Summary of ISC8 INC. /DE - Yahoo! Finance

Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligati

Item 1.01 Entry into a Material Definitive Agreement.

Background

Subordinated Notes

As previously reported in various of its periodic reports filed with the Securities and Exchange Commission (the "SEC"), ISC8 Inc. ("ISC8" or the "Company") has issued and may in the future issue up to $11,020,800 in aggregate principal amount of 12% Subordinated Secured Convertible Notes due 2015, pursuant to that certain Securities Purchase Agreement, dated as of December 23, 2010, among the Company and the initial holders of such notes (the "Securities Purchase Agreement"). The terms of such notes are set forth in the form of Subordinated Secured Convertible Note attached to the Securities Purchase Agreement (each of the promissory notes issued from time to time in such form, as amended by that certain Omnibus Amendment (the "Omnibus Amendment"), dated as of March 16, 2011, by and among the Company and the representative of the holders of such notes (the "Promissory Note Holder Representative"), as further amended by that certain Second Omnibus Amendment (the "Second Omnibus Amendment") by and among the Company and the Holder Representative and as further amended by that certain Third Omnibus Amendment (the "Third Omnibus Amendment"), dated as of December 14, 2011, by and among the Company and the Holder Representative, including certain Milestone Notes (as such term is defined in the Securities Purchase Agreement) and the 12% Subordinated Secured Convertible Notes due 2015, each a "Promissory Note" and collectively, the "Promissory Notes").

The Company has issued $4,000,000 in aggregate principal amount of 12% Senior Subordinated Promissory Notes due 2013 (such promissory notes, as amended by the Second Omnibus Amendment, the "Senior Subordinated Notes").

The Company's obligations under the Promissory Notes are secured by liens on substantially all of its assets pursuant to that certain Security Agreement, dated as of December 23, 2010, between the Company and the Holder Representative (as amended by the Omnibus Amendment, the Second Omnibus Amendment, and the Third Omnibus Amendment, the "Security Agreement").

The Company's obligations under the Senior Subordinated Notes are secured by liens on substantially all of its assets pursuant to that certain Security Agreement, dated as of March 16, 2011, between the Company and the Holder Representative (as amended by the Second Omnibus Amendment, the "Senior Subordinated Note Security Agreement" and together with the Security Agreement, the "Security Agreements").

Senior Secured Revolving Credit Facility

In addition, in December 2011, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Partners for Growth III, L.P. ("PFG") pursuant to which the Company obtained a two-year, $5,000,000 revolving credit facility from PFG (the "Revolving Credit Facility"), pursuant to which the Company has borrowed $5,000,000 available thereunder (the "Loan"). To secure the payment of all of the Company's obligations under the Loan when due, the Company granted to PFG a first position, continuing security interest in substantially all of the Company's assets. Pursuant to that certain Subordination Agreement dated on or about the date of the Loan Agreement (the "Subordination Agreement"), the existing creditors of the Company agreed that, while any obligations remain outstanding by the Company to PFG under the Loan Agreement, their security interests in and liens on the Company's assets shall be subordinated and junior to those of PFG.

Issuance of 2012 Notes

Effective as of September 28, 2012 and October 3, 2012, respectively, the Company issued and sold to The Griffin Fund LP, a major stockholder and debt holder of the Company, Senior Subordinated Secured Convertible Promissory Notes due November 30, 2012 in the aggregate principal amount of $1,200,000 and $300,000, respectively (each, a "2012 Note"). The Notes are each of an issue of Senior Subordinated Secured Convertible Promissory Notes (collectively, the "2012 Notes"), in an aggregate principal amount of up to $10,000,000, that the Company may issue to The Griffin Fund LP or its affiliates (collectively, "Griffin") and certain other investors (such additional investors, collectively with Griffin, the "Purchasers").

Payment in cash of an amount equal to all outstanding principal and accrued and unpaid interest on the 2012 Notes is due November 30, 2012 (the "Maturity Date"). Simple interest will accrue on the outstanding principal of the 2012 Notes at the rate of 12% per annum (or 20% per annum upon and during the continuance of any event of default under the 2012 Notes), until the principal is paid in full, will be computed on the basis of a 365-day year and

the actual days elapsed, and will be payable in arrears no later than the date that is 10 business days after the Maturity Date. In the event that the Company is prohibited from paying interest in the form of cash, pursuant to the Security Agreements or other agreements related to indebtedness of the Company, the Company will instead pay interest through the addition of the amount of such interest to the then outstanding principal balance of the 2012 Notes. The 2012 Notes may be prepaid in whole or in part without penalty or premium.

The 2012 Notes are convertible, at any time after issuance upon election of the majority of the holders of the 2012 Notes then outstanding (the "Required Holders"), into shares of the Company's common stock, par value $.01 per share (the "Common Stock") or shares or units of any debt or equity security of the Company (or securities convertible into or exchangeable therefor) (the "Company Stock") offered for sale by the Company to one or more investors in a financing raising gross proceeds to the Company of at least $1,000,000 (a "Qualified Financing"). The number of shares of Common Stock issuable upon conversion of all outstanding principal and accrued and unpaid interest on the 2012 Notes will be determined by dividing such amount by the conversion rate of $0.12. The number of shares of Company Stock issuable in connection with a Qualified Financing upon conversion of all outstanding principal and accrued and unpaid interest on the 2012 Notes will be determined by dividing such amount by the price per share of Company Stock sold in the Qualified Financing.

Certain events will constitute an event of default under the 2012 Notes, upon the occurrence and continuation of which the representative of the holders of the 2012 Notes (the "Holder Representative") upon request of the Required Holders may declare all or any part of the outstanding principal and accrued and unpaid interest under the 2012 Notes to be immediately due and payable, and . . .

Item 3.02 Unregistered Sale of Equity Securities.

The information disclosed in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02. The sales and issuances of shares of Common Stock described in Item 1.01 of this Current Report on Form 8-K (and the issuances of shares of Common Stock or Company Stock, as applicable, upon exercise of the 2012 Notes and/or Warrants) have been determined to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. Griffin, the Purchasers, PFG, and their respective affiliates, as applicable, have represented that (i) they are accredited investors as that term is defined in Regulation D, and (ii) they have acquired the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

In addition, on July 13, 2012, the Company issued an aggregate of 4,458,000 shares of Common Stock to 26 accredited investors pursuant to the Company's election, according to the terms and conditions of those certain 12% Subordinated Secured Convertible Notes (the "12% Notes") issued by the Company to such investors on various dates between December 23, 2010 and July 19, 2011. These shares were issued in lieu of cash in order to pay the interest accrued on the 12% Notes for the fiscal quarter ended July 1, 2012. These issuances of shares of Common Stock has been determined to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. When the 12% Notes were issued, those transactions were determined to be exempt from registration under the Securities Act, in reliance on Section 4(2) of

the Securities Act and Rule 506 of Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. This determination was based in part on the representation by the investors that they were accredited investors, as that term is defined in Regulation D, and that they were acquiring the securities for investment purposes only and not with a view to any distribution or for sale in connection with any distribution thereof.