Item 2.03 Creation of a Direct Financial Obligation
or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
Entry into a Material Definitive Agreement
Creation of a Direct Financial Obligation
On September 30, 2016, the Registrant and HEP Investments, LLC, a Michigan limited liability company (Lender), entered into the following documents, effective as of September 30, 2016: (i) Seventh Amendment to Loan Agreement under which the Lender has agreed to advance up to a total of $17,500,000 to the Registrant, subject to certain conditions, and (ii) an Eighth Amended and Restated Senior Secured Convertible Promissory Note. The Seventh Amendment to Loan Agreement amends and restates the Sixth Amendment to Loan Agreement (under which the Lender had agreed to advance up to a total of $12,500,000 to the Registrant), which was entered into with HEP Investments on December 31, 2015 (effective December 31, 2015) and disclosed in the Registrants Form 8-K Current Report filed on January 7, 2016. The Eighth Amended and Restated Senior Secured Convertible Promissory Note provides for a rolling 30 day extension until notice is given to the Registrant to the contrary.
As of September 30, 2016, the Lender had advanced the Registrant $9,177,200. As disclosed in the Form 10-Q for the quarter ended June 30, 2016, filed on August 12, 2016 HEP Investments has advanced these monies under the following terms:
A.
$3,402,200 to be convertible into the Registrants restricted common stock at $.10 per share, with interest at the rate of 11% per annum.
B.
$2,600,000 to be convertible into the Registrants restricted common stock at $.12 per share, with interest at the rate of 11% per annum.
C.
$1,285,000 to be convertible into the Registrants restricted common stock at $.15 per share, with interest at the rate of 11% per annum.
D.
$640,000 to be convertible into the Registrants restricted common stock at $.22 per share, with interest at the rate of 11% per annum.
E.
$750,000 to be convertible into the Registrants restricted common stock at $.30 per share, with interest at the rate of 11% per annum.
From July 1, 2016 to September 30, 2016, under the terms of the Amended Loan Agreement, the Lender had advanced the Registrant an additional $500,000 (convertible at $.10 per share). The Lender has converted $60,000 of the debt (convertible at $.12 per share) through the date of this filing.
Based on the above, the total shares of common stock, if the Lender converted the complete $9,177,200 convertible debt, would be 74,664,424 shares, not including any interest due which may be converted into common stock. Interest due as of September 30, 2016 was $2,259,630, which would be convertible into 16,956,473 shares at the stated conversion rate.
Amounts advanced under the Note are secured by all the Registrants assets.
The Registrant has agreed to pay the following fees in connection with the Loan transaction (when the final $8,322,800 in funding is achieved): (i) a $743,652 closing fee, consisting of $446,191 in cash, and $297,461 paid in shares of common stock, which will be accomplished by the issuance of common stock valued at various amounts based on the timing of the funding and the related stock price.
The Registrant has made certain agreements with the Lender which shall remain in effect as long as any amount is outstanding under the Loan. These agreements include an agreement not to make any change in the Registrants senior management. Two representatives of the Lender will have the right to attend Board of Director meetings as non-voting observers.