BRIDGE LOAN AND INVESTMENT AGREEMENT BY AND BETWEEN ENCORE BRANDS, INC., a Nevada corporation AND PETER STADDON, AN INDIVIDUAL
BY
AND BETWEEN
a
Nevada corporation
AND
▇▇▇▇▇
▇▇▇▇▇▇▇, AN INDIVIDUAL
This
BRIDGE LOAN AND INVESTMENT AGREEMENT is made this 18th day
of December, 2009, by and between
▇▇▇▇▇ ▇▇▇▇▇▇▇, an individual (the "Lender"), and Encore Brands, Inc., a Nevada
corporation ("Encore"). The Lender and Encore are referred to
collectively herein as the "Parties."
Whereas,
the Lender desires to make an investment in Encore.
Whereas,
in connection with the investment in Encore by the Lender the Parties will enter
into this agreement and in addition: (i) Encore will execute a promissory note
(the “Note”) in favor of
the Lender, and (ii) Encore will execute a warrant in favor of the Lender
whereby the Lender will have the right to exercise the warrant to acquire shares
of common stock, $0.001 par value (the “Stock”) of Encore (the “Warrant ”).
In the
event of any conflict between the terms of this agreement, and the Note or
Warrant, the terms of this agreement shall control. Terms not defined
herein shall have the meaning ascribed to them in the Note, or the
Warrant.
Now in
consideration of the mutual covenants, agreements, representations, and
warranties contained in this agreement, the Parties agree as
follows:
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1.
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Loan
Amount.
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The
Lender agrees to loan to Encore the principal amount of Fifty Thousand
($50,000.00) Dollars (the "Loan").
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2.
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Promissory
Note.
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In
consideration thereof, Encore will issue, cause to be executed and deliver to
the Lender the Note in the principal amount equal to the amount of the Loan,
upon the terms and conditions specified herein, and in the form set forth in
Exhibit A, hereto.
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3.
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Interest.
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The
unpaid principal under the Note shall bear interest at the rate of ten percent
(10%) per annum.
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4.
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Financing
and Documentation Fee.
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Encore
agrees to pay a financing and documentation fee (“Financing Fee”) to the Lender
in the amount of One Thousand ($1,000.00) Dollars.
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5.
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Payments.
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Any and
all accrued interest together with the principal and Financing Fee shall be due
and payable to the Lender, at the Lender's address of record, on the Maturity
Date.
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6.
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Voluntary
Prepayments.
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Encore
may, at any time, prepay the amount evidenced by the Note, in whole or in part,
without penalty or premium, by paying to the Lender, in cash or by wire transfer
or immediately available federal funds, the amount of such prepayment which
shall include accrued interest and the Financing Fee. If any such
prepayment is less than a full repayment, then such prepayment shall be applied
first to the payment of accrued interest and the remaining balance shall be
applied to the payment of principal.
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7.
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Usury
Matters.
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It is
expressly stipulated and agreed to be the intent of Encore and the Lender to
comply with, at all times, the applicable state law governing the maximum rate
or amount of interest payable on the Note (or applicable federal law to the
extent that it permits the Lender to contract for, charge, take, reserve or
receive a greater amount of interest than under applicable state
law). In the event the applicable law is judicially interpreted so as
to render usurious any amount called for under the Note or contracted for,
charged, taken, reserved or received with respect to such indebtedness, or if
any prepayment by Encore results in Encore having paid any interest in excess of
that permitted by applicable law, then it is the express intent of both Encore
and the Lender that all excess amounts theretofore collected by Lender be
credited on the principal balance of the Note (or, if this Note has been or
would thereby be paid in full, refunded to Encore), and the provisions of the
Note shall immediately be deemed amended and the amounts thereafter collectible
hereunder and thereunder reduced, without the necessity of the execution of any
new, or amendment to any existing, document, so as to comply with the applicable
law, but so as to permit the recovery of the fullest amount otherwise called for
hereunder and thereunder.
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8.
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Loan
Conversion.
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At any time after the execution of this
agreement, the Lender shall have the right, but not the obligation,
to convert all, or any portion, of the Loan into shares of Stock (the
“Conversion Option”). The price for the Conversion Option shall be a
fifteen (15%) percent discount to the ten day volume weighted average price per
share of Stock (the “Conversion Price”). The Conversion Price shall
be calculated by examining trading in the Stock for the ten trading days prior
to the date the Lender elects to exercise the Conversion Option. Upon
its election to exercise the Conversion Option, the Lender shall notify Encore
in writing of such fact, and upon Encore’s receipt of the Lender’s notice of
exercise, Encore shall request that Encore’s market-maker, who shall be a member
of the Financial Industry Regulation Authority, Inc., provide the information
required to determine the Conversion Price. The information provided
by Encore’s market-maker shall be deemed conclusive proof of the Conversion
Price and shall be binding on the Parties. If there shall be no
over-the-counter market for the Stock, then the Conversion Price shall be such
amount, not less than book value, as may be determined by the Board of Directors
of Encore. The Conversion Price shall be subject to a price
floor. The Lender shall have no right to elect to exercise the
Conversion Option if the Conversion Price would be at less than $0.30 per share
of Stock.
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9.
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Bridge
Warrant .
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Encore
agrees to issue the Warrant to the Lender in the form of Exhibit B, attached
hereto. The Warrant will entitle the Lender to purchase, upon
exercise, the number of shares of Stock determined according to the following
formula:
P x 0.5
$0.45
where: P =
The principal amount of the Loan
Assuming
an investment of $50,000.00, the Warrant shall permit the Lender to acquire
Fifty Five Thousand (55,555) shares of Stock. The exercise price of
the Warrant shall be $0.45 per share. The Warrant shall expire two
years from the date it is issued to the Lender as indicated on the first page of
the Warrant (the “Warrant Issuance Date”).
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10.
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Registration
Rights.
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Encore agrees to provide piggyback
registration rights to the Lender with respect to: (i) the Stock underlying the
Warrant, and (ii) the Stock issuable to the Lender upon exercise of the
Conversion Option (collectively the “Registrable Securities”) for the two year
period after the Warrant Issuance Date. If at any time during the two
year period after the Warrant Issuance Date, there is not an effective
registration statement covering all of the Stock underlying the Warrant and
Encore shall determine to prepare and file with the Securities and Exchange
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of 1933, as amended (the
“Securities Act”), of the Stock, other
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than on
Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then Encore shall
send to the Lender written notice of such determination and, if within fifteen
days after receipt of such notice, the Lender shall so request in writing, then
Encore shall include in such registration statement all or any part of such
Stock the Lender requests to be registered, subject to customary underwriter
cutbacks applicable to all holders of registration rights (the “Registration
Rights”).
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11.
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Registration
Rights Expenses.
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All fees and expenses incident to the
performance of or compliance with the Registration Rights by Encore shall be
borne by Encore whether or not any Registrable Securities are sold pursuant to a
registration statement. The fees and expenses referred to in the
foregoing sentence shall include: (i) all registration and filing fees
(including, fees and expenses (A) with respect to filings required to be made
with any securities market or exchange on which the Stock is then listed for
trading, and (B) in compliance with applicable state securities or Blue Sky
laws), (ii) printing expenses (including, expenses of printing certificates for
Registrable Securities and of printing prospectuses, if the printing of
prospectuses is reasonably requested by the holders of a majority of the
Registrable Securities included in the registration statement), (iii) messenger,
telephone and delivery expenses, and (iv) fees and disbursements of counsel for
Encore. In addition, Encore shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions incurred in connection with the Registration Rights (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit and the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities market or exchange as required
thereunder.
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12.
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Reservation of
Stock.
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Encore shall, during the time that the
Note and the Conversion Option, or the Warrant remain outstanding, reserve and
keep available from its authorized but unissued shares of Stock, a sufficient
number of shares to issue the shares of Stock issuable upon exercise of the
Conversion Option and the Warrant.
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13.
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Transfer
Restrictions.
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The Note, the Warrant, and shares of
Stock underlying the Warrant and the Conversion Option are subject to transfer
restrictions as set forth in the Note and the Warrant.
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14.
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Accredited Investor
Status.
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The Investor warrants and represents to
Encore that he is an accredited investor as that term is defined under U.S.
securities laws, including Regulation D of the Securities Act.
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15.
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Investment
Purpose.
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The Lender and Encore acknowledge that
the Note, the Warrant, or any Stock underlying the Warrant, or the Conversion
Option (collectively the “Securities”) have not been registered under the
Securities Act, or applicable state securities laws and that the Securities that
may or will be issued to the Lender will be issued in reliance on exemptions
from the registration requirements of the Securities Act and applicable state
securities laws and in reliance on the Lender’s representations and agreements
contained herein. The Lender is acquiring the Securities for the account of the
Lender for investment purposes only and not with a view to their resale or
distribution. The Lender has no present intention to divide his, her or its
participation with others or to resell or otherwise dispose of all or any part
of the Securities.
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16.
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Compliance with the
Securities Act.
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The Lender agrees that if the
Securities or any part thereof are sold or transferred in the future, the Lender
shall sell or transfer them pursuant to the requirements of the Securities Act
and applicable state securities laws. The Lender agrees that, unless there is an
effective registration statement covering the Securities, the Lender will not
sell or transfer any part of the Securities without either: (i) obtaining a "no
action" letter from the Securities and Exchange Commission and applicable state
securities commissions; or (ii) obtaining an opinion of counsel satisfactory in
form and substance to Encore to the effect that such transfer is exempt from the
registration requirements under the Securities Act and applicable state
securities laws; or (iii) registration under the Securities Act.
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17.
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Restrictive
Legend.
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The Lender understands and agrees that
Encore will place one or more transfer restrictive legends on any certificate
for the Securities.
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18.
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Default
Provisions.
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Encore
shall be deemed in default if any of the following events occur: (a) Encore
fails to make payments when due under this agreement or the Note; (b) the entry
of a decree or order by a court having appropriate jurisdiction adjudging Encore
a bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization or liquidation of Encore under the Federal Bankruptcy Act or any
other applicable federal or state law, or appointing a receiver, liquidator,
assignee or trustee over any substantial portion of Encore’s
property, or ordering the winding up or liquidation of Encore's affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
sixty (60) consecutive days; or (c) the institution by Encore of proceedings to
be
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adjudicated
a bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee or
trustee of Encore contained in this Note, within 20 days after receipt of
written notice from Lender demanding such compliance.
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19.
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Acceleration.
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At the
option of the Lender, and without demand or notice, all principal and any unpaid
interest shall become immediately due and payable upon a default as set forth in
Section 18 above. Any attorneys' fees and other expenses incurred by
the Lender in connection with Encore' bankruptcy or any of the other events
described in Section 18 shall be additional indebtedness of Encore secured by
this agreement.
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20.
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Security
Agreement.
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▇.
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▇▇▇▇▇
of Security Interest.
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Encore,
in consideration of the indebtedness described in this agreement, hereby grants,
conveys, and assigns to the Lender, for security, all of Encore's existing and
future right, title and interest in the property listed in this Section
20. This security interest is granted to the Lender, to secure (a)
the payment of the indebtedness evidenced by the Note, including all renewals,
extensions, and modification thereof; and (b) the payment, performance and
observance of all warranties, obligations, covenants and agreements to be paid,
performed or observed by under this agreement.
b. Property.
The
property subject to the security interest is: (i) the Stock underling the
Warrant, and (ii) an amount of Stock issuable pursuant to the Conversion Option
calculated according to this formula:
P + AI
Conversion
Option Price
where: P =
The principal amount of the Loan
AI =
Accrued interest on the Loan
provided,
however, that the number of shares of Stock calculated under this sub-section
(ii) shall not exceed One Hundred Seventy-Five Thousand (175,000).
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21.
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Notices
and Delivery.
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Any
notices permitted or required under this agreement shall be deemed given upon
the date of personal delivery or 48 hours after deposit in the United States
mail, postage fully prepaid, return receipt requested, addressed as
follows:
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Encore:
Encore
Inc.
▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇
Telephone
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile
(____) _________________
Email
__________________________
The
Lender:
▇▇▇▇▇
▇▇▇▇▇▇▇
Social
Security Number:
Telephone
( )
Facsimile
( )
___________________
Email
____________________________
or at any
other address as any party may, from time to time, designate by notice given in
compliance with this Section. Any deliveries required under this
agreement must be made by personal delivery at the applicable addresses listed
above.
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22.
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Indemnification by the
Lender.
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The Lender agrees to indemnify Encore,
and each current and future officer, director, employee, agent and shareholder
of Encore, against and to hold them harmless from any damage, loss, liability,
claim or expense including, without limitation, reasonable attorneys' fees
resulting from or arising out of the inaccuracy or alleged inaccuracy of any of
the representations, warranties or statements of the Lender contained in this
agreement, including any violation or alleged violation of the registration
requirements of the Securities Act or applicable state law in connection with
any subsequent sale of the Securities or any portion thereof by the
Lender.
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23.
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Indemnification
by Encore.
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Encore agrees to indemnify the Lender
against and to hold the Lender harmless from any damage, loss, liability, claim
or expense including, without limitation, reasonable attorneys' fees resulting
from or arising out of, or in connection with the preparation for or defense of,
any investigation, litigation, or proceeding: (i) related to any
transaction or proposed transaction (whether or not consummated) in which any
proceeds of the Loan are applied or proposed to be applied, directly or
indirectly, by Encore, whether or not the Lender is a party to such transaction
or (ii) related to Encore’s entering into this agreement, whether or not
the Lender is a party
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thereto
and whether or not such investigation, litigation or proceeding is brought by
Encore or any other person; provided, however, that Encore shall not be required
to indemnify the Lender from or against any portion of such claims, damages,
losses, liabilities or expenses that is found in a final, non-appealable
judgment by a court of competent jurisdiction to have resulted from the
negligence or misconduct of the Lender.
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24.
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Entire
Agreement.
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This
agreement, the Note, and the Warrant, and all exhibits and attachments thereto,
contain the entire understanding between and among the Parties and supersede any
prior understandings and agreements among them respecting the subject matter of
this agreement, the Note, and Warrant.
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25.
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Agreement
Binding.
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This
agreement shall be binding upon the heirs, executors, administrators, successors
and assigns of the Parties hereto.
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26.
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Amendment
and Modification.
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Subject
to applicable law, this agreement may be amended, modified, or supplemented only
by a written agreement signed by the Parties.
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27.
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Attorney
Fees.
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In the
event arbitration, suit or action is brought by any party under this agreement
to enforce any of its terms, and in any appeal therefrom, it is agreed that the
prevailing party shall be entitled to reasonable attorneys fees to be fixed by
the arbitrator, trial court, or appellate court.
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28.
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Arbitration.
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Any dispute, controversy or claim
arising out of or in connection with, or relating to this agreement, or the Note
or the Warrant (collectively the “Bridge Documents”) or any breach or alleged
breach of the Bridge Documents, shall, upon the request of any party involved,
be submitted to and settled by arbitration in the City of Los Angeles, State of
California, pursuant to the Commercial Arbitration Rules then in effect of the
American Arbitration Association (or at any other place or under any other form
of arbitration mutually acceptable to the Parties so involved). Any
award rendered shall be final and conclusive upon the Parties and a judgment
thereon may be entered in the highest court of the forum, State or Federal,
having jurisdiction. The expenses of the arbitration shall be borne
equally by the Parties to the arbitration, provided that each party shall pay
for and bear the cost of its own experts, evidence and counsel’s fees, except
that in the discretion of the arbitrator, any award may include the cost of a
party’s counsel, if the arbitrator expressly determines that the party against
whom such award is entered has caused the dispute, controversy or claim to be
submitted to arbitration as a dilatory tactic.
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29.
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Law
Governing.
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This
agreement shall be governed by and construed in accordance with the laws of the
State of California.
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30.
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Titles
and Captions.
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All
section titles or captions contained in this agreement are for convenience only
and shall not be deemed part of the context nor effect the interpretation of
this agreement.
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31.
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Duplicate Originals;
Counterparts.
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This
agreement may be executed in any number of duplicate originals, and each
duplicate original shall be deemed to be an original. This agreement
may be executed in any number of counterparts, each of which shall be deemed an
original and all of which together constitute a fully executed agreement even
though all signatures do not appear on the same document.
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32.
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Severability.
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Any provision of the Bridge Documents
which is determined by a court of competent jurisdiction or government body to
be invalid, unenforceable or illegal shall be ineffective only to the extent of
such holding and shall not affect the validity, enforceability or legality of
any other provision, nor shall such determination apply in any circumstance or
to any party not controlled by such determination.
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33.
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Further
Action.
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The
Parties hereto shall execute and deliver all documents, provide all information
and take or forbear from all such action as may be necessary or appropriate to
achieve the purposes of the Bridge Documents.
The
LENDER
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Dated:
December 18, 2009
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By:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇
▇▇▇▇▇▇▇
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ENCORE,
INC.,
a Nevada
corporation
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Dated:
December 18, 2009
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By:
/s/ ▇▇▇▇▇▇ ▇▇▇▇
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Name:
▇▇▇▇▇▇ ▇▇▇▇
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Title:
Chairman and Chief Executive
Officer
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EXHIBIT
A
PROMISSORY
NOTE
11
EXHIBIT
B
WARRANT
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