SECURITIES Exchange and Purchase AGREEMENT

Exhibit 10.2

 

SECURITIES Exchange and Purchase AGREEMENT

 

This SECURITIES EXCHANGE AND PURCHASE AGREEMENT (the “Agreement”) is made as of September 22, 2022 (the “Effective Date”), by and among Cardiff Lexington Corporation, a corporation organized under the laws of the state of Nevada (“CDIX”), and the undersigned entities, each of which is a subsidiary of CDIX (referred to hereinafter collectively with CDIX as the “Company”), and Leonite Capital LLC, a limited liability company organized under the laws of the State of Delaware (the “Purchaser”).

 

Recitals

 

A.             WHEREAS, the Purchaser owns certain outstanding Convertible Promissory Notes, issued by the Company and payable to the Purchaser, described on Exhibit A, (the “Exchanged Notes”).

 

B.             WHEREAS, the Purchaser owns certain outstanding warrants to purchase shares of the Company’s common stock (“Common Shares”), issued by the Company and held by the Purchaser (the “Existing Warrants”).

 

C.             WHEREAS, the Purchaser and the Company have determined that it is in the best interests of the Company that the Holder tender the Exchanged Notes in exchange for new securities of the Company, including (i) a Consolidated Senior Secured Convertible Promissory Note, of even date herewith, in the principal amount of $2,600,000, the form of which is attached hereto as Exhibit B (the “Consolidated Note”), and (ii) 1,500,000 shares of Series X Senior Convertible Preferred Shares (the “Preferred Shares”), the certificate of designation, a copy of which is attached hereto as Exhibit C (the “Designation”), each of which shall be issued pursuant to this Agreement.

 

D.             WHEREAS, the Purchaser desires to extend the exercise period of the Existing Warrants.

 

E.            WHEREAS, the Purchaser further desires to purchase from the Company, and the Company desires to issue and sell to the Purchaser, upon the terms and conditions set forth in this Agreement, one or more Senior Secured Convertible Promissory Notes of the Company, and together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, each in the form attached hereto as Exhibit D, (each such note individually a “Note” and collectively, the “Notes”), each of which shall be issued pursuant to this Agreement, and upon the terms and subject to the limitations and conditions set forth in such Notes;

 

F.              WHEREAS, the Company wishes to issue to the Purchaser, as additional consideration for the purchase of each of the Notes, warrants to purchase Common Stock, the form of which is attached hereto as Exhibit E (the “Warrants”), which shall be issued pursuant to this Agreement.

 

G.             WHEREAS, The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act;

 

Agreement

 

Now, Therefore, in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the Company and the Purchaser, intending to be legally bound, hereby agree as follows:

 

1.                   Exchange and Purchase of Securities

 

1.1               Exchange of Exchanged Notes for Consolidated Note. Upon the terms and subject to the conditions set forth in this Agreement, Purchaser shall tender to the Company, the Exchanged Notes. In exchange for the Purchaser tendering to the Company the Exchanged Notes, the Company shall issue to Purchaser (i) the Consolidated Note, and (ii) the Preferred Shares.

 

 

 

 

1.2               Purchase of Notes and Warrants.

 

(a)               Purchase Price. Upon the terms and subject to the conditions set forth in this Agreement, for consideration of cash in the amount which shall be determined in the future at the discretion of the Purchaser with respect to each Note, and which shall be set forth in each of the Notes and the documents executed in connection to the issuance thereof (with respect to each Note, the “Purchase Price”), the Purchaser agrees to subscribe for and purchase from the Company on the Closing Date (as hereinafter defined), and the Company agrees to issue and sell to the Purchaser, the Notes and the Warrants. The Purchaser shall be permitted to withhold legal fees of up to one percent (1%) of the Principal Amount (defined below) from the Purchase Price paid for each Note.

 

(b)               Principal ▇▇▇▇▇▇. Each Note shall specify the principal amount of such Note (with respect to each Note, the “Principal Amount”). Each Note carries an original issue discount, equal to twenty five percent (25%) of the Principal Amount (the “OID”), to cover the Purchaser’s accounting fees, due diligence fees, monitoring, and/or other transactional costs incurred in connection with the purchase and sale of such Note, which is included in the Principal Amount and shall be specified in each Note. Thus, the purchase price of each Note shall be computed by subtracting the OID from the Principal Amount.

 

(c)               Warrants. With respect to each Note, Purchaser shall receive as additional consideration in exchange for the Purchase Price, Warrants for the exercise of a number of Common Shares equal to two hundred percent (200%) times the number of Common Shares that would be issued upon full conversion of such Note.

 

1.3               Extension of Existing Warrants. As of the Effective Date, the exercise period of the Existing Warrants shall be extended to the later of the expiration of the through original exercise period or the date that is two (2) years following the Effective Date.

 

2.

Closing and Delivery

 

2.1               Closing. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place on the dates described below (each, a “Closing Date”).

 

(a)               Consolidated Note. With respect to the exchange of the Exchanged Notes for the Consolidated Note, the Closing shall take place on the date that the Company executes and issues to the Holder the Consolidated Note. From and after such Closing, the Exchanged Notes shall automatically be deemed tendered by the Purchaser to the Company and thereby terminated.

 

(b)               Notes and Warrants. With respect to each purchase of a Note and related Warrants, the Closing shall take place on the date that the Company executes and issues to the Holder such Note, Warrants, and other related documents in connection thereto, but no earlier than the date that Purchaser pays the respective Purchase Price.

 

2.2               Delivery. On each Closing Date, or as promptly as commercially reasonable thereafter, the Purchaser and the Company shall deliver, at such location as may be agreed to by the parties (including via exchange of electronic signatures), the executed documents described above, and the Purchase shall deliver the Purchase Price (but only with respect to a Closing for the purchase of a Note and Warrant), by wire transfer of any method of payment as may be agreed to by the parties

 

3.

Representations and Warranties of the Company

 

Except as set forth in the corresponding section of the Disclosure Schedule delivered to the Purchaser concurrently herewith and attached hereto as Schedule I (the “Disclosure Schedule”) or as disclosed in the Disclosure Materials (as defined below), the Company, its Subsidiaries, Officers, Directors, and Affiliates, hereby makes the following representations and warranties as of the date hereof and as of each Closing Date to the Purchaser:

 

 

 

 

3.1               Organization, Good Standing and Qualification. The Company and each of its Subsidiaries (as defined below) is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Each of the Company and its Subsidiaries has the requisite corporate power to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted. The Company and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Subscription Document, (ii) a material adverse effect on the results of operations, assets, business or financial condition of Company and the Subsidiaries, taken as a whole, or (iii) adversely impair the Company’s ability to perform in any material respect on a timely basis its obligations under any Subscription Document (any of (i), (ii) or (iii), a “Material Adverse Effect”).

 

3.2               Corporate Power. The Company has all requisite corporate power: (i) to execute and deliver this Agreement, (ii) to issue the Consolidated Note, the Preferred Shares, the Notes, the Warrants, (iii) to issue any shares of Common Stock to be acquired upon the conversion of, the or exercise of, any of the foregoing, (the “Underlying Securities” and collectively with the Consolidated Note, the Preferred Shares, the Notes, and the Warrants, the “Securities”), and (iv) to enter into and deliver the security and pledge agreement of even date herewith (the “Security and Pledge Agreement”), a copy of which is attached hereto as Exhibit F, and the other instruments, documents and agreements being entered into at each Closing (each a “Subscription Document” and collectively, the “Subscription Documents”) and to carry out and perform its obligations under the terms of the Subscription Documents.

 

3.3               Subsidiaries and Affiliates. Section 3.3 of the Disclosure Schedule sets forth a true and correct description of all of the Company’s Subsidiaries and Affiliates and the capitalization (including options, warrants and other such equity), pro forma as of the date hereof reflecting all pending acquisitions. For purposes of this Agreement, the term “Subsidiary” means, with respect to the Company, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or persons performing similar functions) of such corporation or entity (regardless of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Company or one or more of its Affiliates and the term “Affiliate” means, as to any person (the “Subject Person”), any other person that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the Subject Person. For the purposes of this definition, “control” when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, through representation on such person’s board of directors or other management committee or group, by contract or otherwise. All references contained herein to the terms Subsidiary or Affiliate, shall be applicable to all Subsidiaries and Affiliates whether they existed as of the date hereof or were created, acquired, or otherwise came to be included in the foregoing terms subsequent to the date hereof.

 

3.4               Authorization. All corporate action on the part of the Company, its directors and its stockholders necessary for the authorization of the Subscription Documents and the execution, delivery and performance of all obligations of the Company under the Subscription Documents, including, but not limited to, the issuance and delivery of the Securities, has been taken or will be taken prior to the issuance of such Securities. The Subscription Documents, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency, the relief of debtors and, with respect to rights to indemnity, subject to federal and state securities laws. The Underlying Securities, when issued in compliance with the provisions of the Subscription Documents, will be, validly issued, fully paid and non-assessable and free of any liens, encumbrances, security interests or other adverse claim (a “Lien”) and issued in compliance with all applicable federal and securities laws.

 

3.5               Governmental Consents. Neither Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other foreign, federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by the Company of the Subscription Documents, other than (a) applicable Blue Sky filings, (b) such as have already been obtained or such exemptive filings as are required to be made under applicable securities laws, (c) such other filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods. Subject to the accuracy of the representations and warranties of the Purchaser set forth in Section 4 hereof, the Company has taken all action necessary to exempt: (i) the issuance and sale of the Note, (ii) the issuance of the Warrant, (iii) the issuance of the Equity Interest, (iv) the issuance of the Underlying Securities upon due conversion of the Note and due exercise of the Warrant, and (v) the other transactions contemplated by the Subscription Documents from the provisions of any preemptive rights, stockholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Articles of Incorporation or Bylaws, or other organizational documentation, as the case may be, that is or could reasonably be expected to become applicable to the Purchaser as a result of the transactions contemplated hereby, including without limitation, the issuance of the Securities and the ownership, disposition or voting of the Securities by the Purchaser or the exercise of any right granted to the Purchaser pursuant to this Agreement or the other Subscription Documents.

 

 

 

 

3.6               Compliance with Laws. Neither Company nor any Subsidiary is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties, which violation would materially and adversely affect the business, assets, liabilities, financial condition or operations of Company and its Subsidiaries.

 

3.7               Compliance with Other Instruments. Neither Company nor any of its Subsidiaries is in violation or default of any term of its organizational documents, or of any provision of any mortgage, indenture or contract to which it is a party and by which it is bound or of any judgment, decree, order or writ, other than such violations that would not individually or in the aggregate have a Material Adverse Effect on the Company. Except as set forth in Section 3.7 of the Disclosure Schedule, the execution, delivery and performance of the Subscription Documents, and the consummation of the transactions contemplated by the Subscription Documents will not result in any such violation or be in conflict with, or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, decree, order or writ or an event that results in the creation of any Lien upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to the Company or any of its Subsidiaries, its business or operations or any of its assets or properties. The sale of the Note, the issuance of the Warrant and the subsequent issuance of the Underlying Securities are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with.

 

3.8               Offering. Assuming the accuracy of the representations and warranties of the Purchaser contained in Section ‎4 hereof, the offer, issue, and sale of Securities are and will be exempt from the registration and prospectus delivery requirements of the Securities Act, and have been registered or qualified (or are exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws. No “bad actor” disqualifying event described in Rule 506(d)(1)(i)-(viii) of the Securities Act (a “Disqualification Event”) is applicable to the Company or, to the Company’s knowledge, any person listed in the first paragraph of Rule 506(d)(1) of the Securities Act, except for a Disqualification Event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is applicable.

 

3.9               Capitalization. Company has authorized shares as set forth in Section 3.9 of the Disclosure Schedule. All outstanding shares of capital stock are duly authorized, validly issued, fully paid and non-assessable and have been issued in compliance with all applicable securities laws. Except for the Securities or as otherwise set forth in Section 3.9 of the Disclosure Schedule, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any person any right to subscribe for or acquire, any shares of common stock, or contracts, commitments, understandings or arrangements by which Company or any Subsidiary is or may become bound to issue additional shares of common stock, or securities or rights convertible or exchangeable into shares of common stock. Except for the Securities or as otherwise set forth in Section 3.9 of the Disclosure Schedule, there are no price based anti-dilution or price adjustment provisions contained in any security issued by Company (or in any agreement providing rights to security holders) and the issue and sale of the Securities will not obligate Company to issue shares of common stock or other securities to any person (other than the Purchaser) and will not result in a right of any holder of Company’s securities to adjust the exercise, conversion, exchange or reset price under such securities. Except as set forth in Section 3.9 of the Disclosure Schedule, Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.

 

3.10           SEC Reports; Financial Statements. Except as set forth in Section 3.10 of the Disclosure Schedule, the Company has filed all reports and registration statements required to be filed by it under either (i) the Securities Act and the Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) of the Exchange Act, or (ii) the Alternative Reporting Standard as offered by OTC Markets Group, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the “SEC Reports” and, together with the Disclosure Schedule to this Agreement, the “Disclosure Materials”). As of their respective dates, the Disclosure Materials complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, or the Alternative Reporting Standard as applicable, and none of the Disclosure Materials, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except as indicated in Section 3.10 of the Disclosure Schedule, the financial statements of the Company included in the Disclosure Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission or OTC Markets as applicable, with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

 

 

 

3.11           Material Changes. Since the date of the latest financial statements, (i) there has been no event, occurrence or development that, individually or in the aggregate, has had or that could result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or affiliate, except pursuant to existing Company stock-based plans or agreements.

 

3.12           Litigation. Except as set forth in Section 3.12 of the Disclosure Schedule, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which: (i) adversely affects or challenges the legality, validity or enforceability of any of the Subscription Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by governmental authority, or any litigation civil or otherwise, involving the Company or any current or former director or officer of the Company or its Subsidiaries.

 

3.13           Labor Relations. Neither Company nor any Subsidiary is a party to or bound by any collective bargaining agreements or other agreements with labor organizations. Neither Company nor any Subsidiary has violated in any material respect any laws, regulations, orders or contract terms, affecting the collective bargaining rights of employees, labor organizations or any laws, regulations or orders affecting employment discrimination, equal opportunity employment, or employees’ health, safety, welfare, wages and hours. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.

 

3.14           Regulatory Permits. Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such permits would not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

3.15           Title to Assets. Except as set forth in Section 3.15 of the Disclosure Schedule, Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which Company and the Subsidiaries are in compliance.

 

3.16           Taxes.

 

(a)                Except as otherwise itemized in Section 3.16 of the Disclosure Schedule, Company and its Subsidiaries have timely and properly filed all tax returns required to be filed by them for all years and periods (and portions thereof) for which any such tax returns were due, except where the failure to so file would not have a Material Adverse Effect; all such filed tax returns are accurate in all material respects; the Company has timely paid all taxes due and payable (whether or not shown on filed tax returns), except where the failure to so pay would not have a Material Adverse Effect; there are no pending assessments, asserted deficiencies or claims for additional taxes that have not been paid; the reserves for taxes, if any, reflected in the financial statements are adequate, and there are no Liens for taxes on any property or assets of the Company and any of its Subsidiaries (other than Liens for taxes not yet due and payable); there have been no audits or examinations of any tax returns by any (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental or administrative division, department, agency, commission, instrumentality, official, organization, unit, body or entity) and any court or other tribunal (a “Governmental Body”), and the Company or its Subsidiaries have not received any notice that such audit or examination is pending or contemplated; no claim has been made by any Governmental Body in a jurisdiction where the Company or any of its Subsidiaries does not file tax returns that it is or may be subject to taxation by that jurisdiction; to the knowledge of the Company, no state of facts exists or has existed which would constitute grounds for the assessment of any penalty or any further tax liability beyond that shown on the respective tax returns; and there are no outstanding agreements or waivers extending the statutory period of limitation for the assessment or collection of any tax.

 

 

 

 

(b)                Neither the Company nor any of its Subsidiaries is a party to any tax-sharing agreement or similar arrangement with any other Person.

 

(c)                The Company has made all necessary disclosures required by Treasury Regulation Section 1.6011-4. The Company has not been a participant in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b).

 

(d)                No payment or benefit paid or provided, or to be paid or provided, to current or former employees, directors or other service providers of the Company will fail to be deductible for federal income tax purposes under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”).

 

3.17           Patents and Trademarks. Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses and which the failure to so have could have or reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by Company or any Subsidiary violates or infringes upon the rights of any Person. All such Intellectual Property Rights are enforceable. Company and its Subsidiaries have taken reasonable steps to protect Company’s and its Subsidiaries’ rights in their Intellectual Property Rights and confidential information (the “Confidential Information”). Each employee, consultant and contractor who has had access to Confidential Information which is necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted has executed an agreement to maintain the confidentiality of such Confidential Information and has executed appropriate agreements that are substantially consistent with the Company’s standard forms thereof. Except under confidentiality obligations, there has been no material disclosure of any of Company’s or its Subsidiaries’ Confidential Information to any third party.

 

3.18           Environmental Matters. Neither Company nor any Subsidiary is in violation of any statute, rule, regulation, decision or order of any Governmental Body relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim has had or could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate; and there is no pending or, to the Company’s knowledge, threatened investigation that might lead to such a claim.

 

3.19           Insurance. Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which Company and the Subsidiaries are engaged. Neither Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

3.20           Transactions with Affiliates and Employees. Except as disclosed in the Company’s audited financial statements or the Disclosure Materials, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, other than (a) for payment of salary or consulting fees for services rendered, (b) reimbursement for expenses incurred on behalf of the Company and (c) for other employee benefits, including stock option agreements under any stock option plan of Company.

 

3.21           Brokers and Finders. Except as otherwise itemized in Section 3.21 of the Disclosure Schedule, no person will have, as a result of the transactions contemplated by the Subscription Documents, any valid right, interest or claim against or upon Company, any Subsidiary or the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.

 

 

 

 

3.22           Questionable Payments. Neither Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of their respective current or former stockholders, directors, officers, employees, agents or other persons acting on behalf of Company or any Subsidiary, has on behalf of Company or any Subsidiary or in connection with their respective businesses: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; (c) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious entries on the books and records of Company or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

 

3.23           Solvency. The Company has not (a) made a general assignment for the benefit of creditors; (b) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by its creditors; (c) suffered the appointment of a receiver to take possession of all, or substantially all, of its assets; (d) suffered the attachment or other judicial seizure of all, or substantially all, of its assets; (e) admitted in writing its inability to pay its debts as they come due; or (f) made an offer of settlement, extension or composition to its creditors generally.

 

3.24           Foreign Corrupt Practices Act. None of Company or any of its Subsidiaries, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company or any of its Subsidiaries, has, directly or indirectly: (a) used any funds, or will use any proceeds from the sale of the Securities, for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (b) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (c) failed to disclose fully any contribution made by Company or any of its Subsidiaries (or made by any person acting on their behalf of which the Company is aware) or any members of their respective management which is in violation of any legal requirement, or (d) has violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder which was applicable to Company or any of its Subsidiaries.

 

3.25           Disclosures. Neither the Company nor any person acting on its behalf has provided the Purchaser or its agents or counsel with any information that constitutes or might constitute material, non-public information, other than the terms of the transactions contemplated hereby. The written materials delivered to the Purchaser in connection with the transactions contemplated by the Subscription Documents do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

 

3.26           Transfer Agent. Company represents and warrants that it will not replace its transfer agents without Purchaser’s permission so long as the Note is outstanding. Company acknowledges that this is extremely material to the Note and the investment is made based on the assumption that this will not happen.

 

3.27           Shell Company Status. Set forth in Schedule 3.27 of the Disclosure Schedule is the Company’s representation as to its “Shell Company” status under Rule 144.

 

3.28           Notice of Material Changes. The Company agrees and acknowledges that so long as any obligations of the Company under any of the Subscription Documents shall exist, it shall be obligated to provide Notice to the Purchaser in the event of a material change to any representation or disclosure in any of the Subscription Documents, including but not limited to, the disclosures on the Disclosure Schedule, and failure to provide such notice shall be a breach of this Agreement and an Event of Default under Section 4.3 of the Note.

 

4.

Representations and Warranties of the Purchaser

 

4.1               Purchase for Own Account. The Purchaser represents that it is acquiring the Securities for its own account.

 

4.2               Information and Sophistication. Without lessening or obviating the representations and warranties of the Company set forth in Section ‎3, the Purchaser hereby: (a) acknowledges that it has received all the information it has requested from the Company and it considers necessary or appropriate for deciding whether to acquire the Securities, (b) represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and to obtain any additional information necessary to verify the accuracy of the information given the Purchaser and (c) further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment.

 

 

 

 

4.3               Ability to Bear Economic Risk. The Purchaser acknowledges that investment in the Securities involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

 

4.4               Accredited Investor Status. The Purchaser is an “accredited investor” as such term is defined in Rule 501 under the Act.

 

4.5               Existence; Authorization. The Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the state of its organization, having full power and authority to own its properties and to carry on its business as conducted. The principal place of business of the Purchaser is as shown on the Accredited Investor Questionnaire. The Purchaser has the requisite power and authority to deliver this Agreement, perform its obligations set forth herein, and consummate the transactions contemplated hereby. The Purchaser has duly executed and delivered this Agreement and has obtained the necessary authorization to execute and deliver this Agreement and to perform his, her or its obligations herein and to consummate the transactions contemplated hereby. This Agreement, assuming the due execution and delivery hereof by the Company, is a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms.

 

4.6               No Regulatory Approval. The Purchaser understands that no state or federal authority has scrutinized this Agreement or the Securities offered pursuant hereto, has made any finding or determination relating to the fairness for investment in the Securities, or has recommended or endorsed the Securities, and that the Securities has not been registered or qualified under the Act or any state securities laws, in reliance upon exemptions from registration thereunder. The Securities may not, in whole or in part, be resold, transferred, assigned or otherwise disposed of unless it is registered under the Act or an exemption from registration is available, and unless the proposed disposition is in compliance with the restrictions on transferability under federal and state securities laws.

 

4.7               Purchaser Received Independent Advice. The Purchaser confirms that the Purchaser has been advised to consult with the Purchaser’s independent attorney regarding legal matters concerning the Company and to consult with independent tax advisers regarding the tax consequences of investing in the Company. The Purchaser acknowledges that Purchaser understands that any anticipated United States federal or state income tax benefits may not be available and, further, may be adversely affected through adoption of new laws or regulations or amendments to existing laws or regulations. The Purchaser acknowledges and agrees that the Company is providing no warranty or assurance regarding the ultimate availability of any tax benefits to the Purchaser by reason of the subscription.

 

4.8               Legends. The Purchaser understands that until such time as the Securities have been registered under the Securities Act or may be sold pursuant to Rule 144, Rule 144A under the Securities Act or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop- transfer order may be placed against transfer of the certificates for such Securities):

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE OR EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE PURCHASER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

5.

Further Agreements; Post-Closing Covenants

 

5.1               Notes and Warrants. Upon the advance of the Purchase Price with respect to any Note by Purchaser to the Company, Company shall issue to Purchaser the respective Note and Warrants.

 

 

 

 

5.2               Intentionally Omitted.

 

5.3               Use of Proceeds. Company agrees to use the proceeds of the first Tranche solely for the following purposes: to pursue an underwritten public offering and for general working capital purposes.

 

5.4               Form D; Blue Sky Laws. 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 Purchaser promptly after such filing. Company shall take such action as Company shall reasonably determine is necessary to qualify the Securities for sale to the Purchaser at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Purchaser on or prior to the initial closing.

 

5.5               Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Purchaser in order to enforce any right or remedy under the Note. Notwithstanding any provision to the contrary contained in the Note, it is expressly agreed and provided that the total liability of the Company under the Note for payments which under Delaware law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under Delaware law in the nature of interest that the Company may be obligated to pay under the Note exceed such Maximum Rate.  It is agreed that if the maximum contract rate of interest allowed by Delaware law and applicable to the Note is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Note from the effective date thereof forward, unless such application is precluded by applicable law.  If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Purchaser with respect to indebtedness evidenced by the Note, such excess shall be applied by the Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Purchaser’s election.

 

5.6               Registration Rights.

 

(a)               Piggy-Back Registration. Company shall give the Purchaser at least 30 days’ prior written notice of each filing by Company of a registration statement (other than a registration statement on Form S-4 or Form S-8 or on any successor forms thereto), with the SEC. If requested by the Purchaser in writing within 20 days after receipt of any such notice, Company shall, at Company’s sole expense (other than the underwriting discounts, if any, payable in respect of the shares sold by the Purchaser), register or otherwise include all or, at Purchaser’s option, any portion of the Underlying Securities, concurrently with the registration of such other securities, all to the extent requisite to permit the public offering and sale of the Underlying Securities through the securities exchange, if any, on which the shares of common stock is being sold or on the over-the-counter market, and will use its reasonable best efforts through its officers, directors, auditors, and counsel to cause such registration statement to become effective as promptly as practicable.

 

(b)               In the event of a registration pursuant to these provisions, Company shall use its reasonable best efforts to cause the Underlying Securities so registered to be registered or qualified for sale under the securities or blue sky laws of such jurisdictions as the Purchaser may reasonably request; provided, however, that Company shall not be required to qualify to do business in any state by reason of this section in which it is not otherwise required to qualify to do business.

 

(c)               Company shall keep effective any registration or qualification contemplated by this section and shall from time to time amend or supplement each applicable registration statement, preliminary prospectus, final prospectus, application, document and communication for such period of time as shall be required to permit the Purchaser to complete the offer and sale of the Underlying Securities covered thereby.

 

 

 

 

(d)               In the event of a registration pursuant to the provisions of this section, Company shall furnish to the Purchaser such reasonable number of copies of the registration statement and of each amendment and supplement thereto (in each case, including all exhibits), of each prospectus contained in such registration statement and each supplement or amendment thereto (including each preliminary prospectus), all of which shall conform to the requirements of the Act and the rules and regulations thereunder, and such other documents, as the Purchaser may reasonably request to facilitate the disposition of the Underlying Securities included in such registration.

 

(e)               Company shall notify the Purchaser within three (3) business days after such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed.

 

(f)                Company shall advise the Purchaser within three (3) business days after it shall receive notice or obtain knowledge of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement, or the initiation or threatening of any proceeding for that purpose and within three (3) business days take action using its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued.

 

(g)               Company shall within three (3) business days notify the Purchaser at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the reasonable request of the Purchaser prepare and furnish to it such number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Underlying Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. The Purchaser shall suspend all sales of the Underlying Securities upon receipt of such notice from Company and shall not re-commence sales until they receive copies of any necessary amendment or supplement to such prospectus, which shall be delivered to the Purchaser within 30 days of the date of such notice from Company.

 

5.7               Legal Counsel Opinions.

 

(a)               Upon the request of the Purchaser from to time to time, but in any case no more than once every two (2) weeks (which limit shall apply to legal opinions requested by Purchase with respect to each Security), Company shall be responsible (at its cost) for promptly supplying to Company’s transfer agent and the Purchaser a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Underlying Securities by the Purchaser or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of Rule 144 are satisfied and provided the Underlying Securities are not then registered under the 1933 Act for resale pursuant to an effective registration statement). Should Company’s legal counsel fail for any reason to issue the Legal Counsel Opinion, the Purchaser may (at Company’s cost) secure another legal counsel to issue the Legal Counsel Opinion, and Company will instruct its transfer agent to accept such opinion. Company shall not impede the removal by its stock transfer agent of the restricted legend from any common stock certificate upon receipt by the transfer agent of a Rule 144 Opinion Letter.

 

5.8               Listing. Company will, within 90 days of the Effective Date, list its Common Stock on the OTC Pink or any equivalent exchange or electronic quotation system, other than the OTC’s Expert Market, and will comply in all respects with Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority, or FINRA, and such exchanges, as applicable, as well as with the SEC, and so long as the Purchaser owns any of the Securities, maintain such listing and trading of its Common Stock. Company shall promptly provide to the Purchaser copies of any notices it receives from the OTC and any other exchanges or electronic quotation systems on which the common stock is then traded regarding the continued eligibility of the common stock for listing on such exchanges and quotation systems.

 

 

 

 

5.9               Information and Observer Rights.

 

(a)               As long as the Purchaser owns at least five percent (5%) of the Securities originally purchased hereunder, Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by Company pursuant to the Exchange Act. As long as the Purchaser owns at least five percent (5%) of the Securities originally purchased hereunder, if Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchaser and simultaneously make publicly available in accordance with Rule 144(c) such information as is required for the Purchaser to sell the Securities under Rule 144. Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable the Purchaser to sell the Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. If, after the Company becomes a fully reporting company subject to the reporting requirements of the Exchange Act, the Company fails to remain current in its reporting obligations or to provide currently publicly available information in accordance with Rule 144(c) and such failure extends for a period of more than fifteen Trading Days (the date which such fifteen Trading Day-period is exceeded, being referred to as “Event Date”), then in addition to any other rights the Purchaser may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the information failure is cured, Company shall pay to the Purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to one percent (1%) of purchase price paid for the Securities held by the Purchaser at the Event Date. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an information failure (except in the case of the first Event Date).

 

(b)               As long as the Purchaser owns at least five percent (5%) of the Securities, if the Purchaser notifies Company that it wishes to attend meetings of Company’s Board of Directors, Company shall invite a designated representative of the Purchaser to attend all meetings of Company’s Board of Directors in a nonvoting observer capacity and, in this respect, and subject to the Purchaser’s having informed Company that it wishes to attend, Company shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between Company and its counsel or result in disclosure of trade secrets or a conflict of interest.

 

5.10           Confidentiality. The Purchaser agrees that the it will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) the terms and conditions of this Agreement or any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 5.10 by the Purchaser), (b) is or has been independently developed or conceived by the Purchaser without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Purchaser by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that the Purchaser may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Securities from the Purchaser, if such prospective purchaser agrees to be bound by the provisions of this Section 5.10; (iii) to any existing or prospective affiliate, partner, member, stockholder, or wholly owned subsidiary of the Purchaser in the ordinary course of business, provided that the Purchaser informs such person that such information is confidential and directs such person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, provided that the Purchaser notifies the Company within three (3) business days of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.

 

5.11           Restrictions on Activities.

 

(a)               Commencing as of the date first above written, and so long as the Company has an obligation under the Note, the Company shall not, directly or indirectly, without the Purchaser’s prior written consent, which consent shall not be unreasonably withheld: (a) change the nature of its business; (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business; (c) solicit any offers for, respond to any unsolicited offers for, or conduct any negotiations with any other person or entity in respect of any Variable Rate Transactions (defined below); (d) accept a Merchant-Cash-Advance in which it sells future receivables at a discount or any other factoring transactions, or similar financing instruments or financing transactions, whether a transaction similar to the one contemplated hereby or any other investment; or (e) Enter into a borrowing arrangement where the Company pays an effective APR greater than 20%.

 

 

 

 

(b)               Unless approved by the Purchaser, Company and each Subsidiary shall not enter into an agreement or amend an existing agreement to effect any sale of securities involving, or convert any securities previously issued under, a Variable Rate Transaction or a merchant cash advance transaction in which it sells future receivables at a discount, or a substantially similar transaction. The term “Variable Rate Transaction” means a transaction in which Company or any Subsidiary (i) issues or sells any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of common stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of Company or the Subsidiary, as the case may be, or the market for the common stock, other than pursuant to a customary “weighted average” anti-dilution provisions, or (ii) enters into any agreement (including, without limitation, an “equity line of credit” or an “at-the-market offering”) whereby Company or any Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). The Purchaser shall be entitled to obtain injunctive relief against Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

5.12           Sale of Assets; Issuance of Equity or Debt. Should Company sell any material assets, or issue any equity, debt, or other security, including the sale of any Subsidiary, the Purchaser shall have the right to be repaid on any outstanding amount owed under the Securities from the proceeds of any such sale or offering, based on the applicable repayment terms stated in such Security, but if a Security provides no terms with respect to the repayment of the amounts owed from the proceeds of such sale or offering, then Purchaser shall have the right to be repaid on any outstanding amount owed under the Securities by up to 100% of the proceeds of any such sale or offering.

 

5.13           Right of Participation. For a period of two (2) years from the date hereof, in the event Company or any Subsidiary proposes to offer and sell its securities, whether in the form of debt, Equity Financing (defined below), or any other financing transaction (each a “Future Offering”), the Purchaser shall have the right, but not the obligation, to participate in the purchase of the securities being offered up to an amount equal to the principal amount or ▇▇▇▇▇ amount with respect to any Security (the “Participation Right”). For the avoidance of doubt, an “Equity Financing” shall mean Company’s or its Subsidiary’s sale of its common stock or any securities conferring the right to purchase Company’s or Subsidiary’s common stock or securities convertible into, or exchangeable for (with or without additional consideration), shares of the Company’s or Subsidiary’s common stock. In connection with each Participation Right, Company shall provide written notice to the Purchaser of the terms and conditions of the Future Financing at least ten business days prior to the anticipated first closing of such Future Financing (the “FF Notice”). If the Purchaser shall elect to exercise its Participation Right, it shall notify Company, in writing, of such election at least five business days prior to the anticipated closing date set forth in the FF Notice (the “Participation Notice”). In the event the Purchaser does not return a Participation Notice to Company within such five-business day period, the Participation Right granted hereunder shall terminate and be of no further force and effect; provided, however, that such Participation Right shall be reinstated if the anticipated closing referenced in the FF Notice does not occur prior to thirty business days following the anticipated first closing date specified in such FF notice.

 

5.14           Right of First Refusal. So long as the Company shall have any obligation under the Securities or the Subscription Documents, but in any case for a period of no less than eighteen (18) months from the date hereof, if the Company or any Subsidiary has a bona fide offer of capital or financing from any third party that the Company or any Subsidiary intends to act upon, other than an underwritten initial public offering of the Common Shares, then the Company must first offer such opportunity to the Purchaser to provide such capital or financing to the Company or Subsidiary on the same terms as each respective third party’s terms. Should the Purchaser be unwilling or unable to provide such capital or financing to the Company or Subsidiary within 10 Trading Days from Purchaser’s receipt of written notice of the offer (the “Offer Notice”) from the Company, then the Company or Subsidiary may obtain such capital or financing from that respective third party upon the exact same terms and conditions offered by the Company to the Purchaser, which transaction must be completed within 60 days after the date of the Offer Notice. If the Company or Subsidiary does not receive the capital or financing from the respective 3^rd party within 60 days after the date of the respective Offer Notice, then the Company must again offer the capital or financing opportunity to the Purchaser as described above, and the process detailed above shall be repeated. The Offer Notice must be sent via electronic mail to ▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇ Cc: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.

 

 

 

 

5.15           Terms of Future Financings. So long as any obligations of the Company under the Securities or the Subscription Documents are outstanding, upon any issuance of (or announcement of intent to effect an issuance of) any security, or amendment to (or announcement of intent to effect an amendment to) any security that was originally issued before the Issue Date, by the Company or any Subsidiary, with any term that the Purchaser reasonably believes is more favorable to the Purchaser of such security than to the Purchaser in the Securities or the Subscription Documents, or with a term in favor of the Purchaser of such security that the Purchaser reasonably believes was not similarly provided to the Purchaser in the Securities or the Subscription Documents, then (i) the Company shall notify the Purchaser of such additional or more favorable term within three (3) business days of the issuance and/or amendment (as applicable) of the respective security, and (ii) such term, at Purchaser’s option, shall become a part of the Securities or the Subscription Documents with the Purchaser (regardless of whether the Company complied with the notification provision of this Section 3.12). The types of terms contained in another security that may be more favorable to the Purchaser of such security include, but are not limited to, terms addressing conversion price, conversion price discounts and adjustments, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, commitment shares, and warrant coverage. If Purchaser elects to have the term become a part of the transaction documents with the Purchaser, then the Company shall immediately deliver acknowledgment of such adjustment in form and substance reasonably satisfactory to the Purchaser (the “Acknowledgment”) within three (3) business days of Company’s receipt of request from Purchaser (the “Adjustment Deadline”), provided that Company’s failure to timely provide the Acknowledgement shall not affect the automatic amendments contemplated hereby.

 

5.16           Rollover Rights. So long as the Note is outstanding, if the Company completes a public offering or private placement of its equity, equity-linked or debt securities (each, a “Future Transaction”), the Purchaser may, in its sole discretion, elect to apply as purchase consideration for such Future Transaction (the “Rollover Rights”): (i) all, or any portion, of the then outstanding principal amount of the Note and any accrued but unpaid interest, including any amounts that would be added to the principal outstanding in the event that any redemption right or prepayment right is exercised by either the Purchaser or the Company, and (ii) any securities of the Company then held by the Purchaser, at their fair value (such elected portion of (i) and (ii) referred to herein as the “Rollover Consideration”). The Company shall give written notice to Purchaser as soon as practicable, but in no event less than fifteen (15) days before the anticipated closing date of such Future Transaction. The Purchaser may exercise its Rollover Rights by providing the Company written notice of such exercise within five (5) Business Days before the closing of the Future Transaction. In the event Purchaser exercises its Rollover Rights, then such Rollover Consideration, shall automatically convert into the corresponding securities issued in such Future Transaction under the terms of such Future Transaction, such that the Purchaser will receive all securities (including, without limitation, any warrants) issuable under the Future Transaction, provided however, that the conversion price applicable to such conversion shall equal eighty percent (80%) of the cash purchase price paid per share, unit or other security denomination for the Company securities issued in the Future Financing to other investors in the Future Transaction. With respect to a Public Offering, the securities acquired upon exercise of Rollover Rights may be subject to standard underwriter lock up if required by the underwriter. Notwithstanding the foregoing, Purchaser shall be required to exercise its Rollover Rights with respect to the Preferred Shares, in an amount equal to a minimum of $500,000 of Stated Value (as defined in the Designation).

 

5.17           Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any covenants set forth in this Section, in addition to any other remedies available to the Purchaser pursuant to this Agreement, it will be considered an Event of Default under Section 4.3 of the Note.

 

 

 

 

 

5.18           Transfer Agent Instructions. Company shall issue irrevocable instructions to Company’s transfer agent to issue certificates, registered in the name of the Purchaser or its nominee, upon issuance of shares pursuant to the Note or exercise of the Warrant, in such amounts as specified from time to time by the Purchaser to Company in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that Company proposes to replace its transfer agent, Company shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of common stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to Company and Company. Prior to registration of the Underlying Securities under the Securities Act or the date on which the Underlying Securities may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 4.8 of this Agreement. Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5.18 will be given by Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for Securities to be issued to the Purchaser upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Purchaser upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within one (1) business day of each conversion of the Note. Nothing in this Section shall affect in any way the Purchaser’s obligations and agreement set forth in Section 5.6 hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Purchaser provides Company, at the cost of Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Purchaser provides reasonable assurances that the Securities can be sold pursuant to Rule 144, Company shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Purchaser. Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, Company acknowledges that the remedy at law for a breach of its obligations under this Section 5.18 may be inadequate and agrees, in the event of a breach or threatened breach by Company of the provisions of this Section, that the Purchaser shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

 

5.19           Further Assurances. The Purchaser agrees and covenants that at any time and from time to time it will execute and deliver to the Company such further instruments and documents and take such further action as the Company may reasonably require within three (3) business days of any such request in order to carry out the full intent and purpose of this Agreement and to comply with state or federal securities laws or other regulatory approvals.

 

5.20           Exchange Act Reporting. If the Company is already an SEC reporting company on the Effective Date, then at any time after the Effective Date, or if the Company is not an Exchange Act Reporting Company on the Effective Date, then at any time after the Company becomes subject to and fully compliant with the SEC reporting requirements under the Exchange Act, it shall be an event of default under the Note and this Agreement if the Company fails to maintain such fully reporting status (including but not limited to becoming delinquent in its filings).

 

6.

Conditions to the Company’s Obligation to Sell

 

The obligation of the Company hereunder to issue and sell the Note to the Purchaser at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

 

(a)               The Purchaser shall have executed this Agreement and delivered the same to the Company.

 

(b)               The Purchaser shall have delivered the Exchanged Notes in accordance with Section 2.1(a) above.

 

 

 

 

(c)               With respect to future purchases by the Purchaser of Notes and Warrants, the Purchaser shall have delivered to the Company the Purchase Price.

 

(d)               The representations and warranties of the Purchaser shall be true and correct in all material respects as of the date when made and as of the Effective Date and each Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Purchaser at or prior to each Closing Date.

 

(e)               No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

7.

Conditions to The Purchaser’s Obligation to Purchase

 

The obligation of the Purchaser hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Purchaser’s sole benefit and may be waived by the Purchaser at any time in its sole discretion:

 

(a)               The Company shall have executed this Agreement and delivered the same to the Purchaser.

 

(b)               The Company shall have delivered to the Purchaser the duly executed Consolidated Note and the Preferred Shares.

 

(c)               With respect to purchase of Notes and Warrants, Company shall have delivered to the Purchaser the respective Note and Warrants.

 

(d)               Company shall have delivered executed Subscription Documents, or such other instruments as contemplated by this Agreement.

 

(e)               Company shall have provided to Purchaser the necessary documents to enable Purchaser to perfect its first priority security in the shares and other equity interests owned by Company, contemporaneously with the date of this Agreement.

 

(f)                The Company has provided the Purchaser with a current schedule of liabilities and the results of a current certified UCC.

 

(g)               The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Purchaser, shall have been delivered to and acknowledged in writing by Company’s Transfer Agent.

 

(h)               The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of each Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to each Closing Date.

 

(i)                 No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

 

 

 

(j)                 No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the Exchange Act reporting status of the Company or the failure of the Company to be timely in its Exchange Act reporting obligations.

 

(k)               Company shall have delivered to the Purchaser (i) a certificate evidencing the formation and good standing of Company and each of its Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date; (ii) resolutions adopted by the Company’s Board of Directors at a duly called meeting or by unanimous written consent authorizing this Agreement and all other documents, instruments and transactions contemplated hereby; and (iii) lien searches for Company dated within ten (10) days of the Closing Date and again as of the Closing Date.

 

8.

Miscellaneous

 

8.1               Binding Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

8.2               Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed under the laws of the State of Delaware, without giving effect to conflicts of laws principles. Each party to this Agreement hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in Delaware for the adjudication of any dispute hereunder or in connection with any transaction contemplated hereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof (certified or registered mail, return receipt requested) to such party at the address in effect for notices to it under this agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. All transactions contemplated herein are being made subject to the rules of Iska as found on ▇▇▇▇▇▇▇’s website (▇▇▇▇▇▇▇▇▇▇.▇▇▇/▇▇▇▇).

 

8.3               Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

8.4               Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

8.5               Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company and to the Purchaser at the addresses set forth on the signature page to this Agreement or at such other addresses as the Company or Purchaser may designate by 10 days’ advance written notice to the other parties hereto.

 

8.6               Modification; Waiver. No modification or waiver of any provision of this Agreement or consent to departure therefrom shall be effective only upon the written consent of the Company and the Purchaser. Any provision of the Note may be amended or waived by the written consent of the Company and the Purchaser.

 

 

 

 

8.7               Expenses. The Company and the Purchaser shall each bear its respective expenses and legal fees incurred with respect to this Agreement and the transactions contemplated herein; provided, however, that the Purchaser may retain $10,000 of the Consideration to cover its expenses incurred in connection with this Agreement and the transactions contemplated hereby.

 

8.8               Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to the Purchaser, upon any breach or default of the Company under the Subscription Documents shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by Purchaser of any breach or default under this Agreement, or any waiver by any Purchaser of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchaser, shall be cumulative and not alternative.

 

8.9               Entire Agreement. This Agreement and the Exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein.

 

8.10           Incorporation of Recitals. The representations, covenants, and recitations set forth in the recitals above are hereby incorporated into and made a part of this Agreement, including all defined terms referenced therein.

 

[Signature page follows]

 

 

 

 

 

 

 

 

 

In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.

 

				Address:
COMPANY:	Cardiff Lexington Corporation			▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
				Fort Lauderdale, Florida 33301
	By:	/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Title: Chief Executive Officer

 

 

	WE THREE, LLC, d/b/a			P.O. Box 6531
	AFFORDABLE HOUSING INITIATIVE			Maryville, TN 37802
	By:	/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Title: Chief Executive Officer

 

 

	EDGE VIEW PROPERTIES, INC.			▇▇▇▇ ▇▇▇▇▇ ▇▇▇
				Salmon, ID 83467-3041
	By:	/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Title: Chief Executive Officer

 

 

	PLATINUM TAX DEFENDERS, LLC			▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
				Suite 200-876
	By:	/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇		Las Vegas, NV 89169
	Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Title: Chief Executive Officer

 

 

	NOVA ORTHO AND SPINE, PLLC			▇▇▇▇ ▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
				Fort ▇▇▇▇▇▇, FL 34947
	By:	/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
	Title: Chief Executive Officer

 

PURCHASER:	LEONITE CAPITAL LLC			▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇
				Spring Valley, NY 10977
	By:	/s/ ▇▇▇ ▇▇▇▇▇▇
	Name: ▇▇▇ ▇▇▇▇▇▇
	Title: Chief Investment Officer

 

[Securities Purchase Agreement – Signature page]

 

 

 

SCHEDULE I

 

Disclosure Schedule

 

Section 3.3 Subsidiaries and Affiliates

 

We Three, LLC, d/b/a Affordable Housing Initiative (“AHI”), which we acquired on May 15, 2014, is an affordable home acquirer located in Maryville, Tennessee, which acquires mobile homes and either sells them or rents the homes to individual families. Management is currently in negotiations to sell this subsidiary.

 

Edge View Properties, Inc. (“Edge View”), which we acquired on July 16, 2014, is a real estate company that owns 30 acres of land; 23.5 acres zoned MDR (Medium Density Residential) with 12 lots already platted and 48 lots zoned HDR (High Density Residential), 4 acres of dedicated river front property zoned for recreation on the Salmon River, Idaho’s premier whitewater river, and 2.5 acres zoned for commercial use.

 

Platinum Tax Defenders, LLC (“Platinum Tax”), which we acquired on July 31, 2018, is a full-service tax resolution firm located in Los Angeles, California.  Since 2011, Platinum Tax has been assisting all types of taxpayers resolve any and all issues with IRS and applicable state tax agencies. Management is exploring the sale of this subsidiary.

 

Nova Ortho and Spine, PLLC (“Nova”), which we acquired May 31, 2022, is a group of regional primary specialty and ancillary care facilities located throughout Florida which provide a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves.

 

Section 3.7 Compliance with Other Instruments

 

N/A

 

Section 3.9 Capitalization

 

 

 

 

CARDIFF LEXINGTON CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS UNAUDITED

AS OF DECEMBER 31, 2021 AND AUDITED 2020 (Restated)

 

Shareholders' equity (deficit)
Preferred stock
Preferred Stock Series B- 3,000,000 shares authorized, no par, stated value of $4.00, 1,945,078 and 1,743,279 shares issued and outstanding at December 31, 2021 and 2020, respectively			7,780,312				7,056,977
Preferred Stock Series C- 500 shares authorized, no par, stated value of $4.00, 122 and 122 shares issued and outstanding at December 31, 2021 and 2020, respectively			488				488
Preferred Stock Series D- 800,000 shares authorized, no par, stated value $4.00, 37,500 and 250,000 shares issued and outstanding at December 31, 2021 and 2020			150,000				1,000,000
Preferred Stock Series E- 1,000,000 shares authorized, no par, stated value $4.00, 150,750 and 150,750 shares issued and outstanding at December 31, 2021 and 2020, respectively			603,000				603,000
Preferred Stock Series F- 800,000 shares authorized, no par, stated value $4.00, 175,045 and 175,045 shares issued and outstanding at December 31, 2021 and 2020, respectively			700,180				700,180
Preferred Stock Series F-1- 800,000 shares authorized, no par, stated value $4.00, 35,752 and 35,752 shares issued and outstanding at December 31, 2021 and 2020, respectively			143,008				143,008
Preferred Stock Series G- 20,000,000 shares authorized, no par, stated value $4.00 zero and 325,444 shares issued and outstanding at December 31, 2021 and 2020			–				1,300,976
Preferred Stock Series H- 4,859,379 shares authorized, no par, stated value $4.00, 37,500 shares issued and outstanding at December 31, 2021 and 2020, respectively			150,000				476,404
Preferred Stock Series I- 500,000,000 shares authorized, with par value of $.001, 14,885,000 and 195,010,000 issued and outstanding at December 31, 2021 and 2020, respectively			59,540,000				195,010
Preferred Stock Series J-10,000,000 shares authorized, no par, stated value $4, 894,834 and -0- shares issued and outstanding at December 31, 2021 and 2020			3,579,336				–
Preferred Stock Series K- 10,937,500 shares authorized, par value of $.001, 8,200,562 shares issued and outstanding at December 31, 2021 and 2020			8,201				8,201
Preferred Stock Series K1- 35,000,000 shares authorized, par value of $.001, -0- and 1,447,157 shares issued and outstanding at December 31, 2021 and 2020, respectively			–				–
Preferred Stock Series L- 100,000,000 shares authorized, no par, stated value $4.00, 319,493 shares issued and outstanding at December 31, 2021 and 2020			1,277,972				1,277,972
Preferred Stock Series N-3,000,000 shares authorized, no par, stated value $4, 868,058 and -0- shares issued and outstanding at December 31, 2021 and 2020			3,472,224				–
Preferred Stock Series R-5,000 shares authorized, stated value of $1,200, 165 shares issued and outstanding at December 31, 2021 and 2020			198,000				198,000
Common stock; 7,500,000,000 shares authorized with $0.001 par value; 166,130,069 and 5,268,797 shares issued and outstanding at December 31, 2021 and 2020, respectively			167,421				5,267
Treasury stock; 619,345 and 194,101 shares of Series H Preferred stock at December 31, 2021 and 2020			(4,967,686	)			(2,365,864	)
Additional paid-in capital			(1,048,571	)			49,449,679
Accumulated deficit			(68,985,181	)			(66,017,969	)
Total shareholders' equity (deficit)			2,768,705				(5,968,671	)
Total liabilities and shareholders' equity		$	10,970,346			$	4,930,147

 

Section 3.10 SEC Reports; Financial Statements

 

All SEC Reports and Financial Statements have been filed through 09/30/2021.

 

 

 

 

Section 3.12 Litigation

 

On October 4, 2020 Cardiff Lexington filed a lawsuit in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida seeking to nullify six agreements entered into by Red Rock Travel Group, LLC in violation of the management agreement between Cardiff Lexington and Ihsane (▇▇▇) ▇▇▇▇▇ in connection with the aborted acquisition of Red Rock Travel Group, LLC. The Company alleges that ▇▇. ▇▇▇▇▇ engaged in self-interested, self-serving conduct utilizing the Company’s goodwill to enter into certain unauthorized convertible note agreements without the legal authority to bind the Company. The parties entered a joint notice of settlement agreement with the court on August 2, 2021. As of September 20, 2022 that settlement agreement has been signed by 9 of the 10 related parties.

 

On October 8, 2021, Cardiff Lexington and EVP filed a Complaint in Iowa against ▇▇▇▇ ▇▇▇▇▇, seeking an award of damages against him and asserting the following claims: (1) constructive trust; (2) breach of contract; (3) breach of fiduciary duties; and (4) conversion. Plaintiffs also seeks costs and attorney’s fees. On August 31, 2021, without knowledge or consent of Cardiff Lexington or Edge View Properties and in a manner to conceal his unlawful actions, a property manager used a new company check from Summit National Bank to withdraw $50,000 from the Company Account. The Defendant is being charged with intentional, oppressive, fraudulent, malicious, and outrageous damages.  Case is pending.

 

On August 24, 2021, charges were filed by Absolute Medical Group, LLC against Cardiff Lexington Corp for Breach of Contract in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida seeking damages. Cardiff filed a counterclaim alleging violations of the management agreement between the parties and rightful termination for cause including damages. Case 21016202 is pending.

 

Section 3.15 Title to Assets

 

N/A

 

Section 3.16 Taxes

 

All taxes are paid through 12/31/2020.

 

Section 3.27 Shell Company Status

 

In 2008, the Company filed current “Form 10 information” with the SEC reflecting its status as an entity that is no longer an issuer described in paragraph (i)(1)(i) of Rule 144.

 

 

 

 

 

 

 

Exhibit A

 

Exchanged Notes

 

Security Name	Date of Issue	Amount Outstanding as of 9/16/2022	Percentage Allocated to Cost Basis of New Securities	CaR Note Allocation ($)	Series X Preferred Allocation ($)
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE	July 10, 2018	$1,512,868.82	39.31%	$1,021,938.08	$589,579.66
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE	February 21, 2019	$109,268.69	2.84%	$73,810.65	$42,583.07
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE	April 10, 2019	$107,904.84	2.80%	$72,889.38	$42,051.56
REPLACEMENT CONVERTIBLE PROMISSORY NOTE	July 24, 2018	$68,556.56	1.78%	$46,309.74	$26,717.16
SENIOR SECURED PROMISSORY NOTE	September 9, 2019	$572,707.35	14.88%	$386,862.00	$223,189.61
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE	September 3, 2020	$1,477,712.57	38.39%	$998,190.15	$575,878.93
TOTAL		$3,849,018.83	100%	$2,600,000	$1,500,000

 

 

 

 

 

 

 

 

 

Exhibit B

 

Form of Consolidated Senior Secured Convertible Promissory Note

 

(See Attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit C

 

Certificate of Designation

 

(See Attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit D

 

Form of Senior Secured Convertible Promissory Note

 

(See Attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit E

 

Form of Warrants

 

(See Attached)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit F

 

Security and Pledge Agreement

 

(See Attached)