On March 12, 2020, Summer Energy, LLC, a Texas limited liability company (the 'Borrower'), and wholly-owned subsidiary of Summer Energy Holdings, Inc., a Nevada corporation ('Parent'), and Parent (as guarantor thereunder) entered into a Loan Agreement (the 'Agreement') with Digital Lending Services US Corp., a Delaware corporation ('Digital Lending').

Pursuant to the Agreement, Digital Lending agreed to provide a revolving loan (the 'Loan') to the Borrower, and the Borrower agreed to borrow and repay funds loaned by Digital Lending.

The amount of available credit under the Loan is Ten Million Dollars ($10,000,000). The Loan is revolving in nature and is evidenced by a Revolving Promissory Note (the 'Note'). The maturity date of the Loan is March 11, 2023. The Loan bears interest at a rate of 12.75% per annum, with monthly installment payments of accrued interest only. The principal balance of the Loan may be prepaid at any time at the option of the Borrower, subject to certain prepayment charges.

The Borrower anticipates that the proceeds of the Loan will be used by the Borrower to repay indebtedness owed to Blue Water Capital Funding, LLC ('Blue Water') and additional indebtedness, as well as for working capital and other general corporate purposes. Simultaneous with the closing of the Loan, the Borrower paid off all outstanding debt due and owing to Blue Water. As a result, the loan agreement and related credit facility with Blue Water was terminated, along with Blue Water’s security interest in and to the assets of the Borrower.

In connection with the Agreement, the Borrower made certain customary representations and warranties, and agreed that while the Loan amount remains outstanding, it would not take certain actions, including that it will not incur certain debts (as defined in the Agreement); create, assume, or suffer to exist any lien on any property or asset of the Borrower, except those set forth in and allowed by the Agreement; consolidate or merge with any other entity; or sell, lease, or transfer all or substantially all of the assets of the Borrower. Also in connection with the Agreement, the Borrower made certain affirmative and negative covenants, and agreed to designate a representative of Digital Lending to attend Parent board of directors meetings in a non-voting, observer capacity.

In connection with the Agreement, the Borrower and Digital Lending also entered into a Security Agreement (the 'Security Agreement'), and Parent executed a Guaranty (the 'Guaranty') and issued a Common Stock Purchase Warrant ('Warrant') in favor of Digital Lending.

Pursuant to the Security Agreement, the Borrower granted to Digital Lending a second position security interest in and to the Borrower’s collateral, as more fully defined in the Security Agreement, and which includes receivables, equipment, inventory, personal property, other intangibles, and proceeds from any of these, to secure the Borrower’s payment of its obligations under the Loan. The security interest granted to Digital Lending is subordinate to a security interest granted to EDF Energy Services, LLC ('EDF') pursuant to an Amended and Restated Energy Services Agreement dated June 19, 2019, in accordance with the Agreement and a First Lien/Second Lien Intercreditor Agreement by and among EDF, Digital Lending, the Borrower, Parent, et. al., dated March 12, 2020.

Pursuant to the Guaranty, Parent agreed to guaranty the Borrower’s obligations under the Agreement and Note.

In connection with the Agreement and the Loan, Parent agreed to issue to Digital Lending the Warrant. Pursuant to the Warrant, Digital Lending may purchase up to 250,000 shares of Parent’s common stock. The Warrant has a term of five (5) years, has an exercise price of $1.50 per share, and is subject to adjustment as set forth in the Warrant. The Warrant also contains a cashless or net exercise provision, pursuant to which the holder of the Warrant may elect to convert all or a portion of the Warrant without the payment of additional consideration, by receiving a net number of shares calculated pursuant to a formula set forth in the Warrant.

The Warrant, together with the shares of common stock underlying the Warrant, were and will be issued to Digital Lending without registration under the Securities Act of 1933, as amended (the 'Securities Act'), in reliance on Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder, based in part upon the following factors: (a) the issuance of the securities was in connection with an isolated private transaction which did not involve any public offering; (b) there was a single offeree; (c) there were no subsequent or contemporaneous public offerings of the securities by Parent; and (d) the negotiations for the sale of the securities took place directly between the offeree and the issuer.

See more details in an 8-K

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Texas   Finance   Summer Energy  

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