Exhibit 99.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of June 21, 2013 (this
"AGREEMENT"), is entered into by and between RED GIANT ENTERTAINMENT, INC., a
Nevada corporation (the "COMPANY"), and TYPENEX CO-INVESTMENT, LLC, an Illinois
limited liability company, its successors and/or assigns ("BUYER").
RECITALS:
A. The Company and the Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration for offers and sales to
accredited investors afforded, inter alia, under Regulation D ("REGULATION D")
as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 ACT"), and/or
Section 4(2) of the 1933 Act.
B. The Buyer wishes to acquire from the Company, and the Company desires to
issue and sell to the Buyer, the Note (as defined below), which Note will be
convertible into shares of common stock of the Company, par value $0.0001 per
share (the "COMMON STOCK"); and the Warrant (as defined below), upon the terms
and subject to the conditions of the Note, the Warrant, this Agreement and the
other Transaction Documents (as defined below).
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used herein, each of the following terms has the
meaning set forth below, unless the context otherwise requires:
"AFFILIATE" means, with respect to a specific Person referred to in the
relevant provision, another Person who or which controls or is controlled by or
is under common control with such specified Person.
"BUYER'S COUNSEL" means Xxxxxx Black Xxxxxxxx PLLC.
"BUYER CONTROL PERSON" means each manager, executive officer, promoter, and
such other Persons as may be deemed in control of the Buyer pursuant to Rule 405
under the 1933 Act or Section 20 of the 1934 Act (as defined below).
"CERTIFICATE OF INCORPORATION" means the certificate of incorporation,
articles of incorporation or other charter document (howsoever denominated) of
the Company, as amended to date.
"CLOSING DATE" means the date of the closing of the purchase and sale of
the Securities.
"COMPANY CONTROL PERSON" means each director, executive officer, promoter,
and such other Persons as may be deemed in control of the Company pursuant to
Rule 405 under the 1933 Act or Section 20 of the 1934 Act.
"COMPANY COUNSEL" means the Company's securities or corporate counsel from
time to time.
"COMPANY'S SEC DOCUMENTS" means the Company's filings on the SEC's XXXXX
system.
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"CONVERSION DATE" means the date a Holder submits a Conversion Notice, as
provided in the Note.
"CONVERSION NOTICE" has the meaning ascribed to it in the Note.
"CONVERSION PRICE" has the meaning ascribed to it in the Note.
"CONVERSION SHARES" has the meaning ascribed to it in the Note.
"DELIVERY DATE" means (a) the date that Conversion Shares are required to
be delivered to Holder under Section 3 or Section 8 of the Note, as applicable,
or (b) the date Delivery Shares are required to be delivered to the Holder under
the Warrant, as applicable.
"DELIVERY SHARES" has the meaning ascribed to it in the Warrant.
"DTC" means the Depository Trust Company.
"DTC ELIGIBLE" has the meaning ascribed to it in the Note.
"EFFECTIVE DATE" means the date set forth in the preamble to this
Agreement.
"EXERCISE PRICE" has the meaning ascribed to it in the Warrant.
"HOLDER" means the Person holding the relevant Securities at the relevant
time.
"INITIAL CASH PURCHASE PRICE" is defined in Section 2.1(a) hereof.
"LAST AUDITED DATE" means August 31, 2012.
"MARKET PRICE" has the meaning ascribed to it in the Note.
"MATERIAL ADVERSE EFFECT" means an event or combination of events, which
individually or in the aggregate, would reasonably be expected to (a) adversely
affect the legality, validity or enforceability of the Note, the Warrant, or any
of the other Transaction Documents, (b) have or result in a material adverse
effect on the results of operations, assets, or financial condition of the
Company and its Subsidiaries, taken as a whole, or (c) adversely impair the
Company's ability to perform fully on a timely basis its material obligations
under any of the Transaction Documents or the transactions contemplated thereby.
"MATURITY DATE" has the meaning ascribed to it in the Note.
"NOTICE OF EXERCISE" has the meaning ascribed to it in the Warrant.
"OUTSTANDING BALANCE" has the meaning ascribed to it in the Note.
"PERMITTED LIENS" means (a) any Lien (as defined herein) for taxes not yet
due or delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP, (b)
any statutory Lien arising in the ordinary course of business by operation of
law with respect to a liability that is not yet due or delinquent, (c) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
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good faith by appropriate proceedings, and (d) any Lien arising under the
Transaction Documents in favor of Buyer.
"PERSON" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
"PRINCIPAL TRADING MARKET" means (a) the NYSE Amex, (b) the New York Stock
Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, (e) the
OTC Bulletin Board, (f) the OTCQX or OTCQB, or (g) such other market on which
the Common Stock is principally traded at the relevant time, but shall not
include OTC Pink (a.k.a., "pink sheets").
"PURCHASE PRICE" is defined in Section 2.1(a) hereof.
"REGISTRATION STATEMENT" means a registration statement of the Company
under the 1933 Act covering securities of the Company (including Common Stock)
on Form S-3, if the Company is then eligible to file using such form, and if not
eligible, on Form S-1 or other appropriate form.
"RULE 144" means (a) Rule 144 promulgated under the 1933 Act or (b) any
other similar rule or regulation of the SEC that may at any time permit a Holder
to sell securities of the Company to the public without registration under the
1933 Act.
"SECURITIES" means the Note, the Warrant and the Shares.
"SHARES" means the shares of Common Stock representing any or all of the
Conversion Shares and the Warrant Shares.
"STATE OF INCORPORATION" means Nevada.
"SUBSIDIARY" or "SUBSIDIARIES" means, as of the relevant date, any
subsidiary or subsidiaries of the Company (whether or not included in the
Company's SEC Documents) whether now existing or hereafter acquired or created.
"TRADING DAY" means any day during which the Principal Trading Market shall
be open for business.
"TRANSACTION DOCUMENTS" means this Agreement, the Note, the Company
Security Agreement (defined below), the Transfer Agent Letter (defined below),
the Warrant, the Membership Interest Pledge Agreement (defined below), and all
other certificates (including without limitation the Secretary's Certificate
(defined below), documents, agreements, resolutions and instruments delivered to
any party under or in connection with this Agreement, as the same may be amended
from time to time.
"TRANSFER AGENT" means, at any time, the transfer agent for the Common
Stock.
"WARRANT SHARES" means the shares of Common Stock issuable upon exercise of
the Warrant.
"WIRE INSTRUCTIONS" means the wire instructions for the Initial Cash
Purchase Price, as provided by the Company, set forth on ANNEX I.
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2. AGREEMENT TO PURCHASE; PURCHASE PRICE.
2.1. Purchase.
(a) Subject to the terms and conditions of this Agreement and the other
Transaction Documents, the undersigned Buyer hereby agrees to purchase from the
Company a Secured Convertible Promissory Note in the principal amount of
$557,500.00 substantially in the form attached hereto as ANNEX II (the "NOTE").
The Note shall be secured by a Security Agreement substantially in the form
attached hereto as ANNEX III (the "COMPANY SECURITY AGREEMENT") listing all of
the Secured Buyer Notes (defined below) and the Buyer Notes (defined below) as
security for the Company's obligations under the Transaction Documents. In
consideration thereof, the Buyer shall pay (i) the amount designated as the
initial cash purchase price on the Buyer's signature page to this Agreement (the
"INITIAL CASH PURCHASE PRICE"), and (ii) issue to the Company the Secured Buyer
Notes and the Buyer Notes (the sum of the principal amount of the Secured Buyer
Notes and the Buyer Notes, together with the Initial Cash Purchase Price, the
"PURCHASE PRICE"). Subject to Section 2.1(d), all of the Secured Buyer Notes
shall be secured by the Pledge Agreement substantially in the form attached
hereto as ANNEX IV, as the same may be amended from time to time (the "PLEDGE
AGREEMENT"). Initially, only the Secured Buyer Notes will be secured by the
Pledge Agreement pursuant to the terms and conditions of the Pledge Agreement,
the Secured Buyer Notes and this Agreement, but the Buyer Notes may become
secured subsequent to the Closing by such collateral and at such time as
determined by the Buyer in its sole discretion. The Initial Cash Purchase Price
shall be paid to the Company in accordance with the Wire Instructions. The
Purchase Price is allocated to the Tranches (as defined in the Note) of the Note
and to the Warrant as set forth in the table attached hereto as ANNEX V.
(b) In consideration for the Purchase Price, the Company shall, at the
Closing (defined below):
(i) execute and deliver to the Buyer the Company Security Agreement;
(ii) execute and deliver to the Buyer that certain Warrant to Purchase
Shares of Common Stock substantially in the form attached hereto as ANNEX
VI ("WARRANT");
(iii) execute and deliver to the Transfer Agent, and the Transfer
Agent shall execute to indicate its acceptance thereof, the irrevocable
letter of instructions to transfer agent substantially in the form attached
hereto as ANNEX VII (the "TRANSFER AGENT LETTER");
(iv) cause to be executed and delivered to the Buyer a fully executed
secretary's certificate and written consent of directors evidencing the
Company's approval of the Transaction Documents substantially in the forms
attached hereto as ANNEX VIII (together, the "SECRETARY'S CERTIFICATE");
(v) cause to be executed and delivered to the Buyer a fully executed
share issuance resolution to be delivered to the Transfer Agent
substantially in the form attached hereto as ANNEX IX (the "SHARE ISSUANCE
RESOLUTION"); and
(vi) execute and deliver to the Buyer the Membership Interest Pledge
Agreement.
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(c) At the Closing, the Buyer shall deliver the Purchase Price to the
Company by delivering the following: (i) the Initial Cash Purchase Price; (ii)
Secured Buyer Note #1 in the principal amount of $100,00.00 duly executed and
substantially in the form attached hereto as ANNEX X ("SECURED BUYER NOTE #1");
(ii) Secured Buyer Note #2 in the principal amount of $100,000.00 duly executed
and substantially in the form attached hereto as ANNEX XI ("SECURED BUYER NOTE
#2," and together with Secured Buyer Note #1, the "SECURED BUYER NOTES"), (iii)
Buyer Note #3 in the principal amount of $100,000.00 duly executed and
substantially in the form attached hereto as ANNEX XII, and (iv) Buyer Note #4
in the principal amount of $100,000.00 duly executed and substantially in the
form attached hereto as ANNEX XIII ("BUYER NOTE #2," and together with Buyer
Note #1, the "BUYER NOTES").
(d) At the Closing, the Buyer shall execute the Membership Interest Pledge
Agreement ("PLEDGE AGREEMENT"), thereby granting to the Company a security
interest in the collateral described therein (the "COLLATERAL"). The Buyer also
agrees to file a UCC Financing Statement (Form UCC1) with the Illinois Secretary
of State in the manner set forth in the Pledge Agreement in order to perfect the
Company's security interest in the Collateral. Notwithstanding anything to the
contrary herein or in any other Transaction Document, the Buyer may, in the
Buyer's sole discretion, add additional collateral to the Collateral covered by
the Pledge Agreement, and may substitute Collateral as the Buyer deems fit,
provided that the net fair market value of the substituted Collateral may not be
less than the aggregate principal balance of the Secured Buyer Notes as of the
date of any such substitution. In the event of a substitution of Collateral, the
Buyer shall timely execute any and all amendments and documents necessary or
advisable in order to properly release the original collateral and grant a
security interest upon the substitute collateral in favor of the Company,
including without limitation the filing of an applicable UCC Financing Statement
Amendment (Form UCC3) with the Illinois Secretary of State. The Company agrees
to sign the documents and take such other measures requested by the Buyer in
order to accomplish the intent of the Transaction Documents, including without
limitation, execution of a Form UCC3 (or equivalent) termination statement
against the Collateral within five (5) Trading Days after written request from
Buyer. The Company acknowledges and agrees that the Collateral may be encumbered
by other monetary liens in priority and/or subordinate positions. The intent of
the parties is that the net fair market value of the Collateral (less any other
prior liens or encumbrances) will be equal to or greater than the aggregate
outstanding balances of the Secured Buyer Notes. To the extent the fair market
value of the Collateral (less any other liens or encumbrances) is less than the
total outstanding balance of all the Secured Buyer Notes, then the Collateral
will be deemed to only secure those Secured Buyer Notes with an aggregate
outstanding balance that is less than or equal to such net fair market value of
the Collateral, applied in numerical order of the Secured Buyer Notes. By way of
example only, if the fair market value of the Collateral is determined by
appraisal to be $400,000 and the Collateral is encumbered by $300,000 of prior
liens, then the net fair market value for purposes of this section is $100,000
($400,000 - $300,000). Accordingly, the Collateral will be deemed to secure only
Secured Buyer Note #1 and Secured Buyer Note #2 shall be deemed unsecured. If
the Collateral is subsequently appraised for $400,000 with all prior liens
removed, then the Collateral will automatically be deemed to secure Secured
Buyer Notes #1 and #2.
2.2. Form of Payment; Delivery of Securities. The purchase and sale of the
Securities shall take place at a closing (the "CLOSING") to be held at the
offices of the Buyer on the Closing Date. At the Closing, the Company will
deliver the Transaction Documents to the Buyer against delivery by the Buyer to
the Company of the Initial Cash Purchase Price and the Secured Buyer Notes and
the Buyer Notes, as set forth in Section 2.1(c) above.
2.3. Purchase Price. The Note carries an original issue discount of
$50,000.00 (the "OID"). In addition, the Company agrees to pay $7,500.00 to the
Buyer to cover the Buyer's legal fees, accounting costs, due diligence,
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monitoring and other transaction costs incurred in connection with the purchase
and sale of the Securities (the "TRANSACTION EXPENSE AMOUNT"), all of which
amount is included in the initial principal balance of the Note. The Purchase
Price, therefore, shall be $500,000.00, computed as follows: $557,500.00
original principal balance, less the OID, less the Transaction Expense Amount.
The Initial Cash Purchase Price shall be the Purchase Price less the sum of the
initial principal amounts of the Secured Buyer Notes and the Buyer Notes.
3. BUYER REPRESENTATIONS AND WARRANTIES. The Buyer represents and warrants
to, and covenants and agrees with, the Company, as of the date hereof and as of
the Closing Date, as follows:
3.1. Binding Obligation. The Transaction Documents to which the Buyer is a
party and the transactions contemplated hereby and thereby, have been duly and
validly authorized by the Buyer. This Agreement has been executed and delivered
by the Buyer, and this Agreement is, and each of the other Transaction Documents
to which the Buyer is a party, when executed and delivered by the Buyer (if
necessary), will be valid and binding obligations of the Buyer enforceable in
accordance with their respective terms, subject as to enforceability only to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
3.2. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Regulation D.
4. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Buyer as of the date hereof and as of the Closing Date that:
4.1. Rights of Others Affecting the Transactions. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the Securities. No
other party has a currently exercisable right of first refusal which would be
applicable to any or all of the transactions contemplated by the Transaction
Documents.
4.2. Status. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Incorporation and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted. The Company is duly qualified as a foreign corporation to
do business and is in good standing in each jurisdiction where the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those jurisdictions in which the failure to so qualify would not have
or result in a Material Adverse Effect. The Company has registered its stock
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 ACT"), and is obligated to file reports pursuant to Section 13 or Section
15(d) of the 0000 Xxx. The Company has not taken and will not take any action
designed to terminate, or which to its knowledge is likely to have the effect
of, terminating the registration of the Common Stock under the 1934 Act, nor has
the Company received any notification that the SEC is contemplating terminating
such registration. The Common Stock is quoted on the Principal Trading Market.
The Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for quotation on the Principal Trading
Market, and the Company has maintained all requirements on its part for the
continuation of such quotation. The Company has not, in the twelve (12) months
preceding the date hereof, received notice from the Principal Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Principal Trading Market. The Company is, and has no reason to believe that
it will not in the foreseeable future continue to be, in compliance with all
such listing and maintenance requirements.
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4.3. Authorized Shares.
(a) The authorized capital stock of the Company consists of 100,000,000
shares of preferred stock, $0.0001 par value per share, no shares of which have
been issued, and 900,000,000 shares of Common Stock, $0.001 par value per share,
of which approximately 434,922,000 are outstanding.
(b) Other than as set forth in the Company's SEC Documents, there are no
outstanding securities which are convertible into or exchangeable for shares of
Common Stock, whether such conversion is currently exercisable or exercisable
only upon some future date or the occurrence of some event in the future.
(c) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable. After
considering all other commitments that may require the issuance of Common Stock,
the Company has sufficient authorized and unissued shares of Common Stock as may
be necessary to effect the issuance of the Shares on the Closing Date, were (i)
the Note issued and fully converted on that date and (ii) the Warrant issued and
fully exercised on that date.
(d) The Shares have been duly authorized by all necessary corporate action
on the part of the Company as of or prior to the Closing in accordance with the
terms of this Agreement, and, when issued on conversion of, or in payment of
interest on the Note in accordance with the terms thereof, or upon exercise of
the Warrant in accordance with the terms thereof, as applicable, will have been
duly and validly issued, fully paid and non-assessable, free from all taxes,
liens, claims, pledges, mortgages, restrictions, obligations, security interests
and encumbrances of any kind, nature and description, and will not subject the
Holder thereof to personal liability by reason of being a Holder.
(e) The Conversion Shares and Warrant Shares are enforceable against the
Company and the Company presently has no claims or defenses of any nature
whatsoever with respect to the Conversion Shares or the Warrant Shares.
4.4. Transaction Documents and Stock. This Agreement and each of the other
Transaction Documents, and the transactions contemplated hereby and thereby,
have been duly and validly authorized by the Company. This Agreement has been
duly executed and delivered by the Company and this Agreement is, and the Note,
the Company Security Agreement, the Warrant, and each of the other Transaction
Documents, when executed and delivered by the Company, will be, valid and
binding obligations of the Company enforceable in accordance with their
respective terms, subject as to enforceability only to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally.
4.5. Non-contravention. The execution and delivery of this Agreement and
each of the other Transaction Documents by the Company, the issuance of the
Securities in accordance with the terms hereof and thereof, and the consummation
by the Company of the other transactions contemplated by this Agreement, the
Note, the Company Security Agreement, the Warrant, and the other Transaction
Documents do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default under (a) the
Certificate of Incorporation or bylaws of the Company, each as currently in
effect, (b) any indenture, mortgage, deed of trust, or other material agreement
or instrument to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for the Common
Stock except as herein set forth, or (c) to the Company's knowledge, any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
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Company or any of the Company's properties or assets, except such conflict,
breach or default which would not have or result in a Material Adverse Effect.
4.6. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders or any lender of the Company is required
to be obtained by the Company for the issuance and sale of the Securities to the
Buyer as contemplated by this Agreement, except such authorizations, approvals
and consents that have been obtained.
4.7. Filings; Financial Statements. None of the Company's SEC Documents
contained, at the time they were filed, any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the Company with
the SEC under the 1934 Act on a timely basis or has received a valid extension
of such time of filing and has filed any such report, schedule, form, statement
or other document prior to the expiration of any such extension. As of their
respective dates, the financial statements of the Company included in the
Company's SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (a) as may be otherwise indicated in such
financial statements or the notes thereto, or (b) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the Company's SEC Documents, including, without limitation,
information referred to in this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading.
4.8. Absence of Certain Changes. Since the Last Audited Date, there has
been no Material Adverse Effect. Since the Last Audited Date, the Company has
not (a) incurred or become subject to any material liabilities (absolute or
contingent) except liabilities incurred in the ordinary course of business
consistent with past practices; (b) discharged or satisfied any material lien or
encumbrance or paid any material obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary course of
business consistent with past practices; (c) declared or made any payment or
distribution of cash or other property to stockholders with respect to its
capital stock, or purchased or redeemed, or made any agreements to purchase or
redeem, any shares of its capital stock; (d) sold, assigned or transferred any
other material tangible assets, or canceled any material debts owed to the
Company by any third party or material claims of the Company against any third
party, except in the ordinary course of business consistent with past practices;
(e) waived any rights of material value, whether or not in the ordinary course
of business, or suffered the loss of any material amount of existing business;
(f) made any increases in employee compensation, except in the ordinary course
of business consistent with past practices; or (g) experienced any material
problems with labor or management in connection with the terms and conditions of
their employment.
4.9. Full Disclosure. There is no fact known to the Company or that the
Company should know after having made all reasonable inquiries (other than
conditions known to the public generally or as disclosed in the Company's SEC
Documents since the Last Audited Date) that has not been disclosed in writing to
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the Buyer that would reasonably be expected to have or result in a Material
Adverse Effect.
4.10. Absence of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company before or
by any governmental authority or non-governmental department, commission, board,
bureau, agency or instrumentality or any other person, wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Documents. The Company is not aware of any valid basis for any such claim that
(either individually or in the aggregate with all other such events and
circumstances) could reasonably be expected to have a Material Adverse Effect.
There are no outstanding or unsatisfied judgments, orders, decrees, writs,
injunctions or stipulations to which the Company is a party or by which the
Company or any of its properties is bound, that involve the transactions
contemplated herein or that, alone or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
4.11. Absence of Events of Default. Neither the Company nor any of its
Subsidiaries is in violation of or in default with respect to (a) its
Certificate of Incorporation or bylaws or other organizational documents, each
as currently in effect, or any material judgment, order, writ, decree, statute,
rule or regulation applicable to such entity; or (b) any material mortgage,
indenture, agreement, instrument or contract to which such entity is a party or
by which it or any of its properties or assets are bound (nor is there any
waiver in effect which, if not in effect, would result in such a violation or
default), except such breach or default which would not have or result in a
Material Adverse Effect.
4.12. Absence of Certain Company Control Person Actions or Events. None of
the following has occurred during the past five (5) years with respect to a
Company Control Person:
(a) A petition under the federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar officer was
appointed by a court for the business or property of such Company Control
Person, or any partnership in which he or she was a general partner at or within
two (2) years before the time of such filing, or any corporation or business
association of which he or she was an executive officer at or within two (2)
years before the time of such filing;
(b) Such Company Control Person was convicted in a criminal proceeding or
is a named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(c) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him or her from, or
otherwise limiting, the following activities:
(i) acting, as an investment advisor, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance
company, as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, any other Person
regulated by the Commodity Futures Trading Commission ("CFTC") or engaging
in or continuing any conduct or practice in connection with such activity;
(ii) engaging in any type of business practice; or
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(iii) engaging in any activity in connection with the purchase or sale
of any security or commodity or in connection with any violation of federal
or state securities laws or federal commodities laws;
(d) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than sixty (60)
calendar days the right of such Company Control Person to engage in any activity
described in Section 4.12(c)) above, or to be associated with Persons engaged in
any such activity; or
(e) Such Company Control Person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to have violated any
federal or state securities law, and the judgment in such civil action or
finding by the CFTC or SEC has not been subsequently reversed, suspended, or
vacated.
4.13. No Undisclosed Liabilities or Events. The Company has no liabilities
or obligations other than those disclosed in the Transaction Documents or the
Company's most recently filed SEC Documents (Form 10-K or 10-Q) or those
incurred in the ordinary course of the Company's business since the Last Audited
Date, or which individually or in the aggregate, do not or would not have a
Material Adverse Effect. No event or circumstance has occurred or exists with
respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable
laws, rules or regulations, requires public disclosure or announcement prior to
the date hereof by the Company but which has not been so publicly announced or
disclosed. There are no proposals currently under consideration or currently
anticipated to be under consideration by the Board of Directors or the executive
officers of the Company which proposal would (a) change the Certificate of
Incorporation or bylaws of the Company, each as currently in effect, with or
without stockholder approval, which change would reduce or otherwise adversely
affect the rights and powers of the stockholders of the Common Stock, or (b)
materially or substantially change the business, assets or capital of the
Company, including its interests in Subsidiaries.
4.14. No Integrated Offering. Neither the Company nor any of its Affiliates
nor any Person acting on its or their behalf has, directly or indirectly, made
any offer or sale of any security of the Company or solicited any offer to buy
any such security under circumstances that would eliminate the availability of
the exemption from registration under Regulation D in connection with the offer
and sale of the Securities as contemplated hereby.
4.15. Dilution. Each of the Company and its executive officers and
directors is aware that the number of shares of Common Stock issuable upon the
execution of this Agreement, the conversion of the Note and exercise of the
Warrant, or pursuant to the other terms of the Transaction Documents may have a
dilutive effect on the ownership interests of the other stockholders (and
Persons having the right to become stockholders) of the Company. The Company
specifically acknowledges that its obligations to issue (a) the Conversion
Shares upon a conversion of the Note, and (b) the Warrant Shares upon an
exercise of the Warrant, are binding upon the Company and enforceable regardless
of the dilution such issuances may have on the ownership interests of other
stockholders of the Company, and the Company will honor such obligations,
including honoring every Conversion Notice and Notice of Exercise, unless the
Company is subject to an injunction (which injunction was not sought by the
Company or any of its directors or executive officers) prohibiting the Company
from doing so.
4.16. Fees to Brokers, Placement Agents and Others. With respect to any
brokerage commissions, placement agent or finder's fees or similar payments that
will or would become due and owing by the Company to any Person as a result of
this Agreement or the transactions contemplated hereby ("BROKER FEES"), any such
10
Broker Fees will be made in full compliance with all applicable laws and
regulations and only to a Person that is a registered investment adviser or
registered broker-dealer. The Buyer shall have no obligation with respect to any
such Broker Fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this subsection that may be due in
connection with the transactions contemplated hereby. The Company shall
indemnify and hold harmless each of the Buyer, the Buyer's employees, officers,
directors, stockholders, managers, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorneys' fees) and expenses suffered in respect of
any such claimed or existing fees.
4.17. Disclosure. All information relating to or concerning the Company or
its Subsidiaries set forth in the Transaction Documents or in the Company's SEC
Documents or other public filings provided by or on behalf of the Company to the
Buyer is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
No event or circumstance has occurred or exists with respect to the Company or
its Subsidiaries or any of their business, properties, prospects, operations or
financial conditions, which under applicable laws, rules or regulations,
requires public disclosure or announcement by the Company or any such
Subsidiary.
4.18. Confirmation. The Company agrees that, if, to the knowledge of the
Company, any events occur or circumstances exist prior to the payment of the
Purchase Price by the Buyer to the Company which would make any of the Company's
representations or warranties set forth herein materially untrue or materially
inaccurate as of such date, the Company shall immediately notify the Buyer in
writing prior to such date of such events or circumstances, specifying which
representations or warranties are affected and the reasons therefor.
4.19. Title. The Company and the Subsidiaries, if applicable, own and have
good and marketable title in fee simple absolute to, or a valid leasehold
interest in, all their respective real properties and good title to their other
respective assets and properties, subject to no liens, claims or encumbrances
except as have been disclosed to the Buyer.
4.20. Intellectual Property.
(a) Ownership. The Company owns or possesses or can obtain on commercially
reasonable terms sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses (software or otherwise),
information, know-how, inventions, discoveries, published and unpublished works
of authorship, processes and any and all other proprietary rights ("INTELLECTUAL
PROPERTY") necessary to the business of the Company as presently conducted, the
lack of which could reasonably be expected to have a Material Adverse Effect.
Except for agreements with its own employees or consultants, standard end-user
license agreements, support/maintenance agreements and agreements entered in the
ordinary course of the Company's business, all of which have been made available
for review by the Buyer, there are no outstanding options, licenses or
agreements relating to the Intellectual Property of the Company, and the Company
is not bound by or a party to any options, licenses or agreements with respect
to the Intellectual Property of any other person or entity. The Company has not
received any written communication alleging that the Company has violated or, by
conducting its business as currently conducted, would violate any of the
Intellectual Property of any other person or entity, nor is the Company aware of
any basis therefor. The Company is not obligated to make any payments by way of
royalties, fees or otherwise to any owner or licensor of or claimant to any
Intellectual Property with respect to the use thereof in connection with the
present conduct of its business other than in the ordinary course of its
business. There are no agreements, understandings, instruments, contracts,
11
judgments, orders or decrees to which the Company is a party or by which it is
bound which involve indemnification by the Company with respect to infringements
of Intellectual Property, other than in the ordinary course of its business.
(b) No Breach by Employees. The Company is not aware that any of its
employees is obligated under any contract or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
materially interfere with the use of his or her efforts to promote the interests
of the Company or that would conflict with the Company's business as presently
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as presently conducted, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any such employee is now obligated. The Company does not
believe it is or will be necessary to use any inventions of any of its employees
made prior to their employment by the Company of which it is aware.
4.21. No Shell Company. The Company is not, nor has it ever been, the type
of "issuer" defined in Rule 144(i)(1) under the 1933 Act (a "SHELL COMPANY").
The Company acknowledges and agrees that (a) it is essential to the Buyer that
the Buyer be able to sell Common Stock the Buyer receives under the Note or
Warrant in reliance on Rule 144, (b) if the Company were or ever had been a
Shell Company, any Common Stock received by the Buyer under the Note or Warrant
could not be sold in reliance on Rule 144 (at least without satisfying
additional conditions), and (c) Buyer is relying on the truth and accuracy of
the Company's representation in the foregoing sentence and the availability of
Rule 144 with respect to Buyer's selling of Common Stock in entering into this
Agreement, purchasing the Note and receiving the Warrant.
4.22. Environmental Matters.
(a) No Violation. There are, to the Company's knowledge, with respect to
the Company or any of its Subsidiaries or any predecessor of the Company, no
past or present violations of Environmental Laws (as defined below), releases of
any material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give rise to
any common law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company's knowledge, threatened in connection
with any of the foregoing. The term "ENVIRONMENTAL LAWS" means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(b) No Hazardous Materials. Other than those that are or were stored, used
or disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
12
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(c) No Storage Tanks. There are no underground storage tanks on or under
any real property owned, leased or used by the Company or any of its
Subsidiaries that are not in compliance with applicable law.
5. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
5.1. Covenants and Acknowledgements of the Buyer.
(a) Transfer Restrictions. The Buyer acknowledges that (i) the Securities
have not been and are not being registered under the provisions of the 1933 Act
and, except as included in an effective Registration Statement, the Shares have
not been and are not being registered under the 1933 Act, and may not be
transferred unless (A) subsequently registered thereunder, or (B) the Buyer
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration under the 1933 Act; (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
such Rule and further, if such Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the Person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) except as
otherwise provided herein, neither the Company nor any other Person is under any
obligation to register the Securities under the 1933 Act or to comply with the
terms and conditions of any exemption thereunder.
(b) Restrictive Legend. The Buyer acknowledges and agrees that, until such
time as the relevant Securities have been registered under the 1933 Act, and may
be sold in accordance with an effective Registration Statement, or until such
Securities can otherwise be sold without restriction, whichever is earlier, the
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION
OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS OR OTHER EVIDENCE ACCEPTABLE
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
Notwithstanding the foregoing, the Company acknowledges and agrees that any such
legend shall be removed from all certificates for DTC Eligible Common Stock
delivered to Holder or Holder's broker under the Transaction Documents as such
Common Stock is cleared and converted into electronic shares by the DTC, and
nothing contained herein shall be interpreted to the contrary.
5.2. Covenants, Acknowledgements and Agreements of the Company. As a
condition to the Buyer's obligation to purchase the Securities contemplated by
this Agreement, and as a material inducement for the Buyer to enter into this
Agreement and the other Transaction Documents, until all of the Company's
13
obligations hereunder and the Note are paid and performed in full and the
Warrant is exercised in full (or otherwise expired), or within the timeframes
otherwise specifically set forth below, the Company shall comply with the
following covenants:
(a) Filings. From the date hereof until the date that is six (6) months
after all the Conversion Shares and Warrant Shares either have been sold by the
Buyer, or may permanently be sold by the Buyer without any restrictions pursuant
to Rule 144 (the "REGISTRATION PERIOD"), the Company shall timely make all
filings required to be made by it under the 1933 Act, the 1934 Act, Rule 144 or
any United States state securities laws and regulations thereof applicable to
the Company or by the rules and regulations of the Principal Trading Market, and
such filings shall conform to the requirements of applicable laws, regulations
and government agencies, and, unless such filings are publicly available on the
SEC's XXXXX system (via the SEC's web site at no additional charge), the Company
shall provide a copy thereof to the Buyer promptly after such filings. Without
limiting the foregoing, the Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing. Additionally, within four (4) Trading Days
following the date of this Agreement, the Company shall file a current report on
Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and approved by the
Buyer and attaching the material Transaction Documents as exhibits to such
filing. The Company shall further redact all confidential information from such
Form 8-K. Additionally, the Company shall furnish to the Buyer, so long as the
Buyer owns any Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other information as may be reasonably
requested to permit the Buyer to sell such Securities pursuant to Rule 144
without registration.
(b) Reporting Status. So long as the Buyer beneficially owns Securities and
for at least twenty (20) Trading Days thereafter, the Company shall file all
reports required to be filed with the SEC pursuant to Sections 13 or 15(d) of
the 1934 Act, and shall take all reasonable action under its control to ensure
that adequate current public information with respect to the Company, as
required in accordance with Rule 144, is publicly available, and shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination.
(c) Listing. The Common Stock shall be listed or quoted for trading on any
of (i) the NYSE Amex, (ii) the New York Stock Exchange, (iii) the Nasdaq Global
Market, (iv) the Nasdaq Capital Market, (v) the OTC Bulletin Board, (vi) the
OTCQX or (vii) the OTCQB. The Company shall promptly secure the listing of all
of the Conversion Shares and Warrant Shares upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is
then listed (subject to official notice of issuance) and shall maintain such
listing of all securities from time to time issuable under the terms of the
Transaction Documents. The Company shall comply in all material respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the Principal Trading Market and/or the Financial Industry Regulatory
Authority, Inc. ("FINRA") or any successor thereto, as the case may be,
applicable to it at least through the date which is sixty (60) calendar days
after the later of (I) the date on which the Note has been converted or paid in
full, and (II) the date on which the Warrant has been exercised in full (or the
date on which the Warrant has expired).
(d) Use of Proceeds. The Company shall use the net proceeds received
hereunder for working capital and general corporate purposes only; PROVIDED,
HOWEVER, the Company will not use such proceeds to pay fees payable (i) to any
broker or finder relating to the offer and sale of the Note and/or the Warrant,
14
or (ii) to any other party relating to any financing transaction effected prior
to the Closing Date.
(e) Publicity, Filings, Releases, Etc. Neither party shall disseminate any
information relating to the Transaction Documents or the transactions
contemplated thereby, including issuing any press releases, holding any press
conferences or other forums, or filing any reports (collectively, "PUBLICITY"),
without giving the other party reasonable advance notice and an opportunity to
comment on the contents thereof. Neither party will include in any such
Publicity any statement or statements or other material to which the other party
reasonably objects, unless in the reasonable opinion of counsel to the party
proposing such statement, such statement is legally required to be included. In
furtherance of the foregoing, the Company shall provide to the Buyer's Counsel a
draft of the first current report on Form 8-K or a quarterly or annual report on
Form 10-Q or 10-K, as the case may be, intended to be made with the SEC which
refers to the Transaction Documents or the transactions contemplated thereby as
soon as practicable (but at least two (2) Trading Days before such filing will
be made) and shall not include in such filing (or any other filing filed before
then) any statement or statements or other material to which the Buyer
reasonably objects, unless in the reasonable opinion of counsel to the Company
such statement is legally required to be included. Notwithstanding the
foregoing, each of the parties hereby consents to the inclusion of the text of
the Transaction Documents in filings made with the SEC (but any descriptive text
accompanying or part of such filing shall be subject to the other provisions of
this subsection).
(f) FINRA Rule 5110. In the event that the Corporate Financing Rule 5110 of
FINRA is or becomes applicable to the transactions contemplated by the
Transaction Documents or to the sale by a Holder of any of the Securities, then
the Company shall, to the extent required by such rule, timely make any filings
and cooperate with any broker or selling stockholder in respect of any consents,
authorizations or approvals that may be necessary for FINRA to timely and
expeditiously permit the Holder to sell the Securities.
(g) Keeping of Records and Books of Account. The Company shall keep and
cause each Subsidiary to keep adequate records and books of account, in which
complete entries shall be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Company and such Subsidiaries, and
in which, for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made.
(h) Corporate Existence. The Company shall (i) do all things necessary to
remain duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary; (ii) preserve and keep in full
force and effect all licenses or similar qualifications required by it to engage
in its business in all jurisdictions in which it is at the time so engaged;
(iii) continue to engage in business of the same general type as conducted as of
the date hereof; and (iv) continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder.
(i) Taxes. The Company shall pay and discharge promptly when due all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property before the same shall become
delinquent or in default, which, if unpaid, might reasonably be expected to give
rise to liens or charges upon such properties or any part thereof, unless, in
each case, the validity or amount thereof is being contested in good faith by
appropriate proceedings and the Company has maintained adequate reserves with
respect thereto in accordance with GAAP.
15
(j) Compliance. The Company shall comply in all material respects with all
federal, state and local laws and regulations, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations and
requirements (collectively, "REQUIREMENTS") of all governmental bodies,
insurers, departments, commissions, boards, courts, authorities, officials or
officers which are applicable to the Company, its business, operations, or any
of its properties, except where the failure to so comply would not have a
Material Adverse Effect; PROVIDED, HOWEVER, that nothing provided herein shall
prevent the Company from contesting in good faith the validity or the
application of any Requirements.
(k) Litigation. From and after the date hereof and until all of the
Company's obligations hereunder and the Note are paid and performed in full and
the Warrant is exercised in full (or otherwise expired), the Company shall
notify the Buyer in writing, promptly upon learning thereof, of any litigation
or administrative proceeding commenced or threatened against the Company
involving a claim in excess of $100,000.00.
(l) Performance of Obligations. The Company shall promptly and in a timely
fashion perform and honor all demands, notices, requests and obligations that
exist or may arise under the Transaction Documents.
(m) Failure to Make Timely Filings. The Company agrees that, if the Company
fails to timely file on the SEC's XXXXX system any information required to be
filed by it, whether on a Form 10-K, Form 10-Q, Form 8-K, Proxy Statement or
otherwise so as to be deemed a "REPORTING ISSUER" with current public
information under the 1934 Act, the Company shall be liable to pay to the
Holder, in addition to any other available remedies in the Transaction
Documents, an amount based on the following schedule (where, for purposes of
this subsection, "NO. TRADING DAYS LATE" refers to each Trading Day after the
latest due date for the relevant filing):
Late Filing Payment For
Each $10,000.00 of
No. Trading Days Late Outstanding Principal of the Note
--------------------- ---------------------------------
1 $100.00
2 $200.00
3 $300.00
4 $400.00
5 $500.00
6 $600.00
7 $700.00
8 $800.00
9 $900.00
10 $1,000.00
>10 $1,000.00 + $200.00 for each Trading
Day late beyond 10
The Company shall pay any payments incurred under this subsection in immediately
available funds upon demand by the Holder; PROVIDED, HOWEVER, that the Holder
making the demand may specify that the payment shall be made in shares of Common
Stock at the Conversion Price applicable to the date of such demand. If the
payment is to be made in shares of Common Stock, such shares shall be considered
Conversion Shares under the Note, with the "DELIVERY DATE" for such shares being
determined from the date of such demand. The demand for payment of such amount
16
in shares of Common Stock shall be considered a "CONVERSION NOTICE" under the
Note (but the delivery of such shares shall be in payment of the amount
contemplated by this subsection and not in payment of any principal or interest
on the Note).
(n) Share Reserve. In order to allow for, as of the relevant date of
determination, the conversion of the entire Outstanding Balance into Common
Stock and the delivery of Warrant Shares necessary for a complete exercise of
the Warrant, the Company shall take all action necessary from time to time to
reserve for the benefit of the Holder the number of authorized but unissued
shares of Common Stock equal to the amount calculated as follows (such
calculated amount is referred to as the "SHARE RESERVE"): (i) three times the
higher of (A) the Outstanding Balance divided by the Conversion Price, and (B)
the Outstanding Balance divided by the Market Price, plus (ii) three times the
number of Delivery Shares that would be required to be delivered to the Holder
in order to effect a complete exercise of the Warrant pursuant to the terms
thereof. If at any time the Share Reserve is less than required herein, the
Company shall immediately increase the Share Reserve in an amount equal to no
less than the deficiency. If the Company does not have sufficient authorized and
unissued shares of Common Stock available to increase the Share Reserve, the
Company shall call a special meeting of the stockholders as soon as practicable
after such occurrence, but in no event later than thirty (30) calendar days
after such occurrence, and hold such meeting as soon as practicable thereafter,
but in no event later than sixty (60) calendar days after such occurrence, for
the sole purpose of increasing the number of authorized shares of Common Stock.
The Company's management shall recommend to the Company's stockholders to vote
in favor of increasing the number of authorized shares of Common Stock.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock. The Company shall use its best efforts to
cause such additional shares of Common Stock to be authorized so as to comply
with the requirements of this subsection. All calculations with respect to
determining the Share Reserve shall be made without regard to any limitations on
conversion of the Note or exercise of the Warrant.
(o) DTC Eligibility. For so long as any portion of the Note remains
outstanding, or any portion of the Warrant remains unexercised, the Company
shall cause its Common Stock to be and remain DTC Eligible. In the event the
Common Stock is not DTC Eligible, or the Company delivers non-DTC Eligible
Shares to the Buyer pursuant to a conversion of all or any portion of the Note
under Section 3 of the Note, then in addition to any other available remedies,
the outstanding principal balance of the Note shall automatically increase by an
amount equal to the decline in Value (as defined below) of the applicable
Shares, if any, between the Delivery Date for such Shares and the date that such
Shares become Free Trading (as defined in the Note), without the need for any
additional action or notice by Buyer or any other party. The Company agrees to
use it best efforts to cause such shares to become Free Trading. "VALUE", as
used in this Section, shall mean the five (5) Trading Day trailing average VWAP
(as defined in the Note) for the Shares.
(p) Anti-Dilution Certification. For so long as any portion of the Note
remains outstanding, the Company shall deliver to the Buyer, within two (2)
Trading Days of a written request by the Buyer, a certification in the form
attached hereto as ANNEX XIV whereby the Company shall notify the Buyer of a
Dilutive Issuance (as defined in the Note) or any other event(s) that occurred
during the previous month that triggers anti-dilution protection or other
adjustments to the applicable Conversion Price or Exercise Price (each an
"ANTI-DILUTION EVENT"), or, if no Anti-Dilution Event has occurred, certifying
to the Buyer that no Anti-Dilution Event has occurred since the Effective Date.
(q) Change in Nature of Business. The Company shall not directly or
indirectly engage in any material line of business substantially different from
those lines of business conducted by or publicly contemplated to be conducted by
the Company on the date of this Agreement or any business substantially related
or incidental thereto. The Company shall not, and the Company shall cause each
17
of its Subsidiaries to not, directly or indirectly, modify its or their
corporate structure or purpose if such modification may have a material adverse
effect on any rights of, or benefits to, the Holder under any of the Transaction
Documents.
(r) Maintenance of Properties, Etc. The Company shall maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, all of
its properties which are necessary or useful in the proper conduct of its
business, in good working order and condition, ordinary wear and tear excepted,
and comply, and cause each of its Subsidiaries to comply, at all times with the
provisions of all leases to which it is a party as lessee or under which it
occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.
(s) Maintenance of Insurance. The Company shall maintain, and cause each of
its Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any governmental
authority having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses
similarly situated.
(t) Restriction on Redemption. The Company shall not, directly or
indirectly, redeem or repurchase its capital stock without the prior express
written consent of the Holder.
(u) Restriction on Transfer of Assets. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, convey or otherwise dispose of any
assets or rights of the Company or any Subsidiary owned or hereafter acquired,
whether in a single transaction or a series of related transactions, other than
(i) sales, leases, licenses, assignments, transfers, conveyances and other
dispositions of such assets or rights supported by fair market value
consideration as determined in the reasonable discretion of the board of
directors or the Chief Executive Officer of the Company or its Subsidiary, as
the case may be, or (ii) sales of inventory in the ordinary course of business.
(v) Existence of Liens. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, allow, grant, or suffer
to exist any mortgage, lien, pledge, charge, security interest, tax lien,
judgment, or other encumbrance (collectively, "LIENS"), upon the property or
assets (including accounts and contract rights) owned by the Company or any of
its Subsidiaries, other than Permitted Liens.
(w) Intellectual Property. The Company shall not, and the Company shall not
permit any of its Subsidiaries, directly or indirectly, to encumber or allow any
Liens on, any of its copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or unpublished, any patents, patent applications and
like protections, including improvements, divisions, continuations, renewals,
reissues, extensions, and continuations-in-part of the same, trademarks, service
marks and, to the extent permitted under applicable law, any applications
therefor, whether registered or not, and the goodwill of the business of the
Company and its Subsidiaries connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing, other than Permitted Liens.
(x) Transactions with Affiliates. The Company shall not, nor shall it
permit any of its Subsidiaries to, enter into, renew, extend or be a party to,
any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease, transfer or exchange of property or
18
assets of any kind or the rendering of services of any kind) with any Affiliate,
except in the ordinary course of business in a manner and to an extent
consistent with past practice and necessary or desirable for the prudent
operation of its business, for fair consideration and on terms no less favorable
to it or its Subsidiaries than would be obtainable in a comparable arm's length
transaction with a person that is not an Affiliate thereof.
(y) Certain Negative Covenants of the Company. From and after the date
hereof and until all of the Company's obligations hereunder and the Note are
paid and performed in full and the Warrant is exercised in full (or otherwise
expired), the Company shall not:
(i) Transfer, assign, sell, pledge, hypothecate or otherwise alienate
or encumber any of the Secured Buyer Notes or the Buyer Notes in any way
without the prior written consent of the Buyer.
(ii) Enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any
service, with any Affiliate of the Company, or amend or modify any
agreement related to any of the foregoing, except on terms that are no less
favorable, in any material respect, than those obtainable from any person
or entity who is not an Affiliate of the Company.
(iii) So long as the Note is outstanding, the Company shall not, and
the Company shall not permit any of its Subsidiaries to, directly or
indirectly, pay cash dividends or distributions on any equity securities of
the Company or of its Subsidiaries.
(z) Piggyback Registrations. Until all of the Company's obligations
hereunder and the Note are paid and performed in full and the Warrant is
exercised in full (or otherwise expired), the Company shall notify the Buyer in
writing at least fifteen (15) Trading Days prior to the filing of any
Registration Statement for purposes of a public offering of securities of the
Company (including, but not limited to, Registration Statements relating to
secondary offerings of securities of the Company) and will afford the Buyer an
opportunity to include in such Registration Statement all or part of the Shares
it holds. If the Buyer desires to include in any such Registration Statement all
or any part of the Shares held by it, the Buyer shall, within fifteen (15)
Trading Days after the above-described notice from the Company, so notify the
Company in writing. Such notice shall state the intended method of disposition
of the Shares by the Buyer. In the event the Buyer desires to include less than
all of its Shares in any Registration Statement it shall continue to have the
right to include any Shares in any subsequent Registration Statement or
Registration Statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(aa) Rule 144 Opinion. Either counsel to the Company has delivered to the
Buyer an opinion letter, or the Company shall accept, in its reasonable
discretion, an opinion letter prepared by legal counsel of Buyer's choosing (in
either case, the "OPINION LETTER"), stating that (i) the Company is not a shell
company or the type of "issuer" defined in Rule 144(i)(1) under the 1933 Act (a
"SHELL COMPANY"), (ii) the Company has never been a Shell Company, (iii) the
Company is in compliance with all filing requirements under Rule 144 as of the
date hereof, and (iv) the Shares may be sold by the Buyer without any
restrictions pursuant to Rule 144, so long as the applicable holding period
specified by Rule 144 is satisfied, and, as applicable, the Company shall give
instructions to its Transfer Agent to issue shares of Common Stock upon
conversion of the Note based upon or otherwise consistent with such Opinion
Letter.
19
(bb) Transfer Agent Reserve. From and after the date hereof and until all
of the Company's obligations hereunder and the Note are paid and performed in
full and the Warrant is exercised in full (or otherwise expired):
(i) the Company shall initially require its Transfer Agent to
establish a reserve of 94,052,089 shares of authorized but unissued Common
Stock; PROVIDED, HOWEVER, that pursuant to Subsection (v) immediately
below, the Company shall at all times after the end of the first calendar
quarter following the date hereof require its Transfer Agent to establish a
reserve of shares of authorized but unissued Common Stock in an amount not
less than the Share Reserve (the "TRANSFER AGENT RESERVE");
(ii) the Company shall require its Transfer Agent to hold the Transfer
Agent Reserve for the exclusive benefit of the Holder and shall authorize
the Transfer Agent to issue the shares of Common Stock held in the Transfer
Agent Reserve to the Holder only (subject to subsection (iii) immediately
below);
(iii) the Company shall cause the Transfer Agent to agree that when
the Transfer Agent issues shares of Common Stock to the Holder pursuant to
the Transaction Documents, the Transfer Agent will not issue such shares
from the Transfer Agent Reserve, unless such issuance is pre-approved in
writing by the Holder;
(iv) the Company shall cause the Transfer Agent to agree that it will
not reduce the Transfer Agent Reserve under any circumstances, unless such
reduction is pre-approved in writing by the Holder;
(v) no less frequently than at the end of each calendar quarter, the
Company shall recalculate the Transfer Agent Reserve as of such time (each
a "TRANSFER AGENT RESERVE CALCULATION"), and if additional shares of Common
Stock are required to be added to the Transfer Agent Reserve pursuant to
subsection (i) immediately above, the Company shall immediately give
written instructions to the Transfer Agent to cause the Transfer Agent to
set aside and increase the Transfer Agent Reserve by the necessary number
of shares of Common Stock; and
(vi) no less frequently than quarterly, the Company shall certify in
writing to the Holder (A) the correctness of the Company's Transfer Agent
Reserve Calculation and (B) that either (1) the Company has instructed the
Transfer Agent to increase the Transfer Agent Reserve in accordance with
the terms hereof, or (2) there was no need to increase the Transfer Agent
Reserve, in either case consistent with the Transfer Agent Reserve
Calculation.
For the avoidance of any doubt, the requirements of this Section 5.2 are
material to this Agreement and any violation or breach thereof by the Company
shall constitute a default under this Agreement.
6. TRANSFER AGENT.
6.1. Instructions. The Company covenants that, with respect to the
Securities, other than the stop transfer instructions to give effect to Section
5.1(a) hereof, the Company will give the Transfer Agent no instructions
inconsistent with the Transfer Agent Letter. Except as required by Sections
5.1(a) and 5.1(b) of this Agreement and the Transfer Agent Letter, the Shares
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement and the other Transaction
Documents. Nothing in this subsection shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
20
resale of the Securities. If the Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of a resale by
the Buyer of any of the Securities in accordance with clause (i)(B) of Section
5.1(a) of this Agreement is not required under the 1933 Act or upon request from
a Holder while an applicable Registration Statement is effective, the Company
shall (except as provided in clause (ii) of Section 5.1(a) of this Agreement)
permit the transfer of the Securities and, in the case of the Conversion Shares
or the Warrant Shares, as may be applicable, use its best efforts to cause the
Transfer Agent to promptly deliver to the Holder or the Holder's broker, as
applicable, such Conversion Shares or Warrant Shares by way of certificates
representing DTC Eligible Common Stock.
6.2. DTC Eligible. The Company specifically covenants that, as of the
Closing Date, the Common Stock shall be DTC Eligible. If at any time that the
Company receives a Conversion Notice or Notice of Exercise and the Common Stock
is not then DTC Eligible, then the Company shall instruct the Transfer Agent to
immediately issue one or more certificates for non-DTC Eligible Common Stock
without legend in such name and in such denominations as specified by the Holder
consistent with the terms and conditions of the Transaction Documents.
6.3. Transfer Fees. The Company shall assume any fees or charges of the
Transfer Agent or Company Counsel regarding (a) the removal of a legend or stop
transfer instructions with respect to the Securities, and (b) the issuance of
certificates to or in the name of the Holder or the Holder's designee or to a
transferee as contemplated by an effective Registration Statement.
7. DELIVERY OF SHARES.
7.1. Delay in Issuing Shares. The Company understands that a delay in the
delivery of Conversion Shares, whether on conversion of all or any portion of
the Note and/or in payment of accrued interest, or a delay in the delivery of
Warrant Shares, whether on exercise of all or any portion of the Warrant, beyond
the relevant Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, in addition to any other available
remedies in the Transaction Documents, the Company shall pay late payments to
the Holder for late delivery of the Conversion Shares or Warrant Shares in
accordance with the following schedule (where, for purposes of this subsection,
"NO. TRADING DAYS LATE" is defined as the number of Trading Days beyond three
(3) Trading Days after the applicable Delivery Date):
Late Payment for Each $10,000.00
of Principal or Interest Being Converted
under the Note or Aggregate Exercise
No. Trading Days Late Price under the Warrant
--------------------- -----------------------
1 $100.00
2 $200.00
3 $300.00
4 $400.00
5 $500.00
6 $600.00
7 $700.00
8 $800.00
9 $900.00
10 $1,000.00
>10 $1,000.00 + $200.00 for each
Trading Day Late beyond 10
21
As elected by the Holder, the amount of any payments incurred under this Section
7.1 shall either be automatically added to the principal balance of the Note
(without the need to provide any notice to the Company) or otherwise paid by the
Company in immediately available funds upon demand. Nothing herein shall limit
the Holder's right to pursue additional damages for the Company's failure to
issue and deliver the Conversion Shares or Warrant Shares, as applicable, to the
Holder within a reasonable time. The Company acknowledges that if the Company
fails to effect delivery of the Conversion Shares or the Warrant Shares as and
when required, the Holder may revoke the Conversion Notice or Notice of Exercise
pursuant to the terms set forth in the Note or the Warrant, as applicable.
Notwithstanding any such revocation, the charges described in this Section 7.1
which have accrued through the date of such revocation shall remain due and
owing to the Holder.
7.2. Buy-In Adjustment. If, by the third Trading Day after the relevant
Delivery Date, the Company fails for any reason to deliver the Conversion
Shares, but at any time after the Delivery Date, the Holder purchases, in an
arm's-length open market transaction or otherwise, shares of Common Stock (the
"COVERING SHARES") in order to make delivery in satisfaction of a sale of Common
Stock by the Holder (the "SOLD SHARES"), which delivery such Holder anticipated
to make using the shares of Common Stock to be issued upon such conversion or
exercise (a "BUY-IN"), the Holder shall have the right to require the Company to
pay to the Holder, in addition to and not in lieu of the amounts contemplated in
other provisions of the Transaction Documents, including, but not limited to,
the provisions of the immediately preceding Section 7.1, the Buy-In Adjustment
Amount (as defined below). The "BUY-IN ADJUSTMENT AMOUNT" is the amount equal to
the number of Sold Shares multiplied by the excess, if any, of (i) the Holder's
total purchase price per share (including brokerage commissions, if any) for the
Covering Shares over (ii) the net proceeds per share (after brokerage
commissions, if any) received by the Holder from the sale of the Sold Shares.
The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately
available funds immediately upon demand by the Holder. By way of illustration
and not in limitation of the foregoing, if the Holder purchases shares of Common
Stock having a total purchase price (including brokerage commissions) of
$11,000.00 to cover a Buy-In with respect to shares of Common Stock the Holder
sold for net proceeds of $10,000.00, the Buy-In Adjustment Amount which Company
will be required to pay to the Holder will be $1,000.00.
7.3. Bankruptcy. The Holder of the Note shall be entitled to exercise the
Holder's conversion privilege with respect to such Note, and exercise privilege
with respect to the Warrant, notwithstanding the commencement of any case under
11 U.S.C. ss.101 et seq. (the "BANKRUPTCY CODE"). In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives, to the fullest
extent permitted, any rights to relief it may have under 11 U.S.C. ss.362 in
respect of such Holder's exercise privileges. The Company hereby waives, to the
fullest extent permitted, any rights to relief it may have under 11 U.S.C.
ss.362 in respect of the conversion of the Note or exercise of the Warrant. The
Company agrees, without cost or expense to such Holder, to take or to consent to
any and all action necessary to effectuate relief under 11 U.S.C. ss.362.
8. CLOSING DATE.
8.1. The Closing Date shall occur on the date which is the first Trading
Day after each of the conditions contemplated by Sections 9 and 10 hereof shall
have either been satisfied or been waived by the party in whose favor such
conditions run.
8.2. Closing of the purchase and sale of the Securities, which the parties
anticipate shall occur concurrently with the execution of this Agreement, shall
occur at the offices of the Buyer and shall take place no later than 3:00 P.M.,
Eastern Time, or on such day or such other time as is mutually agreed upon by
the Company and the Buyer.
22
9. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The Company's obligation
to sell the Securities to the Buyer pursuant to this Agreement on the Closing
Date is conditioned upon and subject to the fulfillment, on or prior to the
Closing Date, of all of the following conditions, any of which may be waived in
whole or in part by the Company:
9.1. The execution and delivery of this Agreement and, as applicable, the
other Transaction Documents by the Buyer, including without limitation, the
original fully executed Secured Buyer Notes and Buyer Notes.
9.2. Delivery by the Buyer of good funds as payment in full of an amount
equal to the Initial Cash Purchase Price in accordance with this Agreement.
9.3. The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement, each as if made on such date, and the
performance by the Buyer on or before such date of all covenants and agreements
of the Buyer required to be performed on or before such date.
9.4. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
10. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The Buyer's
obligation to purchase the Securities from the Company pursuant to this
Agreement on the Closing Date is conditioned upon and subject to the
fulfillment, on or prior to the Closing Date, of all of the following
conditions, any of which may be waived in whole or in part by the Buyer:
10.1. The execution and delivery of this Agreement, the Company Security
Agreement, the Transfer Agent Letter, the Secretary's Certificate, the Share
Issuance Resolution, and, as applicable, the other Transaction Documents by the
Company.
10.2. The delivery by the Company to the Buyer of the Note and the Warrant,
each in original form, duly executed by the Company, in accordance with this
Agreement.
10.3. On the Closing Date, each of the Transaction Documents executed by
the Company on or before such date shall be in full force and effect and the
Company shall not be in default thereunder.
10.4. The Company shall have authorized and reserved for the purpose of
issuance under the Transaction Documents shares of Common Stock in an amount no
less than the Share Reserve as of the Closing Date.
10.5. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement and
the other Transaction Documents, each as if made on such date, and the
performance by the Company on or before such date of all covenants and
agreements of the Company required to be performed on or before such date.
10.6. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
23
10.7. From and after the date hereof up to and including the Closing Date,
each of the following conditions will remain in effect: (a) the trading of the
Common Stock shall not have been suspended by the SEC or on the Principal
Trading Market; (b) trading in securities generally on the Principal Trading
Market shall not have been suspended or limited; (c) no minimum prices shall
have been established for securities traded on the Principal Trading Market; (d)
there shall not have been any material adverse change in any financial market;
and (e) there shall not have occurred any Material Adverse Effect.
10.8. Except for any notices required or permitted to be filed after the
Closing Date with certain federal and state securities commissions, the Company
shall have obtained (a) all governmental approvals required in connection with
the lawful sale and issuance of the Securities, and (b) all third party
approvals required to be obtained by the Company in connection with the
execution and delivery of the Transaction Documents by the Company or the
performance of the Company's obligations thereunder.
10.9. All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents and instruments
incident to such transactions shall be reasonably satisfactory in substance and
form to the Buyer.
11. INDEMNIFICATION.
11.1. The Company agrees to defend, indemnify and forever hold harmless the
Buyer and the Buyer's stockholders, directors, officers, managers, members,
partners, Affiliates, employees, attorneys, and agents, and each Buyer Control
Person (collectively, the "BUYER PARTIES") from and against any losses, claims,
damages, liabilities or expenses incurred (collectively, "DAMAGES"), joint or
several, and any action in respect thereof to which the Buyer or any of the
other Buyer Parties becomes subject, resulting from, arising out of or relating
to any misrepresentation, breach of warranty or nonfulfillment of or failure to
perform any covenant or agreement on the part of the Company contained in this
Agreement or any of the other Transaction Documents, as such Damages are
incurred. The Buyer Parties with the right to be indemnified under this
subsection (the "INDEMNIFIED PARTIES") shall have the right to defend any such
action or proceeding with attorneys of their own selection, and the Company
shall be solely responsible for all costs and expenses related thereto. If the
Indemnified Parties opt not to retain their own counsel, the Company shall
defend any such action or proceeding with attorneys of its choosing at its sole
cost and expense, provided that such attorneys have been pre-approved by the
Indemnified Parties, which approval shall not be unreasonably withheld, and
provided further that the Company may not settle any such action or proceeding
without first obtaining the written consent of the Indemnified Parties.
11.2. The indemnity contained in this Agreement shall be in addition to (a)
any cause of action or similar rights of the Buyer Parties against the Company
or others, and (b) any other liabilities the Company may be subject to.
12. PERFORMANCE. The Company, upon receipt of a Conversion Notice
concerning a Conversion Eligible Tranche (as defined in the Note) or a Notice of
Exercise, (a) may not fail or refuse to deliver shares or certificates
representing shares of Common Stock in accordance with the terms and conditions
of the Transaction Documents, or (b) if there is a claim for a breach by the
Company of any other provision of this Agreement or any of the other Transaction
Documents, the Company shall not raise as a legal defense to performance any
claim that the Holder or anyone associated or affiliated with the Holder has
violated any provision hereof or any of the other Transaction Documents or has
engaged in any violation of law or any other claim or defense, in either case,
unless the Company has first posted a bond for one hundred fifty percent (150%)
of the principal amount and, if relevant, then obtained a court order
24
specifically directing it not to deliver such shares or certificates to the
Holder. The proceeds of such bond shall be payable to the Holder to the extent
that the Holder obtains judgment or the Holder's defense is recognized. Such
bond shall remain in effect until the completion of the relevant proceeding and,
if the Holder appeals therefrom, until all such appeals are exhausted. This
provision is deemed incorporated by reference into each of the Transaction
Documents as if set forth therein in full.
13. OWNERSHIP LIMITATION. Notwithstanding anything to the contrary
contained in this Agreement or the other Transaction Documents, if at any time
the Holder shall or would be issued shares of Common Stock under any of the
Transaction Documents, but such issuance would cause the Holder (together with
its Affiliates) to beneficially own a number of shares exceeding the Maximum
Percentage (as defined in the Note), then the Company must not issue to the
Holder the excess Ownership Limitation Shares (as defined in the Note). For
purposes of this Section, beneficial ownership of Common Stock will be
determined under the 1934 Act. The Company will reserve the Ownership Limitation
Shares for the exclusive benefit of the Holder. From time to time, the Holder
may notify the Company in writing of the number of Ownership Limitation Shares
that may be issued to the Holder without causing the Holder to exceed the
Maximum Percentage. Upon receipt of such notice, the Company shall be
unconditionally obligated to immediately issue such designated shares to the
Holder, with a corresponding reduction in the number of the Ownership Limitation
Shares. By written notice to the Company, the Buyer may increase, decrease or
waive the Maximum Percentage as to itself but any such waiver will not be
effective until the 61st day after delivery thereof. The foregoing 61-day notice
requirement is enforceable, unconditional and non-waivable and shall apply to
all Affiliates and assigns of the Holder. Additionally, if at any time after the
Closing the Market Capitalization of the Common Stock (as defined in the Note)
falls below $10,000,000, then from that point on, for so long as the Holder or
the Holder's Affiliate owns Common Stock or rights to acquire Common Stock, the
Company shall post (or cause to be posted), no less frequently than every thirty
(30) calendar days, the then-current number of issued and outstanding shares of
its capital stock to the Company's web page located at XXXxxxxxxx.xxx (or such
other web page approved by the Holder). The Company understands that its failure
to so post its shares outstanding could result in economic loss to the Holder.
As compensation to the Holder for such loss, the Company shall pay the Holder a
late fee of $500.00 per calendar day for each calendar day that the Company
fails to comply with the foregoing obligation to post its shares outstanding. As
elected by the Holder, the amount of any late fees incurred under this Section
shall either be automatically added to the principal balance of the Note
(without the need to provide any notice to the Company) or otherwise paid by the
Company in immediately available funds upon demand.
14. MISCELLANEOUS.
14.1. Governing Law; Venue. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Illinois for contracts
to be wholly performed in such state and without giving effect to the principles
thereof regarding the conflict of laws. Each party hereto hereby (a) consents to
and expressly submits to the exclusive personal jurisdiction of any state or
federal court sitting in Xxxx County, Illinois in connection with any dispute or
proceeding arising out of or relating to this Agreement, (b) agrees that all
claims in respect of any such dispute or proceeding may only be heard and
determined in any such court, (c) expressly submits to the venue of any such
court for the purposes hereof, and (d) waives any claim of improper venue and
any claim or objection that such courts are an inconvenient forum or any other
claim or objection to the bringing of any such proceeding in such jurisdictions
or to any claim that such venue of the suit, action or proceeding is improper.
Each party hereto hereby irrevocably consents to the service of process of any
of the aforementioned courts in any such proceeding by the mailing of copies
thereof by reputable overnight courier (e.g., FedEx) or certified mail, postage
prepaid, to such party's address as set forth herein, such service to become
effective ten (10) calendar days after such mailing.
25
14.2. Successors and Assigns; Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Except as otherwise expressly provided herein, no
Person other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of this Agreement.
14.3. Pronouns. All pronouns and any variations thereof in this Agreement
refer to the masculine, feminine or neuter, singular or plural, as the context
may permit or require.
14.4. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument. The parties hereto confirm that any
electronic copy of another party's executed counterpart of this Agreement (or
such party's signature page thereof) will be deemed to be an executed original
thereof.
14.5. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
14.6. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such provision shall be modified to achieve
the objective of the parties to the fullest extent permitted and such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
14.7. Entire Agreement. This Agreement, together with the other Transaction
Documents, constitutes and contains the entire agreement and understanding
between the parties hereto, and supersedes all prior oral or written agreements
and understandings between Buyer, Company, their Affiliates and Persons acting
on their behalf with respect to the matters discussed herein and therein, and,
except as specifically set forth herein or therein, neither Company nor Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters.
14.8. Amendment. Any amendment, supplement or modification of or to any
provision of this Agreement, shall be effective only if it is made or given by
an instrument in writing (excluding any email message) and signed by Company and
Buyer.
14.9. No Waiver. No forbearance, failure or delay on the part of a party
hereto in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. Any waiver of any provision of this
Agreement shall be effective (a) only if it is made or given in writing
(including an email message) and (b) only in the specific instance and for the
specific purpose for which made or given.
14.10. Currency. All dollar amounts referred to or contemplated by this
Agreement or any other Transaction Documents shall be deemed to refer to US
Dollars, unless otherwise explicitly stated to the contrary.
14.11. Assignment. Notwithstanding anything to the contrary herein, the
rights, interests or obligations of the Company hereunder may not be assigned,
by operation of law or otherwise, in whole or in part, by the Company without
the prior written consent of the Buyer, which consent may be withheld at the
sole discretion of the Buyer. This Agreement or any of the severable rights and
obligations inuring to the benefit of or to be performed by Buyer hereunder may
26
be assigned by Buyer to a third party, including the Buyer's financing sources,
in whole or in part, without the need to obtain the Company's consent thereto.
14.12. Advice of Counsel. In connection with the preparation of this
Agreement and all other Transaction Documents, the Company, for itself and on
behalf of its stockholders, officers, agents, and representatives acknowledges
and agrees that Buyer's Counsel prepared initial drafts of this Agreement and
all of the other Transaction Documents and acted as legal counsel to the Buyer
only. The Company, for itself and on behalf of its stockholders, officers,
agents, and representatives, (a) hereby acknowledges that he/she/it has been,
and hereby is, advised to seek legal counsel and to review this Agreement and
all of the other Transaction Documents with legal counsel of his/her/its choice,
and (b) either has sought such legal counsel or hereby waives the right to do
so.
14.13. No Strict Construction. The language used in this Agreement is the
language chosen mutually by the parties hereto and no doctrine of construction
shall be applied for or against any party.
14.14. Attorney's Fees. In the event of any action at law or in equity to
enforce or interpret the terms of this Agreement or any of the other Transaction
Documents, the parties agree that the party who is awarded the most money shall
be deemed the prevailing party for all purposes and shall therefore be entitled
to an additional award of the full amount of the attorneys' fees and expenses
paid by such prevailing party in connection with the litigation and/or dispute
without reduction or apportionment based upon the individual claims or defenses
giving rise to the fees and expenses. Nothing herein shall restrict or impair a
court's power to award fees and expenses for frivolous or bad faith pleading.
14.15. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY
WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS
WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER
COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH
PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING
SUCH PARTY'S RIGHT TO DEMAND TRIAL BY JURY.
14.16. Rights and Remedies Cumulative. All rights, remedies, and powers
conferred in this Agreement and the Transaction Documents are cumulative and not
exclusive of any other rights or remedies granted in this Agreement or any other
Transaction Document, and any and all such rights and remedies may be exercised
from time to time and as often and in such order as the Buyer may deem
expedient.
14.17. Further Assurances. Each party shall do and perform or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
14.18. Notices. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of:
27
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by email to an executive officer, or by facsimile
(with successful transmission confirmation),
(b) the fifth Trading Day after deposit, postage prepaid, in the United
States Postal Service (with USPS tracking or by certified mail), or
(c) the second Trading Day after mailing by domestic or international
express courier (e.g., FedEx), with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
five (5) Trading Days' advance written notice similarly given to each of the
other parties hereto):
If to the Company:
Red Giant Entertainment, Inc.
Attn: Xxxxx Xxxxxx
000 X. Xxx 00, Xxxxx 000
Xxxxxxxx, Xxxxxxx 00000
If to the Buyer:
Typenex Co-Investment, LLC
Attn: Xxxx X. Xxxx
000 Xxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
with a copy to (which shall not constitute notice):
Xxxxxx Black Xxxxxxxx PLLC
Attn: Xxxxxxxx X. Xxxxxx
0000 Xxxx Xxxxx Xxxx Xxxxx, Xxxxx 000
Xxxx, Xxxx 00000
Telephone: 000.000.0000
Email: xxxxxxx@XXXxxxx.xxx
14.19. Cross Default. Any Event of Default (as defined in the Note) shall
be deemed a default under this Agreement. Upon such a default of this Agreement
by the Company, the Buyer shall have all those rights and remedies available in
the Transaction Documents.
14.20. Expenses. Except as provided in Section 14.14, and except for the
Transaction Expense Amount required to be paid by the Company to the Buyer
pursuant to Section 2.3, the Company and the Buyer shall be responsible for
paying such party's own fees and expenses (including legal expenses) incurred in
connection with the preparation and negotiation of this Agreement and the other
Transaction Documents and the closing of the transactions contemplated hereby
and thereby.
14.21. Replacement of the Note. Subject to any restrictions on or
conditions to transfer set forth in the Note, the Holder of the Note, at such
Holder's option, may in person or by duly authorized attorney surrender the same
for exchange at the Company's principal corporate office, and promptly
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thereafter and at the Company's expense, except as provided below, receive in
exchange therefor one or more new secured convertible promissory note(s), each
in the principal amount requested by such Holder, dated the date to which
interest shall have been paid on the Note so surrendered or, if no interest
shall have yet been so paid, dated the date of the Note so surrendered and
registered in the name of such person or persons as shall have been designated
in writing by such Holder or such Holder's attorney for the same principal
amount as the then unpaid principal amount of the Note so surrendered. As
applicable, upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of the
Note and (a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it; or (b) in the case of mutilation, upon surrender thereof,
the Company, at its expense, will execute and deliver in lieu thereof a new
secured convertible promissory note executed in the same manner as the Note
being replaced, in the same principal amount as the unpaid principal amount of
such Note and dated the date to which interest shall have been paid on the Note
or, if no interest shall have yet been so paid, dated the date of the Note.
14.22. Time of the Essence. Time is expressly made of the essence of each and
every provision of this Agreement and the other Transaction Documents.
15. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's covenants, agreements, representations and warranties contained herein
shall survive the execution and delivery of this Agreement and the other
Transaction Documents and the Closing hereunder for the maximum time allowed by
applicable law, and shall inure to the benefit of the Buyer and the Company and
their respective successors and permitted assigns.
[Remainder of the page intentionally left blank; signature page to follow]
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IN WITNESS WHEREOF, each of the undersigned parties represents that the
foregoing statements made by such party above are true and correct and that such
party has caused this Agreement to be duly executed (if an entity, on such
party's behalf by one of its officers thereunto duly authorized) as of the date
first above written.
PURCHASE PRICE: $500,000.00
INITIAL CASH PURCHASE PRICE: $100,000.00
THE BUYER:
TYPENEX CO-INVESTMENT, LLC
By: Red Cliffs Investments, Inc., its Manager
By: /s/ Xxxx X. Xxxx
--------------------------------------------
Xxxx X. Xxxx, President
THE COMPANY:
RED GIANT ENTERTAINMENT, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------------
Xxxxx X. Xxxxxx, President/CEO
[Signature page to Securities Purchase Agreement]
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ATTACHMENTS:
ANNEX I WIRE INSTRUCTIONS
ANNEX II NOTE
ANNEX III COMPANY SECURITY AGREEMENT
ANNEX IV MEMBERSHIP INTEREST PLEDGE AGREEMENT
ANNEX V ALLOCATION OF PURCHASE PRICE
ANNEX VI WARRANT
ANNEX VII TRANSFER AGENT LETTER
ANNEX VIII SECRETARY'S CERTIFICATE
ANNEX IX SHARE ISSUANCE RESOLUTION
ANNEX X SECURED BUYER NOTE #1
ANNEX XI SECURED BUYER NOTE #2
ANNEX XII BUYER NOTE #3
ANNEX XIII BUYER NOTE #4
ANNEX XIV FORM OF ANTI-DILUTION CERTIFICATION
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