days from the Issue Date,
an additional 15% discount
will be attributed to the Conversion Price. If the Trading Price
cannot be calculated for such
security on such date in the manner provided above, the Trading Price
shall be the fair market
value as mutually determined by the Borrower and the holders of a
majority in interest of the
Notes being converted for which the calculation of the Trading Price
is required in order to
determine the Conversion Price of such Notes. "Trading Day" shall
mean any day on which the
Common Stock is tradable for any period on the OTCBB, OTCQB or on
the principal securities
exchange or other securities market on which the Common Stock is then
being traded. The
Borrower shall be responsible for the fees of its transfer agent and
all DTC fees associated with
any such issuance.
(b) Conversion Price During Major Announcements.
Notwithstanding
anything contained in Section 1.2(a) to the contrary, in the event the Borrower
(i) makes a public
announcement that it intends to consolidate or merge with any other
corporation (other than a
merger in which the Borrower is the surviving or continuing
corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets
of the Borrower or (ii) any
person, group or entity (including the Borrower) publicly announces a
tender offer to purchase
50% or more of the Borrower's Common Stock (or any other takeover
scheme) (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred
to as the "Announcement
Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined
below), be equal to the
lower of (x) the Conversion Price which would have been applicable
for a Conversion occurring
on the Announcement Date and (y) the Conversion Price that would otherwise be in
effect. From
and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be
determined as set forth in this Section 1.2(a). For purposes hereof,
"Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed transaction
or tender offer (or
takeover scheme) for which a public announcement as contemplated by
this Section 1.2(b) has
been made, the date upon which the Borrower (in the case of clause
(i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or
publicly announces the
termination or abandonment of the proposed transaction or tender offer
(or takeover scheme)
which caused this Section 1.2(b) to become operative.
(c) Pro Rata Conversion; Disputes. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Borrower shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 4.13.
1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common
Stock a sufficient number of shares, free from preemptive rights, to
provide for the issuance of
Common Stock upon the full conversion of this Note issued pursuant to the
Purchase Agreement.
The Borrower is required at all times to have authorized and reserved
seven times the number of
shares that is actually issuable upon full conversion of the Note
(based on the Conversion Price
of the Notes in effect from time to time) (the "Reserved Amount").
The Reserved Amount shall
be increased from time to time in accordance with the Borrower's obligations
pursuant to Section
3(d) of the Purchase Agreement. The Borrower represents that upon
issuance, such shares will
be duly and validly issued, fully paid and non-assessable. In addition, if the
Borrower shall issue
any securities or make any change to its capital structure which
would change the number of
shares of Common Stock into which the Notes shall be
convertible at the then current
Conversion Price, the Borrower shall at the same time make proper
provision so that thereafter
there shall be a sufficient number of shares of Common Stock authorized and
reserved, free from
preemptive rights, for conversion of the outstanding Notes. The
Borrower (i) acknowledges that
it has irrevocably instructed its transfer agent to issue certificates for the
Common Stock issuable
upon conversion of this Note, and (ii) agrees that its issuance of
this Note shall constitute full
authority to its officers and agents who are charged with the duty
of executing stock certificates
to execute and issue the necessary certificates for shares of Common
Stock in accordance with
the terms and conditions of this Note. Notwithstanding the foregoing,
in no event shall the
Reserved Amount be lower than the initial Reserved Amount,
regardless of any prior
conversions.
If, at any time the Borrower does not maintain or replenish
the Reserved Amount
within three (3) business days of the request of the Holder, the principal
amount of the Note shall
increase by Five Thousand and No/100 United States Dollars ($5,000)
(under Holder's and
Borrower's expectation that any principal amount increase will tack
back to the Issue Date) per
occurrence.
1.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically
surrenders this Note to the Borrower, whereupon the Borrower will
forthwith issue and deliver
upon the order of the Holder a new Note of like tenor, registered as the Holder
(upon payment by
the Holder of any applicable transfer taxes) may request, representing
in the aggregate the
remaining unpaid principal amount of this Note. The Holder and any assignee,
by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of
this paragraph, following
conversion of a portion of this Note, the unpaid and unconverted
principal amount of this Note
represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the "Deadline") (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.
(e) Obligation of Borrower to Deliver Common Stock.
Upon receipt by
the Borrower of a Notice of Conversion, the Holder shall be deemed to be the
holder of record of
the Common Stock issuable upon such conversion, the outstanding
principal amount and the
amount of accrued and unpaid interest on this Note shall be reduced
to reflect such conversion,
and, unless the Borrower defaults on its obligations under this
Article I, all rights with respect to
the portion of this Note being so converted shall forthwith terminate
except the right to receive
the Common Stock or other securities, cash or other assets,
as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion
as provided herein, the
Borrower's obligation to issue and deliver the certificates for Common
Stock shall be absolute
and unconditional, irrespective of the absence of any action by the
Holder to enforce the same,
any waiver or consent with respect to any provision thereof, the
recovery of any judgment
against any person or any action to enforce the same, any failure or
delay in the enforcement of
any other obligation of the Borrower to the holder of record, or any
setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach
by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance
which might otherwise
limit such obligation of the Borrower to the Holder in connection
with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the
Conversion Date so long as
the Notice of Conversion is received by the Borrower before 5:00
p.m., New York, New York
time, on such date.
(f) Delivery of Common Stock by Electronic
Transfer. In lieu of
delivering physical certificates representing the Common Stock
issuable upon conversion,
provided the Borrower is participating in the Depository Trust
Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of
the Holder and its
compliance with the provisions contained in Section 1.1 and in this
Section 1.4, the Borrower
shall use its commercially reasonable best efforts to cause its
transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Holder by
crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal At
Custodian ("DWAC")
system.
(g) DTC Eligibility & Sub-Penny. If the Borrower fails to maintain its status as "DTC Eligible" for any reason, or, if the Conversion Price is less than $0.01, the principal amount of the Note shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000) (under Holder's and Borrower's expectation that any principal amount
increase will tack back to the Issue Date). In addition, the Variable Conversion Price shall be redefined to mean forty percent (40%) multiplied by the Market Price, subject to adjustment as provided in this Note. |
(h) Failure to Deliver Common Stock Prior to Delivery Deadline. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock until the Borrower issues and delivers a certificate to the Holder or credit the Holder's balance account with OTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder's conversion of any Conversion Amount (under Holder's and Borrower's expectation that any damages will tack back to the Issue Date).. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal
amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt |
to frustrate, interference with such conversion right are difficult if
not impossible to qualify.
Accordingly the parties acknowledge that the liquidated damages
provision contained in this
Section 1.4(h) are justified.
(i) Rescindment of a Notice of Conversion. If (i)
the Borrower fails
to respond to Holder within one (1) business day from the Conversion
Date confirming the
details of Notice of Conversion, (ii) the Borrower fails to provide
any of the shares of the
Borrower's Common Stock requested in the Notice of Conversion within three (3)
business days
from the date of receipt of the Note of Conversion, (iii) the Holder
is unable to procure a legal
opinion required to have the shares of the Borrower's Common Stock
issued unrestricted and/or
deposited to sell for any reason related to the Borrower's standing,
(iv) the Holder is unable to
deposit the shares of the Borrower's Common Stock requested in the
Notice of Conversion for
any reason related to the Borrower's standing, (v) at any time after
a missed Deadline, at the
Holder's sole discretion, or (vi) if OTC Markets changes the
Borrower's designation to `Limited
Information' (Yield), `No Information' (Stop Sign), `Caveat Emptor'
(Skull & Crossbones),
`OTC', `Other OTC' or `Grey Market' (Exclamation Mark Sign) or other
trading restriction on
the day of or any day after the Conversion Date, the Holder
maintains the option and sole
discretion to rescind the Notice of Conversion ("Rescindment") with a "Notice of
Rescindment."
1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) ("Rule 144") or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO |
WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B)
AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY
THE HOLDER), IN A GENERALLY ACCEPTABLE FORM,
THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES."
The legend set forth above shall be removed and the
Borrower shall issue to the
Holder a new certificate therefore free of any transfer legend if (i)
the Borrower or its transfer
agent shall have received an opinion of counsel, in form, substance
and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such
Common Stock may be made without registration under the Act,
which opinion shall be
reasonably accepted by the Borrower so that the sale or transfer is
effected or (ii) in the case of
the Common Stock issuable upon conversion of this Note, such security
is registered for sale by
the Holder under an effective registration statement filed under the Act or
otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date
that can then be immediately sold. In the event that the Borrower
does not accept the opinion of
counsel provided by the Buyer with respect to the transfer of Securities
pursuant to an exemption
from registration, such as Rule 144 or Regulation S, at the Deadline,
it will be considered an
Event of Default pursuant to Section 3.2 of the Note.
1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. "Person" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described |
in this Section 1.6(b) unless (a) it first gives, to the extent
practicable, thirty (30) days prior
written notice (but in any event at least fifteen (15) days prior
written notice) of the record date
of the special meeting of shareholders to approve, or if there is no
such record date, the
consummation of, such merger, consolidation, exchange of
shares, recapitalization,
reorganization or other similar event or sale of assets (during which
time the Holder shall be
entitled to convert this Note) and (b) the resulting successor or
acquiring entity (if not the
Borrower) assumes by written instrument the obligations of this Section
1.6(b). The above
provisions shall similarly apply to successive consolidations, mergers,
sales, transfers or share
exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, except for shares of Common Stock issued directly to vendors or suppliers of the Borrower in satisfaction of amounts owed to such vendors or suppliers (provided, however, that such vendors or suppliers shall not have an arrangement to transfer, sell or assign such shares of Common Stock prior to the issuance of such shares), any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
The Borrower shall be deemed to have issued or sold
shares of Common
Stock if the Borrower in any manner issues or grants any warrants,
rights or options (not
including employee stock option plans), whether or not immediately exercisable,
to subscribe for
or to purchase Common Stock or other securities convertible into or
exchangeable for Common
Stock ("Convertible Securities") (such warrants, rights and options to
purchase Common Stock
or Convertible Securities are hereinafter referred to as "Options") and
the price per share for
which Common Stock is issuable upon the exercise of such Options is
less than the Conversion
Price then in effect, then the Conversion Price shall be equal to
such price per share. For
purposes of the preceding sentence, the "price per share for which
Common Stock is issuable
upon the exercise of such Options" is determined by dividing (i) the
total amount, if any,
received or receivable by the Borrower as consideration for the
issuance or granting of all such
Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the
Borrower upon the exercise of all such Options, plus, in the case of
Convertible Securities
issuable upon the exercise of such Options, the minimum
aggregate amount of additional
consideration payable upon the conversion or exchange thereof at the
time such Convertible
Securities first become convertible or exchangeable, by (ii) the
maximum total number of shares
of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the
Conversion Price will be
made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon
the conversion or exchange of Convertible Securities issuable upon exercise of
such Options.
Additionally, the Borrower shall be deemed to have
issued or sold shares
of Common Stock if the Borrower in any manner issues or sells any
Convertible Securities,
whether or not immediately convertible (other than where the same are
issuable upon the
exercise of Options), and the price per share for which Common Stock
is issuable upon such
conversion or exchange is less than the Conversion Price then in
effect, then the Conversion
Price shall be equal to such price per share. For the purposes of
the preceding sentence, the
"price per share for which Common Stock is issuable upon such
conversion or exchange" is
determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as
consideration for the issuance or sale of all such Convertible
Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to
the Borrower upon the
conversion or exchange thereof at the time such Convertible Securities
first become convertible
or exchangeable, by (ii) the maximum total number of shares of Common
Stock issuable upon
the conversion or exchange of all such Convertible Securities. No
further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion
or exchange of such Convertible Securities.
(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the "Purchase Rights") pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum
number of shares of Common Stock that the Borrower can issue pursuant
to any rule of the
principal United States securities market on which the Common Stock is
then traded (the
"Maximum Share Amount"), which shall be 4.99% of the total shares outstanding on
the Closing
Date (as defined in the Purchase Agreement), subject to equitable
adjustment from time to time
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating
to the Common Stock occurring after the date hereof. Once the
Maximum Share Amount has
been issued, if the Borrower fails to eliminate any prohibitions under
applicable law or the rules
or regulations of any stock exchange, interdealer quotation system or
other self-regulatory
organization with jurisdiction over the Borrower or any of its securities on the
Borrower's ability
to issue shares of Common Stock in excess of the Maximum Share
Amount, in lieu of any
further right to convert this Note, this will be considered an Event
of Default under Section 3.2
of the Note.
1.8 Status as Shareholder. Upon submission of a Notice of
Conversion by a
Holder, (i) the shares covered thereby (other than the shares, if
any, which cannot be issued
because their issuance would exceed such Holder's allocated portion of
the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of Common
Stock and (ii) the
Holder's rights as a Holder of such converted portion of this Note
shall cease and terminate,
excepting only the right to receive certificates for such shares of
Common Stock and to any
remedies provided herein or otherwise available at law or in equity
to such Holder because of a
failure by the Borrower to comply with the terms of this Note.
Notwithstanding the foregoing,
if a Holder has not received certificates for all shares of Common
Stock prior to the tenth (10th)
business day after the expiration of the Deadline with respect to a
conversion of any portion of
this Note for any reason, then (unless the Holder otherwise elects to
retain its status as a holder
of Common Stock by so notifying the Borrower) the Holder shall regain the rights
of a Holder of
this Note with respect to such unconverted portions of this Note and
the Borrower shall, as soon
as practicable, return such unconverted Note to the Holder or,
if the Note has not been
surrendered, adjust its records to reflect that such portion of this Note has
not been converted. In
all cases, the Holder shall retain all of its rights and remedies
(including, without limitation, (i)
the right to receive Conversion Default Payments pursuant to Section
1.3 to the extent required
thereby for such Conversion Default and any subsequent Conversion
Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with
Section 1.3) for the Borrower's failure to convert this Note.
1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay the amounts outstanding hereunder pursuant to the following terms and conditions:
(a) At any time during the period beginning on the Issue Date and ending on the date which is ninety (90) days following the Issue Date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest, if any.
(b) At any time during the period beginning the day
which is ninety one
(91) days following the Issue Date and ending on the date which is
one hundred eighty (180)
days following the Issue Date, the Borrower shall have the right,
exercisable on not less than
three (3) Trading Days prior written notice to the Holder of the
Note to prepay the outstanding
Note (principal and accrued interest), in full by making a payment to
the Holder of an amount in
cash equal to 135%, multiplied by the sum of: (w) the then
outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal
amount of this Note plus (y)
Default Interest, if any.
(c) After the expiration of one hundred eighty (180) days following the date of the Note, the Borrower shall have no right of prepayment.
Any notice of prepayment hereunder (an "Optional Prepayment Notice") shall be
delivered to the
Holder of the Note at its registered addresses and shall state: (1)
that the Borrower is exercising
its right to prepay the Note, and (2) the date of prepayment which
shall be not more than three
(3) Trading Days from the date of the Optional Prepayment Notice.
On the date fixed for
prepayment (the "Optional Prepayment Date"), the Borrower shall
make payment of the
applicable prepayment amount to or upon the order of the Holder as
specified by the Holder in
writing to the Borrower at least one (1) business day prior to the
Optional Prepayment Date. If
the Borrower delivers an Optional Prepayment Notice and fails to pay the
applicable prepayment
amount due to the Holder of the Note within two (2) business days
following the Optional
Prepayment Date, the Borrower shall forever forfeit its right to
prepay the Note pursuant to this
Section 1.9.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders' rights plan which is approved by a majority of the Borrower's disinterested directors.
2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
2.3 Borrowings. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of
which the Borrower has informed Holder in writing prior to the date
hereof, (b) indebtedness to
trade creditors financial institutions or other lenders incurred in the
ordinary course of business
or (c) borrowings, the proceeds of which shall be used to repay this Note.
2.4 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.
2.6 Section 3(a)(9) or 3(a)(10) Transaction. So long as this
Note is outstanding,
the Borrower shall not enter into any transaction or arrangement
structured in accordance with,
based upon, or related or pursuant to, in whole or in part, either
Section 3(a)(9) of the Securities
Act (a "3(a)(9) Transaction") or Section 3(a)(l0) of the Securities
Act (a "3(a)(l0) Transaction").
In the event that the Borrower does enter into, or makes any
issuance of Common Stock related
to a 3(a)(9) Transaction or a 3(a)(l0) Transaction while this note is
outstanding, a liquidated
damages charge of 25% of the outstanding principal balance of this
Note, but not less than
Fifteen Thousand Dollars $15,000, will be assessed and will become
immediately due and
payable to the Holder at its election in the form of cash payment or addition to
the balance of this
Note.
2.7 Preservation of Existence, etc. The Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
2.8 Non-circumvention. The Borrower hereby covenants and agrees that the Borrower will not, by amendment of its Certificate or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action as may be required to protect the rights of the Holder.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of Default") shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
3.2 Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or
threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in |
its obligations to its transfer agent. It shall be an event of
default of this Note, if a conversion of
this Note is delayed, hindered or frustrated due to a balance owed
by the Borrower to its transfer
agent. If at the option of the Holder, the Holder advances any funds
to the Borrower's transfer
agent in order to process a conversion, such advanced funds shall be paid by the
Borrower to the
Holder within forty eight (48) hours of a demand from the Holder.
3.3 Failure to Deliver Transaction Expense Amount. The Borrower fails to deliver the Transaction Expense Amount (as defined in the Purchase Agreement) to the Holder within three (3) business days of the date such amount is due.
3.4 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.
3.5 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.6 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors or commence proceedings for its dissolution, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed for the Borrower or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment.
3.7 Judgments. Any money judgment, writ or similar process
shall be entered or
filed against the Borrower or any subsidiary of the Borrower or any of its
property or other assets
for more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of twenty
(20) days unless otherwise consented to by the Holder, which consent
will not be unreasonably
withheld.
3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower, or the Borrower admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable or the Borrower admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for bankruptcy relief, all under international, federal or state laws as applicable.
3.9 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB, a tier of the OTC Markets Group Inc. or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small Cap Market, the New York Stock Exchange, or the NYSE MKT.
3.10 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.11 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.12 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower's ability to continue as a "going concern" shall not be an admission that the Borrower cannot pay its debts as they become due.
3.13 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
3.14 Financial Statement Restatement.The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such
restatement would, by comparison to the unrestated financial statement,
have constituted a
material adverse effect on the rights of the Holder with respect to
this Note or the Purchase
Agreement.
3.15 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.
3.16 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.17 Cessation of Trading. Any cessation of trading of the Common Stock on at least one of the OTCBB, a tier of the OTC Markets Group Inc. or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small Cap Market, the New York Stock Exchange, or the NYSE MKT, and such cessation of trading shall continue for a period of five consecutive (5) Trading Days.
3.18 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. "Other Agreements" means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term "Other Agreements" shall not include the agreements and instruments defined as the Documents. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
3.19 Bid Price. The Borrower shall lose the "bid" price
for its Common Stock
($0.0001 on the "Ask" with zero market makers on the "Bid" per Level
2) and/or a market
(including the OTCBB, any tier of the OTC Markets Group Inc. or an
equivalent replacement
exchange).
3.20 OTC Markets Designation. OTC Markets changes the Borrower's designation to `No Information' (Stop Sign), `Limited Information' (Yield Sign), `Caveat Emptor' (Skull and Crossbones), or `OTC', `Other OTC' or `Grey Market' (Exclamation Mark Sign).
Upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1
(solely with respect to failure to pay the principal hereof or
interest thereon when due at the
Maturity Date), the Note shall become immediately due and payable and
the Borrower shall pay
to the Holder, in full satisfaction of its obligations hereunder, an
amount equal to the Default
Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION
OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE
SHALL
BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO
THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER,
AN
AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED
BY (Z) TWO (2). Upon the occurrence and during the continuation of
any Event of Default
specified in Sections 3.1 (solely with respect to failure to pay the
principal hereof or interest
thereon when due on this Note upon acceleration), 3.3, 3.4, 3.6, 3.8,
3.9, 3.11, 3.12, 3.13, 3.14,
3.15, 3.16. 3.17, 3.18, 3.19 and/or 3.20 exercisable through the
delivery of written notice to the
Borrower by such Holders (the "Default Notice"), and upon the
occurrence of an Event of
Default specified the remaining sections of Article III (other than
failure to pay the principal
hereof or interest thereon at the Maturity Date specified in Section
3,1 hereof), the Note shall
become immediately due and payable and the Borrower shall pay
to the Holder, in full
satisfaction of its obligations hereunder, an amount equal to (i) 130%
times the sum of (w) the
then outstanding principal amount of this Note plus (x) accrued and unpaid
interest on the unpaid
principal amount of this Note to the date of payment (the "Mandatory
Prepayment Date") plus
(y) Default Interest, if any, on the amounts referred to in clauses
(w) and/or (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
(the then outstanding
principal amount of this Note to the date of payment plus the
amounts referred to in clauses (x),
(y) and (z) shall collectively be known as the "Default Sum") or
(ii) at the option of the Holder,
the "parity value" of the Default Sum to be prepaid, where parity
value means (a) the highest
number of shares of Common Stock issuable upon conversion of or
otherwise pursuant to such
Default Sum in accordance with Article I, treating the Trading Day
immediately preceding the
Mandatory Prepayment Date as the "Conversion Date" for purposes of
determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of a
breach in respect of a
specific Conversion Date in which case such Conversion Date shall be
the Conversion Date),
multiplied by (b) the highest Trading Price for the Common Stock
during the period beginning
on the date of first occurrence of the Event of Default and ending one day prior
to the Mandatory
Prepayment Date (the "Default Amount") and all other amounts
payable hereunder shall
immediately become due and payable, all without demand, presentment or
notice, all of which
hereby are expressly waived, together with all costs, including,
without limitation, legal fees and
expenses, of collection, and the Holder shall be entitled to exercise
all other rights and remedies
available at law or in equity. Further, if a breach of Sections
3.9, 3.10 and/or 3.19 occurs or is
continuing after the six (6) month anniversary of this Note, then the principal
amount of the Note
shall increase by Fifteen Thousand and No/100 United States Dollars
($15,000) (under Holder's
and Borrower's expectation that any principal amount increase will tack
back to the Issue Date)
and the Holder shall be entitled to use the lowest Trading Price
during the delinquency period as
a base price for the conversion with the Variable Conversion Price
shall be redefined to mean
forty percent (40%) multiplied by the Market Price, subject to
adjustment as provided in this
Note. For example, if the lowest Trading Price during the delinquency
period is $0.01 per share
and the conversion discount is 50%, then the Holder may elect to convert future conversions at $0.005 per share. If this Note is not paid at Maturity Date, then the outstanding principal due |
under this Note shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000).
If the Borrower fails to pay the Default Amount within five (5)
business days of written notice
that such amount is due and payable, then the Holder shall have the
right at any time, so long as
the Borrower remains in default (and so long and to the extent that there are
sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue, in
lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal
to the Default Amount
divided by the Conversion Price then in effect. This
requirement by the Borrower shall
automatically apply upon the occurrence of an Event of Default without the need
for any party to
give any notice or take any other action.
If the Holder shall commence an action or proceeding to enforce any
provisions of this Note,
including, without limitation, engaging an attorney, then if the Holder prevails
in such action, the
Holder shall be reimbursed by the Borrower for its attorneys' fees
and other costs and expenses
incurred in the investigation, preparation and prosecution of such action or
proceeding.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
Clean Energy Technologies, Inc.
2990 Redhill Avenue
Costa Mesa, CA 92626
Attn: John Bennett, CFO
E-mail: jbennett@cetyinc.com
With a copy to (which copy shall not constitute notice):
Law Office of Andrew Coldicutt
1220 Rosecrans Street, PMB 258
San Diego, CA 92106
Attn: Andrew Coldicutt, Esq.
E-mail: andrew@coldicuttlaw.com
If to the Holder:
Auctus Fund, LLC
101 Arch Street, 20th Floor
Boston, MA 02110
Attn: Lou Posner
Facsimile: (617) 532-6420
With a copy to (which copy shall not constitute notice):
Lucosky Brookman LLP
101 Wood Avenue South, 5th Floor
Woodbridge, NJ 08830
Attn: Joseph M. Lucosky, Esq.
Facsimile: (732) 395-4401
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Note
shall be brought only in the state courts of Massachusetts or in the
federal courts located in the
Commonwealth of Massachusetts. The parties to this Note hereby
irrevocably waive any
objection to jurisdiction and venue of any action instituted hereunder
and shall not assert any
defense based on lack of jurisdiction or venue or based upon forum
non conveniens. THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY. The prevailing
party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In
the event that any provision of this Note or any other agreement delivered in
connection herewith
is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall
be deemed inoperative to the extent that it may conflict therewith
and shall be deemed modified
to conform with such statute or rule of law. Any such provision
which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision
of any agreement. Each party hereby irrevocably waives personal
service of process and
consents to process being served in any suit, action or proceeding in
connection with this
Agreement or any other Transaction Document by mailing a copy thereof
via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in
effect for notices to it under this Agreement and agrees that such
service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to
limit in any way any right to serve process in any other manner permitted by
law.
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower's shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise
acquire (including by way of merger, consolidation, reclassification or
recapitalization) any share
of any class or any other securities or property, or to receive any other right,
or for the purpose of
determining shareholders who are entitled to vote in connection with
any proposed sale, lease or
conveyance of all or substantially all of the assets of the Borrower
or any proposed liquidation,
dissolution or winding up of the Borrower, the Borrower shall mail a
notice to the Holder, at
least twenty (20) days prior to the record date specified therein (or
thirty (30) days prior to the
consummation of the transaction or event, whichever is earlier), of
the date on which any such
record is to be taken for the purpose of such dividend, distribution,
right or other event, and a
brief statement regarding the amount and character of such dividend,
distribution, right or other
event to the extent known at such time. The Borrower shall make a public
announcement of any
event requiring notification to the Holder hereunder substantially
simultaneously with the
notification to the Holder in accordance with the terms of this
Section 4.9 including, but not
limited to, name changes, recapitalizations, etc. as soon as possible under law.
4.10 Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable provision shall automatically be revised to equal the maximum rate of interest or other amount deemed interest permitted under applicable law. The Borrower covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would prohibit or forgive the Borrower from paying all or a portion of the principal or interest on this Note.
4.11 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required. No provision of this Note shall alter or impair the obligation of the Borrower, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
4.12 Severability. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
4.13 Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, Default Sum, Closing or Maturity Date, the closing bid price, or fair market value (as the case may be) or the arithmetic calculation of the Conversion Price or the applicable prepayment amount(s) (as the case may be), the Borrower or the Holder shall submit the disputed determinations or arithmetic calculations via facsimile (i) within two (2) Business Days after receipt of the applicable notice
giving rise to such dispute to the Borrower or the Holder or (ii)
if no notice gave rise to such
dispute, at any time after the Holder learned of the circumstances
giving rise to such dispute. If
the Holder and the Borrower are unable to agree upon such
determination or calculation within
two (2) Business Days of such disputed determination or arithmetic
calculation (as the case may
be) being submitted to the Borrower or the Holder, then the Borrower
shall, within two (2)
Business Days, submit via facsimile (a) the disputed determination of
the Conversion Price, the
closing bid price, the or fair market value (as the case may be) to
an independent, reputable
investment bank selected by the Borrower and approved by the Holder
or (b) the disputed
arithmetic calculation of the Conversion Price, Conversion Amount, any
prepayment amount or
Default Amount, Default Sum to an independent, outside accountant
selected by the Holder that
is reasonably acceptable to the Borrower. The Borrower shall cause at its
expense the investment
bank or the accountant to perform the determinations or calculations and notify
the Borrower and
the Holder of the results no later than ten (10) Business Days from
the time it receives such
disputed determinations or calculations. Such investment bank's or
accountant's determination
or calculation shall be binding upon all parties absent demonstrable error.
4.14 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Note, then the Borrower shall notify the Holder of such additional or more favorable term and such term, at Holder's option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage.
4.15 Piggyback Registration Rights. The Borrower shall include on the next registration statement the Borrower files with SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this Note. Failure to do so will result in liquidated damages of 25% of the outstanding principal balance of this Note, but not less than Fifteen Thousand and No/100 United States Dollars ($15,000), being immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
[signature page follows]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its
duly authorized officer as of the date first above written.
CLEAN ENERGY TECHNOLOGIES,
INC.
By:
Name: Meddy Sahebi
Title: Executive Chairman
EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert
$_________________principal amount of the Note (defined below) together with $________________ of accrued and unpaid interest thereto, totaling $_____________ into that number of shares of Common Stock to be issued |
pursuant to the conversion of the Note ("Common Stock") as set forth
below, of Clean Energy
Technologies, Inc., a Nevada corporation (the "Borrower"), according to
the conditions of the
convertible note of the Borrower dated as of July 6, 2016 (the
"Note"), as of the date written
below. No fee will be charged to the Holder for any conversion, except for
transfer taxes, if any.
Box Checked as to applicable instructions:
[ ] The Borrower shall electronically transmit the Common Stock
issuable pursuant
to this Notice of Conversion to the account of the undersigned or its
nominee with
DTC through its Deposit Withdrawal At Custodian system ("DWAC
Transfer").
Name of DTC Prime Broker:
Account Number:
[ ] The undersigned hereby requests that the Borrower issue
a certificate or
certificates for the number of shares of Common Stock set
forth below (which
numbers are based on the Holder's calculation attached
hereto) in the name(s)
specified immediately below or, if additional space is necessary, on
an attachment hereto: Name: [NAME] Address: [ADDRESS] Date of Conversion: _____________ Applicable Conversion Price: $____________ |
Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes: ______________ Amount of Principal Balance Due remaining Under the Note after this conversion: ______________ Accrued and unpaid interest remaining: ______________
[HOLDER]
By:_____________________________
Name: [NAME] Title: [TITLE] Date: [DATE] |
4818-3048-2483, v. 1-2690-2064, v. 1-0454, v. 1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kambiz Mahdi, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Clean Energy Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant ’ s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant ’ s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant ’ s internal control over financial reporting that occurred during the registrant ’ s most recent fiscal quarter (the registrant ’ s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant ’ s internal control over financial reporting; and
5. The registrant ’ s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant ’ s auditors and the audit committee of the registrant ’ s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant ’ s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant ’ s internal control over financial reporting.
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Date: November 18, 2016 |
By: /s/ KAMBIZ MAHDI |
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Kambiz Mahdi, Chief Executive Officer |
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Exhibit 31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John Bennett, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Clean Energy Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant ’ s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant ’ s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant ’ s internal control over financial reporting that occurred during the registrant ’ s most recent fiscal quarter (the registrant ’ s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant ’ s internal control over financial reporting; and
5. The registrant ’ s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant ’ s auditors and the audit committee of the registrant ’ s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant ’ s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant ’ s internal control over financial reporting.
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Date: November 18, 2016 |
By: /s/ JOHN BENNETT |
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John Bennett, Chief Financial Officer |
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EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Clean Energy Technologies, Inc. (the “ Company ” ) hereby certifies, to his knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2016 (the “ Report ” ) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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November 18, 2016 |
By: /s/ Kambiz Mahdi |
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Date |
Kambiz Mahdi Chief Executive Officer |
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EXHIBIT 32.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Clean Energy Technologies, Inc. (the “ Company ” ) hereby certifies, to his knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2016 (the “ Report ” ) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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November 18, 2016 |
By: /s/ John Bennett |
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Date |
John Bennett Chief Financial Officer |
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