Attached files
Exhibit 10.2
Memorandum of Terms Delivery No: 01
Memorandum of Terms Identification No:
MOT 530362-102 LBTG
[LIBERTY COAL ENERGY LOGO]
This Confidential Memorandum of Terms
Ref #: 530362-102 LBTG
Is being issued by:
Mr. Robert Malasek, CFO
Liberty Coal Energy ("Company")
99 18th Street, Suite 3000, Denver CO
Denver, Colorado 80202
Phone: 1-760-448-1146
Website: http://www.libertycoal.com/
Public Market: OTCBB
Symbol: LBTG
Cusip#: 530362-102
To:
Investors listed in Exhibit A
Issuance Date:
August 17, 2012
This is an all or none offer to sell securities of Liberty Coal Energy
("Company") to those Investor(s) executing copies of this Memorandum of Terms
(the "MOT"). Should the full offer not be committed to within 7 business days of
the Company execution date, this MOT will be null and void. This Memorandum of
Terms is conditional on obtaining appropriate legal opinions and signing of
completed offering documents ("Closing Documents" as also described in Section
II.2). This document will be followed by appropriate offering documents and
other agreements between the parties should this full sales offer be executed in
its entirety.
THE OFFER AND SALE OF THE COMMON SHARES AND WARRANTS ("UNITS") DESCRIBED HEREIN
ARE NOT BEING ISSUED UNDER A REGISTRATION THROUGH THE U.S. SECURITIES ACT OF
1933, AS AMENDED, OR THROUGH REGISTRATION WITH ANY STATE'S SECURITIES ACTS, BUT
ARE BEING ISSUED IN RELIANCE UPON AVAILABLE EXEMPTIONS FROM SUCH ACTS'
REGISTRATION REQUIREMENTS. UNITS PURCHASED HEREUNDER MAY BE SUBJECT TO CERTAIN
RESTRICTIONS ON SALE, TRANSFER, HYPOTHECATION OR OTHERWISE. THESE UNITS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, AND NO SUCH COMMISSION HAS PASSED UPON OR ENDORSED
THE MERITS OF THESE UNITS OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS MEMORANDUM DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED. CHANGES
IN INFORMATION OCCURRING AFTER THE DATE OF THIS MEMORANDUM ARE NOT NECESSARILY
REFLECTED HEREIN. PURCHASE OF THESE UNITS INVOLVES A HIGH DEGREE OF RISK.
US NOTICE: Any dissemination of these possible terms to the general public,
distribution within the borders of the United States of America, distribution to
United States citizens abroad, or to other funding or investment sources could
void any exemptions for Private Placement status under US Securities Law. The
Company and Investor(s) agree that no public announcements or dissemination of
any information to any source other than the Company, the Advisor, the
Intermediary or the Investor(s) without an opinion from legal counsel attesting
that such announcement or dissemination will not void the private placement
exemption or violate Regulation D, Section 4(2) or Section 5 of the Securities
Acts of the U.S..
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SECTION I. INVESTMENT ASSUMPTION & DEFINITIONS
1. INVESTMENT ASSUMPTIONS:
Company: Liberty Coal Energy
Anticipated Closing Date: To be determined.
Current Capital Structure: (See Exhibit B)
Pre-Money Valuation: $13,137,963
Share Consolidation Necessary: (15-1) See Business Milestones
ADDITIONAL ASSUMPTIONS:
1. If any consolidation or split of shares is contemplated by this Agreement,
the terms, prices and amounts listed in Sections II through V are to be
considered post share adjustment.
2. Class of Security and Series of Security shall be defined in terms of their
Share Attributes, and unless specified as a Series of a Class of Share, shall
encompass the whole Class of Securities.
3. Ownership percentages, save for the final Share structure, are calculated on
the issued and outstanding at the time of calculation and not on a fully diluted
basis. The Final Share structure is calculated on the fully diluted basis.
2. DEFINITIONS:
BREAKOUT: That separation of cash transfer from the Cash Account to the Working
Account following attainment of all requirements for such Breakout.
CASH ACCOUNT: That account with the Intermediary in the name of the Company
which Investor(s) cash was delivered and such cash distribution to the Working
Account is managed by the Intermediary.
CLOSE: That statement by the Intermediary which formally puts the investment
into effect following: receipt by Intermediary of all Investor(s) cash, all
Company shares to be purchased (Fully registered or with an exchange agreement)
and all signatures on all documents required to prove full agreement to the
terms of the investment.
CORPORATE UNDERTAKING: That letter to the Intermediary stating that the Company
has delivered all necessary documents and taken all necessary corporate actions
and requesting that the Intermediary close the transaction.
INTERMEDIARY: That institution responsible for closing, managing and monitoring
the Cash Breakouts and the Use Of Proceeds ("UOP") through the Account
Management Agreement ("AMA").
INVESTOR(S): Refers to any and all purchasers of this offering.
OFFERING DOCUMENTS: The Unit Subscription Agreement ("USA"), detailing the sale
of securities, the Account Management Agreement ("AMA") and any additional
agreements necessary to complete the transaction. The AMA details the
instructions for the Intermediary to manage the distribution of assets and
monitor the milestones and requirements.
UNIT: That combination of Common Shares and Warrants to purchase additional
Common Shares which encompass the securities of the transaction.
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USE OF PROCEEDS: That capital inflow and outflow which includes the utilization
of the capital from this offering to create valuation.
WORKOUT: That period where each Breakout is delivered from the Company Cash
Account to the Company Working Account. Workouts assess deliverable Breakout
Cash as per Market metrics as described in Section II.6. The Intermediary will
monitor and account for those requirements necessary to calculate the release
amounts during each Workout. A Workout is a maximum 30 calendar day, minimum 20
day market trading period.
WORKING ACCOUNT: That domestic unrestricted account designated by the Company
for cash to be distributed for use by the Company following attainment of
Breakout, Workout and Business Milestone requirements.
WORKOUT PERIOD: A Workout Period is a maximum of 30 days. If the Workout is not
fully delivered during the current Breakout Period, additional Workout Periods,
each of 30 days, would be employed. A Workout Period may be as short as 1
trading day.
SECTION II. INVESTMENT
1. OFFER TERMS:
This is an "All or None" offer to sell securities through a private placement of
capital into Units of Common Shares and Warrants for Common Shares of the
Company. This Private Placement will rely upon the US Securities Act of 1933
Sections 3(b) or 4(2) for its structure and on Regulation D for its exemption
from registration. An S-1 registration or registrations to register the shares
of this offering would be required. Investor(s) will purchase that number of
"Units" of securities as detailed in their signature block. Each Unit shall be
comprised of that number of Common Shares and Warrants as described in Figure 1:
Figure 1. (Unit Structure)
OFFERING TOTAL UNIT
----------------------------------------------------------------------- ---------------
UNITS TOTAL UNIT PURCHASE PRICE PER. UNIT
----- ------------------- ---------------
1000 $ 9,196,500.00 $ 9,196.50
TOTAL COMMON SHARES DILUTION EQUITY % COMMON AVG. PRICE
------------------- ----------------- -----------------
237,732,600 44.30% $ 0.04
NUMBER OF INVESTORS TOTAL WARRANTS TOTAL WARRANT EXERCISE AVG. WARRANT PRICE COMMON SHARES PER UNIT
------------------- -------------- ---------------------- ------------------ ----------------------
10 250,095,421 $ 18,393,000.00 $ 0.11 237,733
COMMON TO REGISTER(1) BREAKOUTS FULL DILUTION %(2) WARRANTS PER UNIT(3)
--------------------- --------- ------------------ ------------------
77,263,714 36 61.05% 250,095
Notes:
1. Assumes current outstanding common, common for first 6 Breakouts and VAM
for first 2 quarters. Discussion with counsel is advised.
2. Includes all equity and warrants and assumes no sales of shares by
Investors.
3. Warrants carry rights to purchase that number of registered common shares
as the Warrant Certificate shows in warrant rights. Each Unit carries the
rights to purchase that amount of registered common shares in those amounts
and at those prices as specified in Section III Figure 8, Column 2 and 3.
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2. CLOSING DOCUMENTS:
Prior to funds deposit, the Due Diligence and Closing Agenda items must be
completed ("Closing Agenda" shall be completed following full commitment of this
Memorandum of Terms.). The Closing Agenda may include the following items, but
may include additional items as Investor(s) or Company counsel calls for:
OFFERING DOCUMENTS (USA, AMA, CAA AND ANY OTHER NECESSARY DOCUMENTS)
ACCOUNT DOCUMENTATION
OFFICIAL CORPORATE RESOLUTIONS
CORPORATE UNDERTAKING
COMPLIANCE ATTORNEY UNDERTAKING
ATTORNEY OPINION ON CORPORATE ACCEPTANCE AND UNDERTAKING
COPIES OF SHARE CERTIFICATES AND OPINION LETTERS
3. INVESTMENT CLOSE:
Investor(s) cash will be placed into an account with an Intermediary of
Investor(s) choosing. The Company will deposit the Units of Common Shares and
Warrants in certificate form with the Intermediary. Once all closing items have
been executed and are in place, the Intermediary will transfer the Investors
cash to the account of the Company with the Intermediary, (the "Cash Account"),
and will deposit the share certificates in each Investor(s) account (the
"Close").
4. REGISTRATION:
Following Close, the Company will perform a shareholder Registration of that
number of Preferred and the accompanying underlying shares as described in
Figure 1 "Common to Register", see note 1, to cover at a minimum, the first 12
Breakouts, no later than the time frame requested in Section IV.10 under Item
"Registration". Additional Registrations to cover the remaining underlying
common will later be filed to provide continuity to the Breakout Schedule found
in II.5 below.
5. CASH BREAKOUTS:
Once those requirements detailed in this Section II.2-4 have been accomplished,
apportioned "Breakouts" of cash from the Cash Account would be made to the
Company's Working Account according to the Breakout requirements as described in
Section II.5-8. These Breakouts of cash are divided according to the Use of
Proceeds (UOP). The total offering is divided into 36 Breakouts of Cash as
described in Figure 2. Breakouts must always be delivered in numerical order.
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Figure 2. (Breakout Detail)
OFFERING BREAKOUT DETAIL
Breakout # Break out Amount Common Shares Cash Holdback Acct Fee Monthly Acct Fee Annual Cash to Company
---------- ---------------- ------------- ------------- ---------------- --------------- ---------------
1 $ 255,375 17,025,000 $ 5,000 $ 125 $ 250 $ 250,000
2 $ 255,375 15,906,400 $ 5,000 $ 125 $ 250 $ 250,000
3 $ 255,375 14,862,100 $ 5,000 $ 125 $ 250 $ 250,000
4 $ 255,375 13,886,900 $ 5,000 $ 125 $ 250 $ 250,000
5 $ 255,375 12,976,400 $ 5,000 $ 125 $ 250 $ 250,000
6 $ 255,375 12,126,100 $ 5,000 $ 125 $ 250 $ 250,000
7 $ 255,375 11,332,100 $ 5,000 $ 125 $ 250 $ 250,000
8 $ 255,375 10,590,600 $ 5,000 $ 125 $ 250 $ 250,000
9 $ 255,375 9,898,000 $ 5,000 $ 125 $ 250 $ 250,000
10 $ 255,375 9,251,200 $ 5,000 $ 125 $ 250 $ 250,000
11 $ 255,375 8,647,000 $ 5,000 $ 125 $ 250 $ 250,000
12 $ 255,375 8,082,600 $ 5,000 $ 125 $ 250 $ 250,000
13 $ 255,375 7,559,000 $ 5,000 $ 125 $ 250 $ 250,000
14 $ 255,375 7,066,300 $ 5,000 $ 125 $ 250 $ 250,000
15 $ 255,375 6,605,900 $ 5,000 $ 125 $ 250 $ 250,000
16 $ 255,375 6,175,700 $ 5,000 $ 125 $ 250 $ 250,000
17 $ 255,375 5,773,900 $ 5,000 $ 125 $ 250 $ 250,000
18 $ 255,375 5,398,300 $ 5,000 $ 125 $ 250 $ 250,000
19 $ 255,375 5,047,400 $ 5,000 $ 125 $ 250 $ 250,000
20 $ 255,375 4,719,500 $ 5,000 $ 125 $ 250 $ 250,000
21 $ 255,375 4,413,100 $ 5,000 $ 125 $ 250 $ 250,000
22 $ 255,375 4,126,700 $ 5,000 $ 125 $ 250 $ 250,000
23 $ 255,375 3,859,100 $ 5,000 $ 125 $ 250 $ 250,000
24 $ 255,375 3,608,900 $ 5,000 $ 125 $ 250 $ 250,000
25 $ 255,375 3,375,100 $ 5,000 $ 125 $ 250 $ 250,000
26 $ 255,375 3,156,500 $ 5,000 $ 125 $ 250 $ 250,000
27 $ 255,375 2,952,200 $ 5,000 $ 125 $ 250 $ 250,000
28 $ 255,375 2,761,300 $ 5,000 $ 125 $ 250 $ 250,000
29 $ 255,375 2,582,700 $ 5,000 $ 125 $ 250 $ 250,000
30 $ 255,375 2,415,800 $ 5,000 $ 125 $ 250 $ 250,000
31 $ 255,375 2,259,800 $ 5,000 $ 125 $ 250 $ 250,000
32 $ 255,375 2,113,900 $ 5,000 $ 125 $ 250 $ 250,000
33 $ 255,375 1,977,500 $ 5,000 $ 125 $ 250 $ 250,000
34 $ 255,375 1,849,900 $ 5,000 $ 125 $ 250 $ 250,000
35 $ 255,375 1,730,600 $ 5,000 $ 125 $ 250 $ 250,000
36 $ 255,375 1,619,100 $ 5,000 $ 125 $ 250 $ 250,000
----------- ----------- --------- ------- ------- -----------
TOTAL $ 9,193,500 237,732,600 $ 180,000 $ 4,500 $ 9,000 $ 9,000,000
=========== =========== ========= ======= ======= ===========
In order for a Breakout period to commence, freely traded Common Shares must be
on deposit with the Intermediary. Breakout Accounting will commence once deposit
and clearance of the underlying free trading common shares into electronic
street form is verified by the Intermediary. These actions may require
additional paperwork from the Company and opinions from the Company's
attorney's.
(ALL INVESTED AMOUNTS WOULD BE SUBJECT TO DEDUCTIONS OF ACCOUNT MANAGEMENT AND
INVESTOR(S) EXPENSES (INCLUDING LEGAL, ACCOUNTING, ACCOUNT MANAGEMENT, WIRE,
TRANSFER AND BANK FEES) AND PAYMENTS PRIOR TO TRANSFER FROM THE COMPANY'S
CAPITAL ACCOUNT TO THEIR WORKING FUNDS ACCOUNT. ANY TRANSFERS OF CAPITAL WOULD
HAVE WIRE AND OR CHECK COSTS AND FEES DEDUCTED FROM THEM. THESE TRANSFER FEES
MAY VARY DEPENDING ON THE SIZE AND DESTINATION OF THE TRANSFER.)
6. BREAKOUT MARKET METRIC REQUIREMENTS:
Volume of sales at or above the Minimum Bid Price will release cash from the
account. Figure 3 lists each Breakouts Minimum Bid Price and the Release Volume,
(the total volume at or above the Minimum Bid Price necessary to release 100% of
the Breakout), which Breakout cash amounts were previously shown in Figure 2.
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Figure 3. (Market Metric Requirements)
MARKET METRICS
Breakout # Bid Price Minimum Release Volume Breakout # Bid Price Minimum Release Volume
---------- ----------------- -------------- ---------- ----------------- --------------
1 $ 0.0300 113,500,000 19 $ 0.0932 33,649,333
2 $ 0.0320 106,042,667 20 $ 0.0993 31,463,333
3 $ 0.0340 99,080,667 21 $ 0.1057 29,420,667
4 $ 0.0362 925,879,333 222 $ 0.1126 27,511,333
5 $ 0.0386 86,509,333 23 $ 0.1199 25,727,333
6 $ 0.0411 80,840,667 24 $ 0.1277 24,059,333
7 $ 0.0438 75,547,333 25 $ 0.1360 22,500,667
8 $ 0.0466 70,604,000 26 $ 0.1448 21,043,333
9 $ 0.0496 65,986,667 27 $ 0.1542 19,681,333
10 $ 0.0529 61,674,667 28 $ 0.1643 18,408,667
11 $ 0.0563 57,656,667 29 $ 0.1749 17,218,000
12 $ 0.0600 53,884,000 30 $ 0.1863 16,105,333
13 $ 0.0639 50,393,333 31 $ 0.1984 15,065,333
14 $ 0.0680 47,108,667 32 $ 0.2113 14,092,667
15 $ 0.0724 44,039,333 33 $ 0.2255 13,183,333
16 $ 0.0775 41,171,333 34 $ 0.2397 12,332,667
17 $ 0.0822 38,492,667 35 $ 0.2553 11,537,333
18 $ 0.0875 35,988,667 36 $ 0.2719 10,794,000
7. BREAKOUT WORKOUT PROVISION:
Each Breakout may be divided up into 1 or more Workouts to divide the accounting
periods into 30 calendar day, (Minimum 20 trading day), periods. Breakouts of
cash will be Worked Out, (the "Workout"), of the Cash Account as price and
volume meeting or exceeding the market metrics found in Figure 3 occur. Should
the price or volume be lacking so as not to deliver the full Breakout of cash,
the Breakout may utilize as many Workout periods as is necessary to fully
deliver the Breakout Cash Amount. Each Workout will begin as soon as the
previous Workout schedule is exhausted.
Should a Workout fully account for full delivery of the Breakout Cash Amount
prior to the maximum calendar or trading days, the next Breakout would start the
following trading day provided that all items necessary to start such Breakout
as described in Section II.2-4, Section II.10-11 and any items called for in the
Closing Documents, have previously been completed.
Breakout Cash Workout metrics will be accounted as follows:
Accountable Volume = Total Trading Volume above Minimum Bid Price
Accountable Volume X 15% = Available Uncovered Shares
Available Uncovered Shares / Breakout Common Shares = Share Release %
Share Release % X Breakout Cash Amount = Workout Release Cash
So if given the following theoretical parameters the release for a theoretical
Workout Period would be as follows:
Figure 4. (Theoretical Workout for Breakout 1)
THEORETICAL WORKOUT
Breakout Theoretical Available Workout
Breakout # Cash Amount Common Shares Accountable Volume Uncovered Shares Share Release % Cash Release
---------- ----------- ------------- ------------------ ---------------- --------------- ------------
1 $ 255,375 17,025,000 56,750,000 8,512,500 50.00% $127,687.50
8. BREAKOUT PRICE WORKOUT:
PRICE WORKOUT FOR BID PRICING GREATER THAN BREAKOUT MINIMUM BID PRICE
In the event the Average Bid Price for the 30 day Workout Period, defined as
where the cumulative bid prices averaged daily, is greater than 130% of the
Breakout Minimum Bid Price metric, as described in Section II.6 Figure 3, the
Average Bid Price will adjust the Breakout Common Share volume metric
requirement as follows:
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Breakout (Workout) Cash Amount / Avg. Bid Price = Breakout Common Shares
This Breakout Common Share metric adjustment does not impact the actual shares
purchased by the Investor(s) for that Breakout, which will remain at their
original amount as described in Section II.5 Figure 2.
PRICE WORKOUT FOR PRICING LESS THAN BREAKOUT MINIMUM BID PRICE
A pool of additional shares would be deposited with the Intermediary to be held
for use as the Pricing Workout Pool, (the "PWP"). The PWP would provide
additional shares to make up additional shares necessary in the event pricing
does not meet the expected levels. The existence of the PWP will allow the
offering to go ahead in a smooth and timely manner.
PWP DRAW STEPS
1. Company determines pricing for the Breakout
2. Advisor redrafts Breakout structure utilizing the new Breakout Bid Price
3. Amendment to the Original USA and AMA signed by all parties
4. Amendment delivered to Intermediary to adjust current instructions
PWP CAVEATS
1. No Investor from this offering shall control more than 9.9% of the company
common shares at any given time
2. PWP Shares to be held in the Intermediaries name in Certificate form until
drawn
3. Neither Investors nor Intermediary shall vote PWP shares until drawn
4. PWP shall in no event be larger than 30% of the total offering share amount
5. PWP shares are added to the end of the offering timeline, current Breakout
shares will be drawn first from:
a. Registered Shares
b. 144 Eligible Shares
6. Should the PWP be drawn in the last 6 Breakouts, a registration must be
completed to provide free trading shares
The PWP will be funded for the amount of shares described in Figure 5:
Figure 5. (Pricing Workout Pool)
PWP Preferred PWP Common
------------- ----------
71,319,780 71,319,780
9. CASH FLOW WATERFALL DURING WORKOUT:
Capital to Company during the Workout period must be spent in the following
order:
I. EXPENSES, FEES AND CASH HOLDBACK PAYABLE
II. PUBLIC AND INVESTOR RELATIONS AS DESCRIBED IN THE USE OF PROCEEDS
III. DEBT SERVICE
IV. USE OF PROCEEDS
10. ADDITIONAL TERMS:
The company will be in compliance with the following terms prior to and during
all Breakouts and through the period of warrant exercise. If such terms are out
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of compliance, the company agrees it will not have access to the funds in their
account until the compliance issue is remedied or a workaround is mutually
agreed to with the Investor(s).
i. Anti share consolidation provision whereby the company agrees not to
consolidate its issued preferred or common shares without the agreement of the
Investor(s) in this offering for a period of 48 months or 12 months following
the complete exercise of the warrants whichever is the longer time period.
ii. Corporate compliance with applicable jurisdictional regulations.
(Section II.10 Continued)
iii. The Company agrees to provide and maintain full corporate authority
evidenced by:
a. Certificate of Good Standing or Proof of Corporate Compliance with
State authority.
b. Corporate Undertaking secured by a Corporate Resolution authorizing
the issuance of the shares and acceptance of the offering documents.
Such resolution must be suitable to the Intermediary for purposes of
share deposit.
c. Proper filings of Corporate Capital Structure alterations such as 14C
securities filings, state filings and shareholder votes if required by
state regulations or corporate bylaws.
iv. Company will file and maintain fully reported financials to the proper
regulatory agency so as to maintain fully reporting status with the exchange or
regulatory authority they are subject to during all Breakout periods and until
all Warrants are exercised or expired.
v. Company will at all times be publicly traded on an exchange acceptable to the
investor(s), or will upgrade to such exchange as required. Minimum exchange
requirements are the US Over the Counter Market by the 13th Breakout.
vi. The Company agrees not to perform any sale, merger or spin-off of more than
5% of the underlying assets (Including Intellectual Property) or revenue base
for a period of 1 year following completion of full capital delivery by the
Intermediary unless prior written approval has been obtained from the investors.
vii. The Company will be restricted from performing any equity or debt offerings
which have, or would have, a negative effect on the valuation of the underlying
shares without the approval of the Investor(s). Any offering, investment or
loan, will be cleared with Investor(s) prior to acceptance. Catwalk Capital, LLC
(the Investor(s) "Advisor") will be the arbiter of the impact of any equity
offering. As such, the Company must inform and communicate with the Advisor the
terms, conditions and covenants of any such offering and await acceptance of
terms individually by the Investor(s). Acceptance will not be unreasonably
withheld, but the offering must operate in the best interests of shareholder
value creation.
viii. The management team of the Company will be issued a Value Added Model
("VAM") as shown in Figure 6. The VAM will bonus shares on a quarterly basis for
performance of corporate valuation. Each series of VAM must be preceded by the
fulfillment (Delivery or exercise) of either the completed Breakout or Warrant
Series exercise for that VAM disbursement period as detailed in Figure 6. Such
bonus pool will be divided as the Company sees fit, but a complete plan will be
approved by the Investor(s), and reported to the market. Bonus amounts will be
paid quarterly as follows:
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(Section II.10.viii Continued)
Figure 6. (Value Added Model)
Value Added Model % of Breakout Shares 100% Warrant Common
Nreakout Bonus Period Pref. Shr. Amt. Common Shr. Amt. Series VAM Shares 100%
--------------------- --------------- ---------------- ---------- -----------
Breakout 1-3 477,935 47,793,500 A-C 48,021,165
Breakout 4-6 389,894 38,989,400 D-F 39,754,278
Breakout 7-9 318,207 31,820,700 G-I 32,910,543
Breakout 10-12 259,808 25,980,800 J-L 27,244,963
Breakout 13-15 212,312 21,231,200 M-O 22,565,758
Breakout 16-18 173,479 17,347,900 P-R 18,681,042
Breakout 19-21 141,800 14,180,000 S-U 15,465,084
Breakout 22-24 115,947 11,594,700 V-X 12,802,755
Breakout 25-27 94,838 9,483,800 Y-AA 10,598,750
Breakout 28-30 77,598 7,759,800 AB-AD 8,774,165
Breakout 31-33 63,512 6,351,200 AE-AG 7,263,685
Breakout 34-36 51,996 5,199,600 AH-AJ 6,013,235
--------- ----------- -----------
Total Equity VAM: 2,377,326 237,732,600 Total Warrant VAM 250,095,423
Underlying Shares and warrants of this Unit Offering will be accompanied by the
following in order for Breakouts to start:
ix. The Company understands that Breakouts of capital may only occur if an
accepted Registration statement or Attorney opinion letter, suitable to the
Intermediaries depository and transfer groups, evidencing the free trading
ability of the shares is presented to the Intermediary by the Company, and such
registration proxy accompanies the Common Shares and the underlying Common
Shares of the Warrants. Unless an effective Registration or an attorney opinion
letter, suitable to the Intermediary and their depositories, is/are available
and such status provides sufficient free trading shares to cover the complete
offering, a Registration or additional Registrations of the underlying common
shares shall commence immediately and must be effective prior to the start of
the Breakout the underlying shares are attached to.
x. Company agrees to adhere to the Use of Proceeds schedule as set forth in
Section IV.1 during the term of this investment (Full Cash Delivery from the
account and full warrant exercise). Quarterly and annual reviews of the use of
proceeds, by the corporate accountant and signed by the CFO, would be delivered
to the Investor(s) through the Advisor. Any deviance from this UOP schedule must
be cleared with the Investor(s), through the Advisor, prior to such deviation.
Any such acceptance would be in writing and signed individually by the
Investor(s).
Company agrees not use funds from this offering for any of the following items
unless previously agreed to and included in the Use of Proceeds in Section IV.1
of this Terms Memorandum:
a. Leasing vehicles, aircraft or boats for senior management's or consultant's
personal use
b. Legal or G&A not related to corporate operations, public company listing or
those items contained in the Closing Documents or this Agreement
c. Management or shareholder loan or past due salary repayments
d. Settlement of legal liabilities
e. Severance package payment
f. Payment of license fee's, royalties or any billing which will ultimately be
paid to Senior Management or Directors or their heirs, family, trusts, estates
or businesses. (Unless included in the UOP)
(Section II.10 Continued)
xi. The management team of the Company will be issued 100,000 shares of super
voting Class C Preferred shares. The Attributes of these shares may be found in
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Exhibit D. These shares will be deposited with the Compliance Attorney for use
in the event the Company defaults on its obligations in this Agreement (See
Section IV.8).
11. BUSINESS MILESTONES:
These items must be accomplished prior to closing:
i. Arrangement of Bridge Equity
ii. Creation of the Preferred C Shares, Filing of 14C with State
These items would be accomplished prior to Breakout:
(These are in addition to other compliance items listed in this document)
i. Bridge Equity completion
ii. Registration
These Items would be accomplished within the given time frames:
i. An Investment Bank, acceptable to Investors, would be retained by the
Company no later than Month 13 following Registration acceptance. The
Investment Bank would provide the following:
1. Retail investor support
2. Analyst coverage support
3. Uplisting strategy & support
4. Aid in secondary offering structure
5. Aid in Acquisitions and or Mergers
6. Management acquisition, strategy & support
7. Deal optics improvement
8. Road show support
9. Industry research coverage and strategy
10. Sarbanes Oxley strategy and transparency increase
ii. The Company will make application to a higher exchange acceptable to
the Investors as soon as the common share market price allows such a
listing to be obtained, but at latest by month 24. (Set according to
price of valuation)
iii. The Company will perform a consolidation of its shares of 1 share for
every 10 shares no later than month 12 following Breakout start.
12. RESTRICTIONS ON CAPITAL USE:
The Company agrees not to engage in any of the following activities and will
abstain from supporting, monetarily, through gift of asset, use of assets or
through public message, such activities during the term of the investment
(defined as having all breakouts accomplished and the expiration or exercise of
all warrants) as described below:
i. Pornography or Prostitution
ii. Human Embryo Abortion or Abortive Support
iii. Child Labor (According to the United Nations-International Labor
Organizations, 1976 Minimum Age Convention No.138)
iv. Support for Terrorist or Hate Groups either monetarily or by gift of
resources
v. Human Trafficking
vi. Slavery
vii. Supplying of Weapons in contravention of International law
viii. To suppress, prohibit or elevate any person or group due to ethnic,
religious, racial, sexual or political viewpoints or to support persons or
groups in their pursuit of such suppression of other groups
13. (INTENTIONALLY OMITTED)
11
14. REGISTRATION EXPENSES:
All expenses incurred in connection with a registration required pursuant to
Section II.4, including (without limitation) all registration, filing,
qualification, legal, accounting and any other expenses necessary to complete
the Registration shall be borne by the Company. The Company shall not be
required to pay any underwriters' or brokers' fees or commissions relating to
the Registrable Securities, or the fees or expenses of separate counsel to the
Investor(s), unless such expenses were incurred as a result of requests for data
or documents by Company counsel or auditors.
SECTION III. WARRANT FUNDING
Warrants will provide the holder the right to purchase registered free trading
Common Shares at the prices and amounts set forth in Figure 6.
Figure 7. (Offering Warrant Rights)
WARRANT RIGHTS
Warrant Series Warrants Per Unit Warrant Price Exercise P/Unit Total Warrants
-------------- ----------------- ------------- --------------- --------------
Warrant A Shares 17025 $ 0.0300 $ 510.75 17025000
Warrant B Shares 15986 $ 0.0320 $ 510.75 15985915
Warrant C Shares 15010 $ 0.0340 $ 510.75 15010249
Warrant D Shares 14094 $ 0.0362 $ 510.75 14094131
Warrant E Shares 13234 $ 0.0386 $ 510.75 13233926
Warrant F Shares 12426 $ 0.0411 $ 510.75 12426221
Warrant G Shares 11668 $ 0.0438 $ 510.75 11667813
Warrant H Shares 10956 $ 0.0466 $ 510.75 10955693
Warrant I Shares 10287 $ 0.0496 $ 510.75 10287036
Warrant J Shares 9659 $ 0.0529 $ 510.75 9659189
Warrant K Shares 9070 $ 0.0563 $ 510.75 9069661
Warrant L Shares 8516 $ 0.0600 $ 510.75 8516113
Warrant M Shares 8000 $ 0.0639 $ 511.00 8000265
Warrant N Shares 7512 $ 0.0680 $ 511.00 7511986
Warrant O Shares 7054 $ 0.0724 $ 511.00 7053508
Warrant P Shares 6623 $ 0.0775 $ 511.00 6623012
Warrant Q Shares 6219 $ 0.0822 $ 511.00 6218790
Warrant R Shares 5839 $ 0.0875 $ 511.00 5839240
Warrant S Shares 5483 $ 0.0932 $ 511.00 5482854
Warrant T Shares 5148 $ 0.0993 $ 511.00 5148220
Warrant U Shares 4834 $ 0.1057 $ 511.00 4834009
Warrant V Shares 4539 $ 0.1126 $ 511.00 4538976
Warrant W Shares 4262 $ 0.1199 $ 511.00 4261949
Warrant X Shares 4002 $ 0.1277 $ 511.00 4001830
Warrant Y Shares 3758 $ 0.1360 $ 511.00 3757587
Warrant Z Shares 3528 $ 0.1448 $ 511.00 3528251
Warrant AA Shares 3313 $ 0.1542 $ 511.00 3312912
Warrant AB Shares 3111 $ 0.1643 $ 511.00 3110715
Warrant AC Shares 2921 $ 0.1749 $ 511.00 2920859
Warrant AD Shares 2743 $ 0.1863 $ 511.00 2742591
Warrant AE Shares 2575 $ 0.1984 $ 511.00 2575203
Warrant AF Shares 2418 $ 0.2113 $ 511.00 2418031
Warrant AG Shares 2270 $ 0.2255 $ 511.00 2270451
Warrant AH Shares 2132 $ 0.2397 $ 511.00 2131879
Warrant AI Shares 2002 $ 0.2553 $ 511.00 2001764
Warrant AJ Shares 1880 $ 0.2719 $ 511.00 1879591
------ -------- ----------- ---------
Total 250097 $ 0.1109 $ 18,393.00 250095421
====== ======== =========== =========
12
Figure 8. (Offering Warrant Cash)
OFFERING WARRANT CASH BREAKOUTS
Warrant Series Total Exercise Cash Holdback Acct Fee Annual Acct Fee Monthly Cash to Company
-------------- -------------- ------------- --------------- ---------------- ---------------
Warrant A Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant B Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant C Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant D Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant E Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant F Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant G Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant H Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant I Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant J Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant K Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant L Shares $510,750.00 $ 61,290.00 $ 250.00 $ 250.00 $ 448,960.00
Warrant M Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant N Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant O Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant P Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant Q Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant R Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant S Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant T Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant U Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant V Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant W Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant X Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant Y Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant Z Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AA Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AB Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AC Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AD Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AE Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AF Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AG Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AH Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AI Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
Warrant AJ Shares $511,000.00 $ 61,290.00 $ 250.00 $ 250.00 $ 449,180.00
-------------- ------------- --------- --------- --------------
Total $18,393,000.00 $2,206,440.00 $9,000.00 $9,000.00 $16,167,840.00
============== ============= ========= ========= ==============
Individual Investor(s) Warrant Rights will be detailed in the USA. Underlying
Common Shares of the Warrants must be free trading prior to release of capital
to the Company. The Company will include the Underlying Common Shares in a
registration prior to Month 24 following closing. Warrant exercise is at the
discretion of the Investor(s). The Warrant exercise shall take place through the
Intermediary. Upon delivery of both the underlying Common Shares, free of
restrictive legend, and the Investor(s) cash, the Intermediary will administer
closing and transfer of monies to the Company. Closing shall be the exchange of
the monies payable to the Company, for that series of Warrant, and the Common
Shares, free of restrictive legend, of the Warrant Series deliverable to the
Investor(s). The full exercise instructions will be detailed in the AMA.
Warrants would be available for exercise for 48 months following registration of
the Warrants or 24 months following the final cash disbursement by the
Intermediary whichever is longer. All Invested Amounts are subject to deductions
of expenses and fees (INCLUDING LEGAL, ACCOUNTING, ACCOUNT MANAGEMENT, WIRE,
TRANSFER AND BANK FEES) prior to transfer from the Cash Account to the Working
Account.
SECTION IV. MANAGEMENT
1. USE OF PROCEEDS (UOP):
The Company would adhere to the Use of Proceeds set forth in the accompanying
file titled "LBTG UOP (TN June 8, 2012)". The Company has agreed not to use
funds from this offering for any purpose not listed in the Use of Proceeds
("UOP") without previous approval from the Investor(s). The Company understands
that any such deviation from the UOP may alter the valuation metrics used to
evaluate the risk of this offer. Company further agrees that any deviance from
this UOP is approved in writing by the Investor(s), through the Advisor, prior
to such deviation. Nothing in this document would restrict the Company from
13
utilizing funds not included in the UOP, or received from a separate offering
previously approved by the Investor(s), for purposes as the Company sees fit.
The UOP may be found in Exhibit F to this document.
2. COMMUNICATIONS & CONTROL:
The Securities Sections this offering will utilize for its registration
exemption, have certain requirements for offering origination, offering
management, document preparation, material notices and Blue Sky administration.
The Company wishes to maintain its exemption under these Sections. In order to
do so, the Company and its officers, directors and employees agree not to
communicate directly with the Investor(s) at any time. Any verbal communications
to the Investor(s) may entail unintentional or material representations or
disclosures and would therefore be avoided.
The Company understands that the Investor(s) have retained Catwalk Capital, LLC,
(the "Advisor") as their Purchase Advisor to perform Due Diligence, opine on the
investment opportunity and manage and monitor the investment process. All
communications with Intermediary and Investor(s) shall be conducted through the
Advisor. The Company may utilize the Advisors online portal in written form as
representations to both the Intermediary and the Investor(s). Any discussion of
items needed, document delivery or general questions would be directed to
Advisor. Advisor would consult to the Investor(s) on the worth of the
investment. Any additions, changes or representations which Advisor may request
or suggest to Company, if acted upon by Company, would be provided in writing.
Company counsel shall opine on any and all agreements. The Company requests that
neither the Company nor the Investor(s) communicate verbally to the
Intermediary. Any offers, alterations or communications would be presented in
writing and any agreements signed by all parties before such offer, alteration
or communication is considered accepted or finalized. All communications would
be in writing.
3. EXPENSES AND FEES:
The Company understands that:
1. Advisor will incur expenses for the placement and management of this
Investment.
2. Advisor receives no compensation for expenses incurred to place and manage
this Investment from the Investors. Any Expenses incurred will be paid by
the Company either through billings or through the Monthly Service
Retainer.
3. Prior to signing of this Terms Memorandum, any previous expenses owing by
the Company to the Advisor must be paid.
4. Following execution of this Terms Memorandum, Advisor will be authorized by
Company to incur whatever expenses are customary to complete the
Investment. Advisor will rely on the payment of the Monthly Service
Retainer to recover any expenses related to the Investment.
(Section IV.3 Continued)
5. The Company represents through its Execution of this Terms Notification
that it will provide Advisor with such Monthly Expense Retainer as
described in Section IV.4 below. Advisor will be relying on this
representation and the accompanying Expense Retainer amounts to cover its
expenses related to this offering.
6. Advisor will include such expense billing amounts within the Monthly
Service Retainer. Any amounts over and above the Monthly Service Retainer
will be moved to any upcoming retainer payments. All expenses must be
repaid prior to Breakout Start. Should the expenses incurred be in excess
of the retainer(s) paid, the excess amount will be repaid by the Company
out of their first Breakout of cash.
14
7. Company may pay the Monthly Expense Retainer by either: wire, credit card,
paypal or cashiers check. Any Personal Checks will be automatically charged
a 10% fee for interest due to the waiting period imposed by Advisors bank.
Any checks which return Non Sufficient Funds to the Advisors account will
be charged 2 times the expenses and losses incurred by Advisor in the
account. Any expenses related to legal, collection or accounting charges
during any collection action by Advisor against the Company will be added
to the outstanding balance. Any account 60 days past due will be sent to
collections and any funding may be impaired or broken up according to the
Breakup Agreement. Any credit, wire or other charges will be paid by the
Company and will be added to future Invoices if not already included in the
current invoice.
8. Following execution of this Terms Memorandum and payment of the initial
Monthly Service Retainer, Company represents to Advisor that it will
continue to provide such Monthly Service Retainer as described in Section
IV.4 below.
4. POST MEMORANDUM OF TERMS EXPENSES:
Immediately upon signing of the Memorandum of Terms, the following expenses will
be necessary to securitize the binding offer:
a. Breakup Escrow $750.00
b. Compliance Attorney $750.00-1,500.00
c. Intermediary Account Opening $1,500.00
Following Memorandum of Terms execution, and during any time that no cash is
being released from the Cash Account up to final cash release for the equity
portion of the Investment, the Company will begin provide a Monthly Service
Retainer to Advisor as follows:
a. Month 1 $5,000.00
b. Additional Months $3,500.00
This retainer will cover the following:
a. Preparation of the Unit Subscription Agreement
b. Preparation of the Account Management Agreement
c. Monthly Portal Expense
The retainer will not cover the following:
a. Intermediary Account Setup
b. Breakup Fee
c. Breakup Fee Escrow Setup
d. Compliance Attorney Setup
e. Portal IT not pertaining to this transaction
5. POST-CLOSE EXPENSES:
(These Expenses shall be paid from cash transfers to the Company)
Cash Withholding per Breakout: $5,000.00
Cash Withholding per Workout: $1,000.00
Annual Account Fee (Annual): $3,000.00
Account Service Fee (Annual): $3,000.00
Price Workout Pool Adjustment: $1,500.00
Cash withholding of $5,000.00 per month will be withheld from each Workout for
ongoing expenses of legal, accounting and bank/wire fees. Should a Breakout have
more than 1 Workout, subsequent Workouts will each have $1,000.00 deducted.
Should Workout 1 not deliver sufficient capital to cover the $5,000.00
withholding, the Withholding will be extended to subsequent Workouts.
15
ADDITIONAL STANDARD EXPENSE RATES:
1. Application Programming hourly: $ 150.00
2. Terms Notification Initial Draft: $ 500.00
3. Catwalk Staff Time hourly: $ 150.00
4. Due Diligence Portal Monthly1: $ 250.00
5. Due Diligence Portal IT hourly: $ 75.00
6. Memorandum of Terms Initial Draft: $ 500.00
7. Intermediary Account Opening: $1,500.00
8. Breakup Fee Escrow Setup: $ 750.00
9. Compliance Attorney Setup: $ 750.00
10. Legal Document Alteration (hourly): $ 250.00
11. Accounting (hourly): $ 150.00
Notes:
1. The cost of the monthly Due Diligence portal is aggregated into the Monthly
Service Retainer following signing of the Memorandum of Terms.
TRAVEL EXPENSES: (If Company Requests Advisor to Travel)
1. Daily Retainer: $1,500.00
2. Daily Expense Monies: $ 300.00
3. Business Class Air tickets
a. Bellingham, WA to destination and back
b. No more than 2 stops
4. Rental car at destination of SUV or luxury class car or
5. Town car to take to destination or pick up at airport
6. 4 star or better hotel
a. No smoking room
b. Queen or better bed
6. MEMORANDUM OF TERMS BREAK UP:
The Company understands that following Memorandum of Terms signing, that it will
deposit:
1. Common Shares (the "Breakup Shares") in certificate form with a stock power
to allow transfer to Elco Securities, Ltd. (the "Intermediary"), 2,000,000
shares, or, $50,000 in cash, either payable in the events stated in 6.4
below.
2. Should the total shares be in excess of 999,999 shares, multiple
Certificates will be issued, so that no certificate shall be comprised of
more than 999,999 shares. The certificate or certificates will be comprised
of restricted securities and will be accompanied by the proper documents
required to have the certificate deposited in trust.
3. The certificate or certificates, will be deposited with an attorney of
Advisors choosing under a Breakup Escrow Agreement.
4. The Shares will be deliverable to Intermediary in the following events:
a. Company cancels the investment prior to Close, or
b. Company breaks the exclusivity covenant of the Memorandum of Terms, or
c. Material discoveries are uncovered in due diligence that were not
disclosed by the Company in its Portal upload, and which discoveries
adversely affect the Investor(s) belief that the Company will attain
its projected Financial UOP, or
d. The Company declares bankruptcy, or
e. The Company becomes subject to an investigation or suit by a
securities agency of a recognized government prior to the close.
16
5. Should the Investor(s) cancel the investment for any reason, other than
those specified in #4 above, the shares will be returned to the Company.
6. Following close, the Breakup will be returned to the Company.
7. BREAKUP FOLLOWING CLOSE:
The Company understands that:
1. Following Close, there shall be no ability for either the Company or the
Investor(s) to rescind or cancel the transaction without mutual written
agreement of all parties.
2. Any Breakup following Close will require a negotiated "Breakup Agreement"
between the parties. The Company understands that the Investors are not
investing or managing shares jointly, and as such, each Investor may agree
or disagree with such settlement proposal. There will be no pre-agreed
Breakup Agreement once Close occurs.
3. Should a negotiated Breakup of the transaction occur following closing, any
such agreement must provide an allotment to cover costs and expenses of the
Advisor.
4. The Investor(s) are under no obligation to agree to any such Breakup offer
unless satisfied with the terms of such Breakup settlement.
5. The Company may not cancel or Breakup the investment by delay or refusal to
provide documentation.
6. Any public dissemination or filing of documents stating that the
transaction has been broken up or cancelled without a mutually agreed
Breakup must be considered as a material untrue statement and would subject
the Company to potential regulatory actions.
7. Any Breakup Settlement Agreement will not be considered as complete until
all items necessary to complete such Agreement have been accomplished
including share issuance, registration, delivery of shares to Intermediary
and any other items called for in the Settlement Agreement.
8. COMPLIANCE BY COMPANY:
At close, the Company shall deposit the 100,000 super voting Class C Preferred
Shares with an attorney of the Advisors choosing under an escrow and compliance
agreement (the "Compliance Attorney Agreement" or the "CAA"). The escrow will be
accompanied by stock powers for transfer of the super voting shares to the
Advisor in the event the Compliance Attorney is forced to compel the Company to
act should the following circumstances described in 8.1-2 below not be resolved
and the Compliance Attorney is forced to take those actions described in 8.3
below:
The Company understands that:
1. Should the Company be out of compliance with the following:
a. Failure to file a Registration with the US Securities Exchange
Commission ("SEC") within the given time period covering the shares
described in Section II.4, or any registration that may be necessary
to continue the offering contemplated herein, or;
b. Failure to provide proper documents necessary to deposit certificates
attached to this offering, or;
c. Failure to provide legal opinions as needed for shares attached to
this offering, or;
d. Failure of the Company to communicate with the Advisor to resolve
issues and maintain communications, or;
e. Failure to maintain compliance with requirements set in the USA or
AMA, or;
f. Failure to be a going concern by the filing of a petition for
bankruptcy, either voluntary or involuntary, or the ceasing of
business activity, or;
g. Failure to meet the requirements of Section II.10-12, or;
17
2. Should the Company Institute any of the following:
a. Attempted cancellation of certificates attached to this offering to
force Breakup, or;
b. Institution of any suits to force a Breakup, or;
c. Filing of any documents stating that the transaction is canceled or
Broken up when in fact it is not, or,
d. Filing of any disclosure notifications or dissemination of any press
release stating that there is a negotiated settlement unless and until
all deliveries necessary to make such settlement effective have been
made, then;
3. Immediately upon discovery of an instance of non-compliance, the Compliance
Attorney shall demand the Company come into compliance within 30 days of
receiving notice. During the 30 day Notice Period, the Company may
communicate a plan to the Investor(s), through the Advisor with
Notification to the Compliance Attorney, to rectify such non-Compliant
situation. If the Investors have not agreed to such plan, or issued an
extension to the Company, during the Notice Period, with notice to the
Compliance Attorney of same, the Compliance Attorney shall:
a. Transfer the super voting privilege to the Advisor, who may then;
b. Institute a shareholder vote to:
i. Force compliance through shareholder directives, or:
ii. Call for a Shareholder vote to replace the board should the board
be obstructionist or if the actions of the board continue to
leave the Company out of compliance, or:
iii. Bring additional management or replace management as necessary to
put a plan in place to force compliance.
(Section IV.8.3 Continued)
c. Once compliance is reestablished, the Super Voting Shares will be
transferred to the Board of Directors in percentage proportion to the
number of board seats. The new holders will be required to produce
additional stock powers prior to this transference to reestablish the
escrow and Compliance Attorney Agreement to continue the offering.
d. Any legal expenses in addition to the original Compliance Attorney
setup will be paid by the Company.
9. EXCLUSIVITY:
Full execution of this Memorandum of Terms by the Company signifies to the
Investor(s) as inducement to enter into such agreement:
1. The Company will not accept or enter into any other offers of investment
which would have an adverse effect on the valuation of the underlying
common shares without approval of the Advisor and the Investor(s) to the
offering contemplated herein.
2. The Company will keep this and other investment documents confidential in
their entirety and will not disclose either the documents or the terms
thereof to any party which is not a party to this investment until such
time as the offering is closed. At which time, the Company will limit its
disclosure to any public filings which must be made to maintain compliance
with applicable Securities regulations unless such disclosures are
previously approved by the Advisor.
18
10. REQUESTED CLOSING TIMEFRAME:
DAY ITEM PREREQUISITE
--- ---- ------------
1-7 Memorandum of Terms (MT) signing Due diligence completion
Initial Monthly Service Retainer MT signing
Deposit of Breakup Fee Memorandum of Terms signing
7-15 Offering document creation (USA) Breakup Fee Deposit
15-21 Account Management Agreement (AMA) Offering document preparation
Account opening to Final Versions
22-30 Closing Signed Documents, Share Deposit,
Breakup Fee Deposit and
legal opinions
45-60 Registration Filing Close and Conversion of Breakout 1-6
11. OFFERING CONTROLS:
FUNDS MANAGEMENT
An Account Management Agreement ("AMA") will be established which will manage
the pre-closing, closing and post closing administration of this offering. The
Intermediary will obtain capital commitments from the Investor(s). The Company
shall deliver the Unit securities to Intermediary (Common Shares and Warrant
Certificates). At close, the Investors Capital will be credited to the Company's
Cash Account with the Intermediary. Common Shares and Warrants would be credited
to Investor(s) accounts thus closing the transaction. All invested funds would
remain in the Cash Account until such time as the instructions contained in the
AMA may be carried out. The Investor(s) may not request capital return following
close without the agreement of the Company and a Breakup Agreement is enacted.
The Company may not request to unwind or alter the transaction, following close,
without a Breakup or Alteration Agreement signed by both the Company and the
Investor(s). The Cash Account would be administered by the Intermediary
according to the AMA. The AMA will manage the Breakout Cash Amount releases and
provide Use of Proceeds oversight.
SHARE MANAGEMENT
Following the Close and the Registration covering the specific Breakout(s), and
prior to each Breakout, the Intermediary will deposit the Common Shares for the
upcoming Breakout electronically and await the Workout cash release, as detailed
in Section II.5-8, before release of the shares to the Investor(s) Account.
SECTION V. ACCEPTANCE OF TERMS
By issuing this Memorandum of Terms, the Company signifies that it will enter
into such offer with the Investor(s). This is an offer to sell securities under
these terms by the Company to the Investor(s).
This Memorandum of Terms is good for acceptance for 7 business days after the
Issuance Date located on the title page of this document. If at that time, there
are not enough committed funds to purchase all the Units being offered, this
Memorandum of Terms will become invalid. Upon full commitment of capital, these
terms will be implemented into the offering documents (The Unit Subscription
Agreement ("USA") and the corresponding Account Management Agreement ("AMA")).
19
This Securities Offer is made by:
Mr. Robert Malasek
CFO
Liberty Coal Energy
/s/ Robert Malasek Signed this day of August 17, 2012
A corporate resolution and any authorization documents necessary for full
authorization for signing will be included with this offer.
20
EXHIBIT A
INVESTOR SIGNATURES
By signature below, the given Investor signifies their intent to subscribe that
number of Units for such amount as is detailed in the name block. Nothing in
this document or in the location of signatures signifies any pooling of interest
or common share sales agreement among the Investors. Each Investor represents
that they are purchasing for their own account and not for the account of others
and not with a view to sell or distribute such securities although such Investor
will still retain any rights to sell as provided by applicable securities
regulation. Further, each Investor(s) certify and herby represent that they are
an "Accredited Investor" as defined in the US Securities Act of 1933 under
Regulation D, Rule 501 (a copy of which is included in Exhibit G.).
(Insert Name Block for each Investor on a separate Page with the Disclaimer and
Notice)
21
EXHIBIT B
CAPITAL STRUCTURE
COMMON SHARES NUMBER OF SHARES PAR/FACE VALUE EXERCISE PRICE
------------- ---------------- -------------- --------------
Authorized
SERIES A 1,500,000,000.00 $0.001
SERIES B None
SERIES C None
SERIES D None
SERIES E None
-- $ -- $ --
---------------- ------ ------
TOTAL COMMON AUTHORIZED 1,500,000,000.00
OUTSTANDING
SERIES A 60,566,667.00 $0.001
SERIES B None
SERIES C None
SERIES D None
SERIES E None
-- $ -- $ --
---------------- ------ ------
TOTAL COMMON ISSUED 60,566,667.00
ISSUED OPTIONS ON COMMON SHARES
SERIES A 566,667.00
SERIES B
SERIES C
SERIES D
SERIES E
-- $ -- $ --
---------------- ------ ------
TOTAL OPTIONS 566,667.00
ISSUED WARRANTS FOR COMMON SHARES
SERIES A
SERIES B
SERIES C
SERIES D
SERIES E
-- $ -- $ --
---------------- ------ ------
TOTAL WARRANTS --
Current Authorized 1,500,000,000.00
Current Outstanding 60,566,667.00
Converted Preferred --
Fully Diluted 61,133,334.00
22
EXHIBIT C
(INTENTIONALLY LEFT BLANK)
23
EXHIBIT D
SUPERVOTING PREFERRED ATTRIBUTES
--------------------------------------------------------------------------------
Preferred Shares Attributes
Series C
--------------------------------------------------------------------------------
Issued By: LIBERTY COAL ENERGY
99 18TH STREET, SUITE 3000, DENVER CO
DENVER, COLORADO 80202
Par/Face Value: $ --
Conversion Price: $ --
Conversion Rate: 0
Conversion Rights: No Conversion Rights
Dividend Payable: "Dividend Percentage" per annum per share when, as
and if declared by the Board, and subject to the
rights of senior securities.
Dividend Percentage: TBD
Company CALL: The Company shall have a CALL option at the CALL
Value 60 months following issuance.
CALL Value: $1.00 per share
PUT Rights: There are no PUT rights.
Exemption for Issuance: These shares will be issued pursuant to an
Employee Stock Ownership Plan ("ESOP").
Voting Rights: Each outstanding share of this Series of Preferred
Stock shall be entitled to 547 votes.
Negative Covenants: At any time when shares of this Series of
Preferred Stock are outstanding, without the
written consent or affirmative vote of the holders
of a majority of the outstanding shares of this
Series of Preferred Stock together as a single
class, the Corporation shall not, either directly
or indirectly, affect the powers, preferences, or
special rights, of this Series of Preferred Stock.
Liquidation Preference: None
Anti-Dilution To be set by the Directors and approved by
shareholders.
Redemption: None
Redemption Value: See CALL Value
24
EXHIBIT E
CORPORATE RESOLUTION FOR THIS OFFER
CONSENT TO ACTION
BY THE BOARD OF DIRECTORS OF
LIBERTY COAL ENERGY INC.
(the "Company")
The undersigned, being the Board of Directors of the Company, a Nevada
corporation, by unanimous consent in writing pursuant to the authority contained
in the corporate law of the State of Nevada and without the formality of
convening a meeting, do hereby consent to the following actions of the Company,
to be effective as of the June 13, 2012.
LIBERTY FINANCE PROPOSAL MEMORANDUM OF TERMS MOT530362-102 LBTG
RESOLVED THAT:
1. EXECUTION IN CONTERPART
It is RESOLVED that this resolution may be signed by the directors in as
many counterparts as necessary, each of which so signed shall be deemed to be an
original, (including each signed counterpart copy sent by electronic facsimile
transmission, each of which shall be deemed to be an original) and such
counterparts together shall constitute one and same instrument and
notwithstanding the date of execution shall be deemed to bear the date as set
forth below.
2. It is RESOLVED that the Board of Directors of Liberty Coal Energy approves
the terms and execution of the above referenced memorandum.
/s/ Edwin G. Morrow /s/ Robert Malasek
-------------------------------- --------------------------------
EDWIN G. MORROW Robert Malasek
President and Director CFO and Director
25
EXHIBIT F
USE OF PROCEEDS
26
EXHIBIT G
US SECURITIES ACT OF 1933, REGULATION D, RULE 501
Rule 501 -- Definitions and Terms Used in Regulation D
As used in Regulation D, the following terms shall have the meaning indicated:
A. Accredited investor. Accredited investor shall mean any person who comes
within any of the following categories, or who the issuer reasonably believes
comes within any of the following categories, at the time of the sale of the
securities to that person:
1. Any bank as defined in section 3(a)(2) of the Act, or any savings and loan
association or other institution as defined in section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; any broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in section 2(a)(13) of the Act; any investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that Act; any Small
Business Investment Company licensed by the U.S. Small Business Administration
under section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of $5,000,000;
any employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan fiduciary, as
defined in section 3(21) of such act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;
2. Any private business development company as defined in section 202(a)(22) of
the Investment Advisers Act of 1940;
3. Any organization described in section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000;
4. Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or general
partner of a general partner of that issuer;
5. Any natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeds $1,000,000;
6. Any natural person who had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person's spouse in excess
of $300,000 in each of those years and has a reasonable expectation of reaching
the same income level in the current year;
7. Any trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) and
8. Any entity in which all of the equity owners are accredited investors
2
