UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 18, 2014
Lattice Incorporated
(Exact Name of Registrant as Specified in Charter)
| Delaware | 000-10690 | 22-2011859 | ||
|
(State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
|
7150 N. Park Drive Pennsauken, NJ |
08109 | |
| (Address of principal executive offices) | (Zip Code) |
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
(a) Note Purchase and Security Agreement
On May 30, 2014, the Company entered into a Note Purchase and Security Agreement with Lattice Funding, LLC (Lender), a Pennsylvania limited liability company affiliated with Cantone Asset Management, LLC. The Company delivered a secured promissory note (the Note) in the principal sum of $1,500,000, bearing interest at 8% per annum and maturing on May 15, 2017. Interest on the Note is payable quarterly. Outstanding principal may be converted into restricted common stock. The Company also executed UCC financing statements, securing the Note with proceeds of certain agreements. The Company further delivered 675,000 shares of restricted common stock to Lender at closing. The parties completed deliveries of material documents by June 18, 2014.
The Company used $400,000 of gross proceeds to repay part of an existing bridge loan with an affiliate of Lender. An additional $200,000 of gross proceeds represents a reinvestment of the balance of such existing bridge loan on Lenders behalf. At the closing, Lender was credited with an 8% commission to Lender’s placement agent and 1% non-accountable expense allowance to Lender’s placement agent. The Company also paid other legal costs and expenses of Lender related to this financing.
Each $10,000 of note principal is convertible into 75,000 common shares at an exercise price of $0.133333 per share any time after November 30, 2014, to be adjusted for splits, reorganizations, stock dividends and similar corporate events (anti-dilution provisions). If the market price of Lattice common stock equals or exceeds twice the exercise price and certain other conditions are met, the Company may call the Note at face value for the purpose of forcing conversion of the balance of the Note into common stock.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description |
| 10.39 | Note Purchase and Security Agreement between the Company and Lattice Funding, LLC, dated May 30, 2014 |
| 10.40 | Secured Note of Company payable to Lattice Funding, LLC, dated May 30, 2014 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LATTICE INCORPORATED | |||
| Date: June 18, 2014 | By: | /s/ Joe Noto | |
| Joe Noto | |||
| Chief Financial Officer | |||
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Exhibit 10.39
NOTE PURCHASE AND SECURITY AGREEMENT
THIS NOTE PURCHASE AND SECURITY AGREEMENT (the “Agreement”) made as of the 30th day of May, 2014 by and between LATTICE FUNDING, LLC, a Pennsylvania limited liability company, its successors and assigns (the “Lender”), and LATTICE INCORPORATED, a Delaware corporation, its successors and assigns (the “Borrower”). (The Lender and the Borrower are sometimes referred to collectively in this Agreement as the “Parties” or singly as a “Party.”)
BACKGROUND
At the request of and on behalf of the Borrower, the Lender proposes to purchase from the Borrower a certain 8% Secured convertible Promissory Note (the “Note”) in the principal sum of One Million Five Hundred Thousand Dollars ($1,500,000) (the “Note”) to be used for working capital and secured by the proceeds of certain agreements identified below (the “Collateral”).
NOW THEREFORE, in consideration of the promises contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to the legally bound, the Parties agree as follows:
1. Definitions
The following terms used in this Agreement shall have the meanings set forth below:
(a) “Agreement” means this Agreement.
(b) “Business Day” shall mean any day other than a Saturday, a Sunday, a United States federal government legal holiday or a day on which banking institutions are authorized or required by law or other governmental action to close in the State of New Jersey.
(c) “Collateral” means the collateral in which the Lender is granted a security interest by this Agreement and which shall include the following: all of the Borrower’s right, title and interest in the revenues of certain telecommunications contracts with correctional facilities identified in Exhibit A and the proceeds from such contracts; including all insurance proceeds, and rights to refunds or indemnification whatsoever owing, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, which any of the same may represent, and all right, title, security and guaranties with respect to each contract.
(c) “Transaction Documents” means this Agreement, the $1,500,000 Note of even date from Borrower to Lender (the “Note”), the UCC-1 Financing Statement naming Borrower as debtor and Lender as secured party to be filed with the New Jersey Department of State and all other documents listed on the Closing Checklist attached as Exhibit B, including all riders, supplements and addenda to such documents.
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(d) “Note” means the $1,500,000 Note, as delivered, extended, amended and otherwise made under this Agreement.
(e) “Person” shall mean any individual, sole proprietorship, partnership, joint venture, limited liability company, limited liability partnership, trust, incorporated organization, association, corporation, institution, entity, party or government (including any division, agency or department thereof), and, as applicable, the successors, heirs and assigns of each.
(f) “Principal Amount” means $1,500,000.
(g) “Taxes” mean any federal, state, local or foreign income sales, use, transfer, payroll, property, occupancy, franchise or other tax, levy, impost, fee, imposition, assessment or similar charge, together with any interest or penalties thereon.
(h) “UCC” shall mean the Uniform Commercial Code as in effect from time to time in the State of New Jersey.
2. Terms of the Note
(a) Lender agrees to purchase the Note from Borrower, to be used for working capital purposes. The term of the Note (the “Term”) shall be for approximately three years from the date of closing of this transaction (the “Closing Date”) to May 15, 2017 (the “Due Date”).
(b) The Parties agree that the Closing Date is to be no later than May 30, 2014 and the Parties will use their best efforts to complete this transaction by the Closing Date or as soon as practicable thereafter. Parties acknowledge that the Lender has or intends to sell undivided interests in the Note (the “Participations”) to accredited investors through a private placement of the Participations (the “Placement”) underwritten by Cantone Research, Inc. (the “Placement Agent”), an affiliate of the Lender. Borrower agrees to reimburse the Lender for all costs and expenses of the Placement, including, but not limited to, Placement Agent commissions, legal fees and securities law filing expenses and other expenses as described in the Lender’s confidential private placement memorandum dated May 9, 2014 (the “Memorandum”).
(c) Borrower will pay interest to the Lender at eight percent (8%) annually (the “Interest Rate”), with interest accruing on the outstanding principal amount beginning on May 30, 2014 paid quarterly, interest only, in arrears, beginning August 15, 2014 and thereafter on the 15th of November, 15th of February, 15th of May and 15th of August for as long as the principal, or any part thereof, remains outstanding.
(d) The outstanding unpaid principal amount of the Note and all accrued but unpaid interest shall be paid in full on or before the Due Date.
(e) To evidence the obligation of Borrower to Lender to repay the Note with interest at the Interest Rate in accordance with the provisions of this Agreement, Borrower shall execute and deliver to Lender at Closing the Note, a form of which is attached as Exhibit C.
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(f) To secure the Note, Borrower shall execute and deliver to Lender at Closing and cause to be filed a UCC-1 Financing Statement, which grants to Lender a perfected first security interest in the Collateral (the “Financing Statement”).
(g) The Parties acknowledge the Lender’s right to convert the principal and accrued but unpaid interest on the Note into shares of the Borrower’s common stock (“Conversion Shares”). Reference is made to the terms of the Note attached as Exhibit C for the terms of and procedures for such conversion. The Borrower agrees that Borrower will reimburse the Lender for any legal fees and expenses incurred by the Lender in any such conversion and in Lender’s review of any registration statement filed for Conversion Shares, up to a maximum of $10,000.00.
3. Fees
(a) At the Closing, or as soon as practicable thereafter, Borrower shall deliver to each of the Lender and the Placement Agent 675,000 shares of restricted common stock.
(b) The Borrower will pay the Lender’s legal fees of $15,000, of which receipt of $2,000 pre-closing is hereby acknowledged. At Closing, Borrower will pay the Lender’s Placement Agent commissions of 8%, and a 1% non-accountable expense allowance to the Placement Agent. Such fees will be deducted from the gross proceeds of the sale of the Note. The Borrower also acknowledges and agrees to use $400,000 of the gross proceeds to repay $400,000 owed to an affiliate of the Lender under an existing bridge loan. The Borrower also acknowledges and agrees that $200,000 of the Note represents a reinvestment of $200,000 by an affiliate of the Lender from the existing bridge loan.
(c) If the Borrower fails to pay the principal amount plus all accrued but unpaid interest on or before the Due Date, the Borrower will immediately issue to Lender an additional 1,200,000 shares of Borrower restricted common stock as a late payment penalty.
(d) The Borrower hereby agrees that Lender and the Placement Agent will have “piggyback” registration rights for all restricted shares issued to the Lender or any of its affiliates, on any registration statement filed by the Borrower with the Securities and Exchange Commission (the “Commission”), except for registration statements on forms S-4 (for merger transactions) or S-8 (for employee plans), or any forms which supersede or replace such forms. If the Borrower files such a registration statement, the Borrower undertakes to use commercially reasonable efforts to make the registration statement effective within a reasonable time and to keep such registration statement effective until all of the restricted shares held by the Lender or its affiliates are sold.
4. Collateral for the Note
The Parties agree that the collateral and security for the Note shall be a first priority security interest in the Collateral. The Borrower represents to the Lender that the Collateral represents annual revenues of at least $3,000,000.
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5. Covenants of Borrower. In addition to the covenants and agreements of the Borrower contained in the other Transaction Documents, and as long as the Note is outstanding, the Borrower hereby covenants and agrees as follows:
(a) Borrower shall promptly give notice in writing to Lender of the occurrence of any material litigation, arbitration or governmental proceeding affecting Borrower, and of any governmental investigation or labor dispute pending or, to the knowledge of Borrower, threatened which could reasonably be expected to interfere substantially with normal operations of the business of Borrower or materially adversely, affect the financial condition of Borrower.
(b) Borrower shall promptly give notice in writing to Lender of the occurrence of any Event of Default (as defined in the Note) and of any condition, event, act or omission which, with the giving of notice or the lapse of time or both, would constitute an event of default under this Agreement or under the Transaction Documents.
(c) Any and all payments by the Borrower hereunder or under the Note to or for the benefit of Lender shall be made free and clear of and without deduction for any and all present or future Taxes, deductions, charges or withholdings
(d) The Borrower may not reduce the exercise or conversion price of any options, warrants or convertible securities outstanding on or after May 15, 2014 without prior approval from Lender.
(e) The Borrower shall not pay or declare any dividends or make any distributions to equity holders (common or preferred) while the Note is outstanding.
(f) Unless required by law, prior to Closing Borrower shall not make any public statements about the contemplated transaction without the prior written consent of the Lender.
(g) Borrower will impose a black-out period (trading restriction) on all of its officers and directors such that they will be precluded from trading in the Borrower’s Common Stock to the same extent as the Placement Agent’s brokers are restricted from trading the Borrower’s Common Stock. The Placement Agent shall advise the Borrower of the trading restrictions it imposes on its brokers, from time to time. This restriction shall apply only during periods that it is actively offering the Borrower’s securities and shall not apply beyond June 30, 2014, and shall be in addition to any other black-out period the Borrower imposes on its officers and directors.
(h) Borrower will seek prior written approval from Lender before effecting a change in control or acquisition of the Borrower. Borrower acknowledges that any such change in control or acquisition may trigger the Lender’s right to convert the Note into Conversion Shares, as more fully described in the Note.
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6. Construction of this Agreement
(a) Time is of the essence in connection with any act, undertaking or matter to be performed under this Agreement.
(b) This Agreement is intended as a separate agreement between the Parties enforceable in accordance with its terms and is in addition to any other agreements between the Parties including but not limited to the Transaction Documents, and this Agreement shall not be deemed to replace, modify, substitute for, be merged with or into or amend or alter the Transaction Documents in any way except to the extent expressly provided for herein.
(c) Unless otherwise specified herein or unless the context otherwise indicates, all capitalized terms used in this Agreement shall have the same definitions and meanings as used in and defined in the Transaction Documents.
(d) Borrower acknowledges that it was represented by legal counsel in connection with this Agreement and the Transaction Documents and that it was under no economic duress or other compulsion in entering into this Agreement.
7. Representations and Warranties of Borrower
(a) Borrower hereby represents and warrants that:
(i) Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified and authorized to do business and is in good standing wherever the nature of the business conducted by Borrower makes such qualification necessary.
(ii) Borrower has the corporate power and authority to own its property and to conduct its business and holds such licenses and certificates as may be applicable and required for the conduct of its business; and Borrower has the corporate power and authority to enter into this Agreement and to consummate all transactions contemplated in this Agreement.
(iii) This Agreement and the Transaction Documents constitute valid, continuing, legal and binding obligations of Borrower and are enforceable against Borrower in accordance with their terms, subject however, to creditors’ rights generally.
(iv) The making of this Agreement has been duly authorized by all necessary corporate action on the part of Borrower, including Board of Directors approval, does not require the approval of, or the giving of notice to, any other entity or third person; and will not violate any provision of law or of Borrower’s Articles of Incorporation or Bylaws, or result in the breach of, constitute a default under, contravene any provision of, or result in the creation of any lien, charge, encumbrance or security interest upon any property or assets of Borrower.
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(v) The individuals executing this Agreement on behalf of Borrower are duly authorized officers of Borrower and are authorized to execute this Agreement and to take any and all other actions contemplated or required by this Agreement.
(vi) There are no suits or proceedings pending or, to the knowledge of Borrower, threatened in any court or before any regulatory commission, board or other administrative or governmental agency against Borrower, which if adversely determined would have a material adverse effect on the financial condition of Borrower or the business of Borrower or which if determined adversely to the Borrower would result in the inability of Borrower to perform this Agreement.
(vii) The Financing Statement constitutes a valid and enforceable security interest in the Collateral described therein.
(ix) There are no mortgages, pledges, security interests, liens, charges, leases, encumbrances or claims on or with respect to the System, or any part thereof, or any title interest therein or any proceeds thereof, which have a priority superior to the lien and priority positions of the Lender’s security interest.
(x) As of the date of this Agreement, Borrower is not insolvent as defined by the United States Bankruptcy Code, the Delaware Fraudulent Conveyances Act, by the insolvency provisions of the Delaware Business Corporation Law or by law or usage of any court of law or equity of the State of Delaware.
(xi) As of the date of this Agreement, Borrower has complied with all the terms and conditions of this Agreement.
(xii) The execution, delivery and performance of this Agreement and the Transaction Documents will not violate any provisions of any indenture, agreement, or other instrument to which Borrower or any of Borrower’ s properties or assets are bound, and will not be in conflict with, result in a breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement, or other instrument, or result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of the properties or assets of Borrower.
(xiii) No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or filing with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign is necessary to the valid execution and delivery of this Agreement, the Transaction Documents or any other documents evidencing or relating to the Note.
(xiv) The most recent financial statements of Borrower delivered to the Lender represent fairly its financial position as of the date thereof; and the results of its operations for the period indicated; and show all known liabilities, direct or contingent, of Borrower as of the date thereof. Since the date of such financial statements, there has been no material adverse change in the condition, financial or otherwise, of Borrower or in the business and properties of Borrower and, since such date, Borrower has not incurred, other than in the ordinary course of business, any indebtedness, liabilities, obligations or commitments, contingent or otherwise.
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(xv) Neither this Agreement nor any other document, statement, financial statement, or certificate furnished to Lender by or on behalf of Borrower in connection herewith, contains an untrue statement of a material fact with respect to the financial condition or properties of Borrower or omits to state a material fact necessary to make the statements contained therein not misleading or, insofar as Borrower can now foresee, may in the future materially adversely affect the financial condition or properties of Borrower which has not been set forth in this Agreement or in a document, statement, financial statement or certificate furnished to Lender in connection herewith.
(xvi) The Borrower is in compliance with all laws, rules, regulations, judgments, decrees, orders, agreements and requirements which affect in any material way the Borrower, its assets or the operation of its business and has not received, and has no knowledge of, any order or notice of any governmental investigation or of any violation or claim of violation of any law, regulation, judgment, decree, order, agreement, or other governmental requirement. The Borrower is not in default under any term of any indenture, contract, lease, agreement, instrument or other commitment to which any of them is a party or by which any of them is bound. The Borrower knows of no dispute regarding any indenture, contract, lease, agreement, instrument or other commitment which could reasonably be expected to have a material adverse effect on the Borrower’s financial condition.
(b) Borrower hereby confirms, represents and warrants that the representations and warranties set out in the Transaction Documents are true and correct as of the date of this Agreement, or that, in case any such condition exists, such condition (alone or in the aggregate) will not have a material adverse effect on the Borrower, its revenues, the Collateral or the proceeds of the Collateral.
8. Further Events of Default - Remedies
(a) The following events shall be an Event of Default under the Note and in addition to the Events of Default as defined in the Note; and Lender shall thereupon have the option (which is not intended to diminish, alter or limit Lender’s rights described in this Agreement, the Transaction Documents or any related instruments, agreements and documents) to declare Borrower in default under this Agreement and the Transaction Documents, and all other agreements with Lender, and declare all existing and future liabilities, indebtedness and obligations accelerated and immediately due and payable, including, but not limited to, interest, principal, expenses, advances to protect Lender’s position and reasonable counsel fees to enforce this Agreement, the Transaction Documents, and all related instruments, agreements and documents, and all of Lender’s rights hereunder and thereunder, all without demand, notice, presentment or protest, or further action of any kind, except as specified herein.
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(i) If Lender shall discover evidence that any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower in connection with this Agreement or otherwise, or to induce Lender to enter into this Agreement, was false or misleading in any material respect when made or furnished.
(ii) If any action, suit or proceeding is brought in law or in equity or in any bankruptcy or receivership proceeding by Borrower or any of its creditors or any other party to enjoin or set aside this Agreement.
(iii) If Borrower shall fail to pay any principal, interest, costs and fees when due under the Transaction Documents or this Agreement within five (5) days after written notice from Lender to Borrower.
(iv) The dissolution, termination of existence, insolvency, business failure, appointment of a receiver of, or of any part of the property of, or the commencement of any proceeding under any bankruptcy, arrangement, reorganization or insolvency laws by or against Borrower.
(v) If Borrower shall fail to observe or perform any obligation or covenant to be observed or performed by Borrower hereunder or under any of the Transaction Documents, which are not cured within ten (10) days following written notice from Lender to Borrower.
(vi) If any financial statement, material representation, warranty, statement or certificate made or furnished to Lender in, or in connection with, this Agreement, or as inducement to Lender to enter into this Agreement, or in any separate statement or document to be delivered hereunder to Lender, shall be materially false, incorrect, or misleading when made;
(vii) If Borrower shall admit an inability to pay its debts as they mature, or shall make a general assignment for the benefit of its or any of its creditors.
(viii) If proceedings in bankruptcy, or for reorganization of Borrower, or for the readjustment of any of its debts, under the Bankruptcy Code, as amended, or any part thereof, or under any other laws, whether state or federal, for the relief of debtors, now or hereafter existing, shall be commenced by Borrower, or shall be commenced against Borrower and shall not be dismissed within sixty (60) days of its commencement.
(ix) If a receiver or trustee shall be appointed for Borrower or for any substantial part of its assets, or any proceedings shall be instituted for the dissolution or the full or partial liquidation of Borrower, and if such appointment or proceedings are involuntary, such receiver or trustee shall not be discharged within sixty (60) days of appointment, or such proceedings shall not be discharged within sixty (60) days of its commencement, or Borrower shall discontinue its businesses or materially change the nature of its businesses.
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(b) After any acceleration of the Note, Lender shall have in addition to the rights and remedies given it by this Agreement and the Transaction Documents, all those allowed by all applicable laws including, without limitation, the UCC as enacted in a jurisdiction in which any Collateral may be located.
9. No Agency, Partnership or Joint Venture
Neither this Agreement nor the Transaction Documents nor the exercise by Lender of any of its rights or remedies hereunder or thereunder shall create, or shall be deemed to have created (i) a relationship of principal and agent between Borrower and Lender, or (ii) a partnership or joint venture, as between Lender and Borrower, or (iii) to render Lender in any way responsible for the debts, losses or liabilities of Borrower, or (iv) to render Lender a principal of, an insider in, or in any manner in control of Borrower or its business affairs.
10. Notices
All notices to be given pursuant to this Agreement shall be given by the parties hereto either by certified mail, postage pre-paid, with return receipt requested or by expedited delivery service or by hand delivery, with a receipt being obtained therefor, at the following addresses, or at such other addresses as to which the parties hereto may be notified in accordance herewith from time to time.
| If to the Borrower: | Lattice Incorporated |
| 7150 N. Park Drive | |
| Suite 500 | |
| Pennsauken, NJ 08109 | |
| Phone (856) 910-1166 | |
| Fax (856) 910-1811 | |
| With copies to: | Timothy J. Szuhaj, Esq. |
| Becker Meisel LLC | |
| Woodland Falls Corporate Center | |
| 220 Lake Drive East, Suite 102 | |
| Cherry Hill, New Jersey 08002 | |
| Phone (856) 779-8700 | |
| Fax (856) 779-8716 | |
| If to the Lender: | Lattice Funding, LLC |
| 766 Shrewsbury Avenue | |
| Tinton Falls, NJ 07724 | |
| Telephone: 732-450-3500 | |
| Facsimile: 732-450-3520 | |
| Attention: Anthony Cantone |
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| With copies to: | Christopher P. Flannery, Esq. |
| 4 Hillman Drive | |
| Suite 104 | |
| Chadds Ford, PA 19317 | |
| Telephone: (610) 361-8016 | |
| Facsimile: (610) 558-4882 |
Notice shall be effective upon receipt.
11. Remedies Are Cumulative
Lender’s rights and remedies under this Agreement are cumulative and not alternative. Neither the failure nor any delay on the part of Lender in exercising any right, power or privilege under any of the Transaction Documents or this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No claim or right arising out of this Agreement or the Transaction Documents can be discharged by Lender in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by Lender.
12. Entire Agreement
This Agreement and the Transaction Documents are intended by the Parties as a final expression of their agreements with respect to the subject matter thereof, and are intended as a complete and exclusive statement of the terms and conditions of that agreement. This Agreement and the Transaction Documents may not be modified, rescinded, or terminated orally, and no modification, rescission, termination or attempted waiver of any of the provisions thereof shall be valid unless in writing, supported by consideration, and signed by the Party against whom the same is sought to be enforced.
13. Assignments, Successors and No Third Party Rights
This Agreement shall apply to and shall be binding in all respects upon, and shall inure to the benefit of, the successors and assigns of Lender and Borrower. Except as explicitly stated herein, nothing expressed or referred to in this Agreement is intended or shall be construed to give any person or entity other than the Parties any legal or equitable right, remedy or claim under or with respect to this Agreement, or any provision hereof, it being the intention of the Parties that this Agreement, and all of its provisions and conditions, are for the sole and exclusive benefit of the Parties and for the benefit of no other person or entity and are personal to the Parties unless otherwise expressly provided.
14. Action Taken at Closing
The execution and delivery of this Agreement at Closing and all other actions to be taken and transactions to occur in connection with this Agreement at Closing, and the consummation at Closing of certain acts and transactions to which reference is made in this Agreement, are to be and were considered effected simultaneously as part of a number of interrelated transactions, and all deliveries of documents and other acts are to be deemed in escrow until all transactions referred to in, and relating to, this Agreement have been completed.
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15. Survival of Representation, Warranties and Covenants
The representations, warranties and covenants set forth in this Agreement shall survive the execution and delivery of this Agreement and the Closing.
16. Section Headings, etc.
The headings of Sections contained in this Agreement are provided for convenience only and form no part of this Agreement, and shall not affect its construction or interpretation. All references to Sections and paragraphs refer to the corresponding Sections and paragraphs in Sections of this Agreement. All words used herein shall be construed to be of such gender or number as the circumstances require. This “Agreement” shall mean this Agreement as a whole and as the same may, from time to time hereafter, be amended, supplemented or modified. The words “herein”, “hereof”, “hereby”, “hereto”, “hereunder, and words of similar import, refer to this Agreement as a whole and not to any particular Section, paragraph, clause or other subdivision hereof, unless otherwise specifically noted.
17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement.
18. Governing Law. This Agreement shall be governed by and construed under the laws of the State of New Jersey, all rights and remedies being governed by such laws, and any provision hereof which may prove to be unenforceable shall not affect the validity of any other provision of this Agreement.
19. Amendments. This Agreement may not be amended, revised, altered or terminated except by an Agreement in writing executed by all of the Parties.
20. Term of Agreement and Reinstatement. This Agreement and the Transaction Documents shall remain in full force and effect until all obligations of Borrower under the Note are paid in full. If any sums paid to Lender on account of the Note are required to be returned or refunded by Lender, this Agreement and the Transaction Documents shall be revived and reinstated as to all such sums, including the liens of the Financing Statements.
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Agreement, under seal the day and year first, above written.
| SIGNED, SEALED AND | LENDER: |
| DELIVERED IN THE | LATTICE FUNDING, LLC |
| PRESENCE OF: | |
| /s/ Witness Signature | By: /s/ Anthony J. Cantone (SEAL) |
| Witness | Anthony J. Cantone, Managing Member |
| BORROWER: | |
| LATTICE INCORPORATED | |
| a Delaware corporation | |
| /s/ Karen Jeffrey | By: /s/ Paul Burgess (SEAL) |
| Witness | Paul Burgess, President |
| [CORPORATE SEAL] | |
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EXHIBIT A
COLLATERAL CONTRACTS
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EXHIBIT B
CLOSING CHECKLIST
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EXHIBIT C
Form of Note
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Exhibit 10.40
8% SENIOR SECURED CONVERTIBLE NOTE
Tinton Falls, New Jersey
| $1,500,000.00 | May 30, 2014 |
1. Obligation. For value received and intending to be legally bound, Lattice Incorporated, a Delaware corporation ("Maker"), hereby promises to pay on or before the Due Date (as defined below)to the order of Lattice Funding, LLC (including its successors and assigns, collectively, the "Payee"), the principal sum of ONE MILLION FIVE HUNDRED Thousand Dollars ($1,500,000.00), lawful money of the United States of America together with interest thereon in the amount of eight percent annual simple interest (the “Rate”) on the terms and conditions stated in this Note. The principal sum added to the accrued but unpaid interest (including Default Interest, defined below) is referred to in this Note as the "Amount Due." Any term capitalized herein and not defined shall have the same meaning as in the Loan and Security Agreement between the Maker and the Payee of even date.
The payments under this Note shall be made in funds immediately available to Payee at its office at Tinton Falls, New Jersey, or at such other location as the Payee shall designate. In the event the due date of any payment under this Note is a Saturday, Sunday or legal holiday in the State of New Jersey, such payment shall be due on the next succeeding date which is not a Saturday, Sunday or such legal holiday, provided that the principal sum shall continue to accrue interest until paid.
Interest at the Rate shall accrue beginning May 30, 2014. Interest on the outstanding principal shall be paid quarterly in arrears beginning on the 15th of August, 2014 and thereafter on the 15th of November, 15th of February, 15th of May and 15th of August for as long as the principal, or any part thereof, remains outstanding. If any payment of interest or principal is not paid when due, interest will accrue at the rate of 18% (the “Default Rate”). Interest payable at the Default Rate shall be known as “Default Interest” under this Note. On the same dates that the Maker pays interest to the Payee, the Maker will also pay Payee an administration fee (“Administrative Fee”) of 0.5% on the outstanding principal (2% on an annual basis).
The Amount Due is due and payable on or before May 15, 2017 (the “Due Date”). If the Maker fails to pay the Amount Due on the Due Date, the Maker will immediately issue to the Payee a certificate representing 1,200,000 shares of the Maker’s common stock as a late payment penalty.
2. Conversion Rights. (a)Beginning six months after the issuance of this Note, the Payee, in its sole and absolute discretion, at any time or from time to time, may elect to convert some or all of the outstanding principal amount of the Note into common stock of the Maker (the “Conversion Shares”) at the Conversion Price, as defined below, by sending a conversion notice to the Maker (a “Conversion Notice”) in the form attached as Exhibit A. Electronic delivery via facsimile or electronic mail addressed to the Maker’s president shall constitute good delivery of such Conversion Notice. Until the Payee receives certificates representing the Conversion Shares in unrestricted form (or such Conversion Shares are received in the Payee’s account electronically), the principal shall continue to accrue interest at the applicable Rate. If the Maker fails to deliver Conversion Shares in unrestricted form within 5 business days after the receipt of a Conversion Notice, the Maker will be liable for a 1% late delivery fee (the “Late Delivery Fee”) for each day that the Conversion Shares are delayed, as a penalty and not as additional interest.
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(b) The initial Conversion Price will be $0.133333 per Conversion Share (representing 75,000 Conversion shares per $10,000 in face amount of the Note). The Conversion Price shall be adjusted for any stock splits, reverse stock splits, reorganizations, stock dividends and any other corporate action that has a similar effect. If the Maker issues any common stock, securities convertible into common stock, options, warrants, stock purchase rights or other similar rights at a conversion, exercise or purchase price of $0.12 per share or less, the Conversion Price will be adjusted to such new price if it is less than the Conversion Price then applicable. Notwithstanding the foregoing, the Conversion Price is not subject to adjustment under this Section 2(b) for any securities issued in an employee plan registered on Form S-8 or for shares issued in a merger or other transaction registered on Form S-4, or any successor forms promulgated by the Securities and Exchange Commission.
(c) Forced Conversion. If the Maker’s common stock trades above twice the Conversion Price (as adjusted under Section 2(b)) for twenty consecutive trading days with average daily trading volume greater than 300,000 shares over the twenty trading day period, then Maker has the right to call the Note at face value (plus accrued but unpaid interest) in order to force conversion into Conversion Shares. The Maker will give the Payee sixty days written notice of a call of the Note under this Section, during which time the Payee may convert some or all of the Principal into Conversion Shares in its discretion. Notwithstanding the foregoing, Maker may not force a conversion unless the underlying Conversion Shares are registered under the Securities Act of 1933 and the Maker can deliver registered Conversion Shares within five business days of the Conversion Notice.
3. No Prepayment. The Maker may not prepay the Amount Due unless the Maker is acquired or engages in a similar transaction (an “Acquisition Transaction”). If the Maker is acquired, the Maker (or its successor in interest) may prepay the Note either for the full Amount Due or on an “on-converted” basis, simultaneously with the closing of the Acquisition Transaction, at the sole option of Payee. For clarity, an “as-converted basis” shall mean that immediately before the Acquisition Transaction, the Payee will calculate the number of Conversion Shares issuable to the Payee on the conversion of the total Amount Due and the Payee will receive the same consideration as received by other stockholders of Maker. For example, if Maker were to be acquired for $0.30 per share, each $10,000 CV Note would be paid $22,500 (75,000 shares x .30 per share) plus accrued interest at $0.30 per share.
4. Application of Payments. All payments on this Note shall be applied first to interest at the Rate, then Default Interest, then all other sums due hereunder, and the balance thereof to principal or in such other order as Payee may elect.
5. Late Charge, Warrant Issuance. If any payment of interest or Administrative Fee payable under Section 1, above, is not made within ten days of the date such payment is due, or if the Amount Due is not paid when due under the terms of this Note and remains unpaid ten (10) days after the Due Date, then, in either case, there shall also be immediately due and payable a late charge at the rate of Five Percent (5%) of such delinquent payment. The amount of any such late charge not paid promptly following demand therefor shall be deemed outstanding and payable pursuant to the Note. Further, in any case of a late payment of interest under this Section 4, the Maker shall immediately issue to the Payee (or to its order) common stock purchase warrants to purchase 1,000,000 shares of the Maker’s common stock at an exercise price per share of the lower of (a) the closing sale price of the Maker’s common stock on the date of the default, or, (b) $0.133333 per share.
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6. Collateral. The Payment of the Amount Due on the Due Date shall be secured by a first lien on the revenues and other proceeds of certain contracts of the Maker, and the equipment used for such contracts, listed on Exhibit B, to be evidenced by a filing on form UCC-1.
7. Default; Acceleration; Remedies.
a. Should there occur any Default (as defined below in Section 7b), then Payee, at its option and without notice to Maker, may declare immediately due and payable the entire unpaid balance of Amount Due and accrued interest by Maker hereunder, together with interest accrued thereon at the Rate to the date of Default and thereafter at a rate of interest equal to the highest rate of interest allowable under the laws of the State of New Jersey(the "Default Rate"), anything herein to the contrary notwithstanding. Payment of the Amount Due may be enforced and recovered in whole or in part at any time by one or more of the remedies provided Payee in this Note. If Payee employs counsel to enforce this Note by suit or otherwise, Maker will reimburse Payee for all costs of suit and other expenses in connection therewith, whether or not suit is actually instituted, together with a reasonable attorney's fee for collection of Ten Percent (10%) of the total amount then due by Maker to Payee but in no event less than five Thousand Dollars ($5,000.00) together, to the extent permitted by applicable law, with interest on any judgment obtained by Payee at the Default Rate, including interest at the Default Rate from and after the date of execution, judicial or foreclosure sale until actual payment is made to Payee of the full amount due Payee.
b. As used in this Note, "Default" shall occur immediately upon the happening to or by Maker of any of the following events:
(1) Any default in the payment when due of interest or the Amount Due on the Due Date, or any other sums due, under this Note, which default is not cured within ten (10) days after the due date of such payment;
(2) Any default in the performance of any of the provisions of this Note, which is not cured within ten (10) days;
(3) Any default in any other indebtedness of the Maker, which default is not cured within ten (10) days of the date of such default;
(4) The making of any misrepresentation to Payee;
(5) The calling of a meeting of creditors;
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(6) The appointment of a committee of creditors;
(7) An assignment or offer of settlement for the benefit of creditors;
(8) The voluntary or involuntary application for, or appointment of, a receiver, custodian, guardian, trustee, or other personal representative for Maker or its property;
(9) The filing of a voluntary or involuntary petition under any of the provisions of the Federal Bankruptcy Code or any similar state statute;
(10) The occurrence of any other act of insolvency (however expressed or indicated);
(11) The issuance of a warrant of attachment or for distraint, or the notice of tax lien;
(12) An entry of judgments;
(13) The failure to pay, withhold, collect or remit any taxes or tax deficiency when assessed or due;
(14) The general failure to pay debts and obligations as the same become due and payable.
8. Remedies Cumulative, Etc.
a. The remedies of Payee provided in this Note shall be cumulative and concurrent, may be pursued singly, successively, or together at the sole discretion of Payee, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof.
b. The recovery of any judgment by Payee shall not affect in any manner or to any extent any rights, remedies or powers of Payee under this Note, but such rights, remedies and powers of Payee shall continue unimpaired as before. The exercise by Payee of its rights and remedies and the entry of any judgment by Payee shall not adversely affect in any way the interest rate payable hereunder on any amounts due to Payee but interest shall continue to accrue on such amounts at the rates specified herein.
c. Maker agrees that any action or proceeding against it to enforce this Note may be commenced in the Superior Court of any county in the State of New Jersey, or in any federal court in the State of New Jersey. Maker also consents to venue in any federal court having subject matter jurisdiction located in the State of New Jersey. The provisions of this Section shall not limit or otherwise affect the right of Payee to institute and conduct action in any other appropriate manner, jurisdiction or court.
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9. Additional Waivers. Maker hereby waives presentment for payment, demand, demand for payment, notice of demand, notice of nonpayment or dishonor, notice of acceleration, protest and notice of protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of the Note. Maker agrees that its liability shall be unconditional without regard to the liability of any other party, and shall not be affected in any manner by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee. Maker consents to any and all extensions of time, renewals, waivers or modifications that may be granted by Payee with respect to payment or other provisions of this Note.
10. Costs and Expenses. Maker shall pay upon demand all reasonable costs and expenses incurred by Payee in the exercise of any of its rights, remedies or powers under this Note and any amount thereof not paid promptly following demand therefor shall be added to the principal sum hereunder and shall bear interest at the Default Rate from the date of such demand until paid in full.
11. Severability. If any provision of this Note is held to be invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Note shall remain in full force and effect and shall be liberally construed in favor of Payee in order to effectuate the provisions of this Note.
12. Limitation of Interest to Maximum Lawful Rate. In no event shall the rate of interest payable hereunder exceed the maximum rate of interest permitted to be charged by applicable law (including choice of law rules) and any interest paid in excess of the permitted rate shall be refunded to Maker. Such refund shall be made by application of the excessive amount of interest paid against any sums outstanding under this Note and shall be applied on such order as Payee may determine. If the excessive amount of interest paid exceeds the sums outstanding under this Note, the portion exceeding the sums outstanding under this Note shall be refunded in cash by Payee. Any such crediting or refund shall not cure or waive any default by Maker hereunder. Maker agrees, however, that in determining whether or not any interest payable under this Note exceeds the highest rate permitted by law, any non-principal payment, including without limitation prepayment fees and late charges, shall be deemed to the extent permitted by law to be an expense, fee, premium or penalty rather than interest.
13. Limitation on Payee's Waivers. Payee shall not be deemed, by any act or omission or commission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Payee, and then only to the extent specifically set forth in the writing. A waiver as to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy to a subsequent event.
14. No Offset. The obligations of Maker under this Note shall not be subject to any abatement or offset as a consequence of any claim, event or transaction otherwise occurring or arising between Maker, Payee and/or any affiliate of any of them, except as Maker and Payee may otherwise agree.
15. Applicable Law. This instrument shall be governed by and construed according to the laws of the State of New Jersey.
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16. Captions. The captions or headings of the paragraphs in this Note are for convenience only and shall not control or affect the meaning or construction of any of the terms or provisions of the Note.
17. Pronouns. Pronouns used herein shall be deemed to include the masculine, feminine or neuter, singular or plural, as their contexts may require. The words "Payee" and "Maker" shall be deemed to include the respective heirs, personal representatives, successors and assigns of Payee and Maker.
18. Construction. The language in this Agreement shall be construed as a whole according to its fair meaning, strictly neither for nor against any party, and without implying a presumption that its terms shall be more strictly construed against one party by reason of the rule of construction that a document is to be construed more strictly against the person who drafted it.
19. Computation. The unpaid principal amount of this Note, the unpaid interest accrued thereon, the interest rate or rates applicable to such unpaid principal amount, the duration of such applicability, and all other Amounts Due owing by Maker to Payee pursuant to this Note shall at all times be ascertained from the records of Payee, which shall be conclusive absent manifest error.
20. Assignment. This Note may not be assigned or otherwise transferred by Maker without the prior written consent of Payee.
21. Stamp Taxes. Maker shall pay the cost of any revenue, tax or other stamps now or hereafter required by the laws of the State of New Jersey (or any of its political subdivisions) or the United States of America to be affixed to this note, and if any taxes are imposed under the laws of the State of New Jersey (or any of its political subdivisions) or the United States of America with respect to evidences of indebtedness, Maker shall pay or reimburse Payee upon demand the amount of such taxes without credit against any indebtedness evidenced by this Note.
22. Notices. All notices, requests, waivers, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given, made and received when hand delivered against receipt, or on the day after it is sent by United States certified or registered mail, postage prepaid, return receipt requested, by nationally recognized overnight courier service, or by facsimile, to:
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If to Maker:
Lattice Incorporated
7150 N. Park Drive
Suite 500
Pennsauken, NJ 08109
Telephone (856) 910-1166
Facsimile: (856) 910-1811
If to Payee:
Lattice Funding, LLC
766 Shrewsbury Ave, Suite E401
Tinton Falls, NJ 07724
Telephone: 732-450-3500
Facsimile: 732-450-3520
Attention: Anthony Cantone
Or such other address as shall be specified from time to time (in compliance with the requirements of this Section 21 for the giving of notice) by the parties entitled to receive such notices.
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused this Note to be duly executed the day and year first above written.
MAKER:
LATTICE INCORPORATED.
By: /s/ Paul Burgess
Paul Burgess, President
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EXHIBIT A
FORM OF CONVERSION NOTICE
Reference is made to the 8% Convertible Note (the “Note”) issued to the undersigned by Lattice Incorporated (the “Company”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the amount of the outstanding Principal (as defined in the Note) of the Note indicated below into shares of common stock of the Company (the “Conversion Shares”) of the Company, as of the date specified below. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Note.
1. Date of Conversion:_________________________________
2. Amount of outstanding Principal to be converted:_________________________________
3. Amount of accrued and unpaid Interest on such outstanding Principal:_________________________________
4. Total Conversion Amount (Sum of lines 2 and 3):_________________________________
5. Please confirm the following information:
Conversion Price:_________________________________
Number of Shares to be issued in respect of the Conversion Amount:_________________
6. Please issue the Shares into which the Note is being converted in the following name and to the following address:
Name of Holder:_________________________________
Address:_________________________________
Facsimile Number:_________________________________
Telephone Number:_________________________________
By:_________________________________
Title:_________________________________
Dated:_________________________________
Holder Requests Delivery to be made: (check one)
o By Delivery of Physical Certificates to the Above Address
o Through Depository Trust Corporation
(Account___________________________)
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EXHIBIT B
SCHEDULE OF COLLATERAL
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