NOTE AND WARRANT CONVERSION AGREEMENT
This NOTE
AND WARRANT CONVERSION AGREEMENT (this “Agreement”) is entered into effective as
of October 15, 2009 (the “Effective Date”) by and between ____________________,
a(n) ______________ (the “Creditor”) and Freeze Tag, Inc., a Delaware
corporation (the “Company”).
WITNESSETH
WHEREAS,
Creditor is the holder of that certain Convertible Promissory Note dated
________ in the original principal amount of $_______________ (the
“Note”);
WHEREAS,
Creditor is also the holder of that certain Common Stock Purchase Warrants dated
_____, entitling Creditor to acquire common stock of the Company equal to thirty
percent (30%) of the original principal amount of the Note, at an exercise price
of $0.01 per share (the “Warrant”);
WHEREAS,
the Company has entered into various agreements that are anticipated to result
in the Company (i) raising a minimum of $750,000, and a maximum of $1,250,000,
(ii) filing a registration statement with the Securities and Exchange Commission
(“SEC”) for the resale of shares of common stock sold to investors, including
the Creditor, and (iii) applying to have the common stock of the Company listed
for trading on the Over the Counter Bulletin Board (the
“Transactions”);
WHEREAS,
in anticipation of, but not contingent on, the completion of the Transactions,
Creditor desires to convert the Note and Warrant into common stock of the
Company on the terms and conditions set forth herein;
NOW
THEREFORE, in consideration of the promises and respective mutual agreements
herein contained, it is agreed by and between the parties hereto as
follows:
ARTICLE
1
ISSUANCE
OF CONVERSION SHARES
1.1 Conversion Price; Note;
Warrant.
(a) After
giving effect to a 5.31-to-1 forward stock split of the Company’s common stock,
the offering price for the Company’s common stock in the Transactions will be
$0.10 per share, which will be used as the conversion price (the “Conversion
Price”) for the transactions contemplated by this Agreement.
(b) As
of the Effective Date, the outstanding principal and interest owed on the Note
is $__________________. Based upon the Conversion Price, the Note
shall be converted into __________ shares of the Company’s common stock (the
“Note Shares”).
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(c) Based
on the Conversion Price, and after giving effect to the cashless exercise
provisions of the Warrant, the Warrant shall be converted into _______ shares of
the Company’s common stock (the “Warrant Shares” and, together with the Note
Shares, the “Conversion Shares”).
1.2 Issuance of the Conversion
Shares. Upon the execution of this Agreement as provided in
Section 4.1 hereto (the “Closing”), subject to the terms and conditions herein
set forth, and on the basis of the representations, warranties and agreements
herein contained, the Company shall issue to the Creditor, and Creditor shall
accept from Company, the Conversion Shares.
1.3 Purchase
Price. The purchase price (“Purchase Price”), constituting
full consideration for the sale, transfer and assignment of the Conversion
Shares shall be the cancellation of the Note and the Warrant.
1.4 Instruments of Conveyance
and Transfer. The Company does not currently have a transfer
agent, and does not want to incur the expense of hiring a transfer agent until
after the completion of the Transactions. Within a reasonable time
following the completion of the Transactions, the Company shall deliver a
certificate or certificates representing the Conversion Shares to the Creditor
as shall be effective to vest in Creditor all right, title and interest in and
to all of the Conversion Shares.
ARTICLE
2
REPRESENTATIONS
AND COVENANTS OF COMPANY AND CREDITOR
2.1 Company
hereby represents and warrants that:
(a) It
shall transfer title, in and to the Conversion Shares, to Creditor subject to
the restrictions set forth in Paragraph 2.1(b) herein;
(b) it
shall deliver to Creditor certificates representing the Conversion Shares
subject to a restrictive legend on the certificate(s), which legend shall
provide as follows:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF FOR A PERIOD OF ONE YEAR FROM THE ISSUANCE THEREOF EXCEPT
(i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE LAWS OR (ii) UPON THE EXPRESS WRITTEN AGREEMENT OF THE COMPANY
AND COMPLIANCE, TO THE EXTENT APPLICABLE, WITH RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES.)
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(c) it
has all requisite authority to execute and deliver this Agreement and to carry
out and perform its obligations under the terms of this Agreement.
(d) All
actions on the part of the Company necessary for the authorization, execution,
delivery and performance of this Agreement by the Company and the performance of
the Company’s obligations hereunder has been taken or will be taken prior to the
issuance of the Conversion Shares. This Agreement, 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. Upon their issuance the Conversion Shares will be validly
issued, fully paid and nonassessable, will not violate any preemptive rights,
rights of first refusal, or any other rights granted by the Company, and will be
issued in compliance with all applicable federal and state securities laws, and
will be free of any liens or encumbrances, other than any liens or encumbrances
created by or imposed upon the Creditor through no action of the Company;
provided, however, that the Conversion Shares may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time the transfer is
proposed.
(e) All
consents, approvals, orders, or authorizations of, or registrations,
qualifications, designations, declarations, or filings with, any governmental
authority required on the part of the Company in connection with the valid
execution and delivery of this Agreement, the offer, sale or issuance of the
Conversion Shares, or the consummation of any other transaction contemplated
hereby shall have been obtained, except for notices required or permitted to be
filed with certain state and federal securities commissions, which notices will
be filed on a timely basis.
(f) If
the Company at any time proposes to register any of its securities under the
Act, including under an S-1 Registration Statement or otherwise, the Company
will use its best efforts to cause the Conversion Shares to be registered under
the Act (with the securities which the Company at the time propose to
register). All expenses incurred by the Company in complying with
this section, including without limitation all registration and filing fees,
listing fees, printing expenses, fees and disbursements of all independent
accountants, or counsel for the Company and the expense of any special audits
incident to or required by any such registration and the expenses of complying
with the securities or blue sky laws of any jurisdiction shall be paid by the
Company.
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(g) it
intends to file a registration statement on Form S-1 with the SEC for the resale
of shares of common stock held by its investors, including the Creditor, and
intends to apply to have its common stock traded on the Over the Counter
Bulletin Board.
2.2. Creditor
hereby represents and warrants that:
(a) The
Conversion Shares are being purchased by the Creditor and not by any other
person, with the Creditor’s own funds and not with the funds of any other
person, and for the account of the Creditor, not as a nominee or agent and not
for the account of any other person. On acceptance of this Agreement
by the Company, no other person will have any interest, beneficial or otherwise,
in the Conversion Shares. The Creditor is not obligated to transfer
Conversion Shares to any other person nor does the Creditor have any agreement
or understanding to do so. The Creditor is purchasing the Conversion
Shares for investment for an indefinite period not with a present view to the
sale or distribution of any part or all thereof by public or private sale or
other disposition. The Creditor has no present intention of selling,
granting any participation in, or otherwise distributing or disposing of any the
Conversion Shares. The Creditor does not intend to subdivide the
Creditor’s purchase of the Conversion Shares with any person.
(b) The
Creditor has been advised that the Conversion Shares have not been registered
under the Securities Act of 1933, as amended (the “Act”), or qualified under the
securities law of any state, on the ground, among others, that no distribution
or public offering of the Conversion Shares is to be effected and the Conversion
Shares will be issued by the Company in connection with a transaction that does
not involve any public offering within the meaning of section 4(2) of the Act
under the respective rules and regulations of the Securities and Exchange
Commission and any applicable state blue sky authority. The Creditor
understands that the Company is relying in part on the Creditor’s
representations as set forth herein for purposes of claiming such exemptions and
that the basis for such exemptions may not be present if, notwithstanding the
Creditor’s representations, the Creditor has in mind merely acquiring the
Conversion Shares for resale on the occurrence or nonoccurrence of some
predetermined event. The Creditor has no such intention.
(c) The
Creditor, either alone or with the Creditor’s professional advisers (i) has such
knowledge and experience in financial and business matters that the Creditor is
capable of evaluating the merits and risks of an investment in the Conversion
Shares; and (ii) has the capacity to protect the Creditor’s own interests in
connection with the Creditor’s proposed investment in the Conversion
Shares.
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(d) The
Creditor acknowledges that the Creditor has been furnished with such financial
and other information concerning the Company, the directors and officers of the
Company, and the business and proposed business of the Company as the Creditor
considers necessary in connection with the Creditor’s investment in the
Conversion Shares. The Creditor is thoroughly familiar with the
proposed business, operations, properties and financial condition of the Company
and has discussed with officers of the Company any questions the Creditor may
have had with respect thereto. The Creditor understands:
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(i)
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The
risks involved in this offering, including the speculative nature of the
investment;
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(ii)
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The
financial hazards involved in this offering, including the risk of losing
the Creditor’s entire investment;
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(iii)
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The
lack of liquidity and restrictions on transfers of the Conversion Shares;
and
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(iv)
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The
tax consequences of this
investment.
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The
Creditor has consulted with the Creditor’s own legal, accounting, tax,
investment and other advisers with respect to the tax treatment of an investment
by the Creditor in the Conversion Shares and the merits and risks of an
investment in the Conversion Shares.
(e) Understanding
that the investment in the Conversion Shares is highly speculative, the Creditor
is able to bear the economic risk of such investment.
(f) The
Creditor, if not an individual, is empowered and duly authorized to enter into
this Agreement under any governing document, partnership agreement, trust
instrument, pension plan, charter, certificate of incorporation, bylaw provision
or the like; this Agreement constitutes a valid and binding agreement of the
Creditor enforceable against the Creditor in accordance with its terms; and the
person signing this Agreement on behalf of the Creditor is empowered and duly
authorized to do so by the governing document or trust instrument, pension plan,
charter, certificate of incorporation, bylaw provision, board of directors or
stockholder resolution, or the like.
(g) The
Creditor is not subject to backup withholding because (i) the Creditor has not
been notified that he or she is subject to backup withholding as a result of a
failure to report all interest and dividends or (ii) the Internal Revenue
Service has notified the Creditor that he or she is not longer subject to backup
withholding.
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(h) The
Creditor hereby acknowledges and agrees that this Agreement is an offer by the
Creditor to purchase the Conversion Shares, which offer may be accepted or
declined by the Company. The Creditor hereby further acknowledges
that this Agreement does not constitute an offer by the Company to sell
securities or a solicitation of an offer to buy securities.
ARTICLE
3
SALE
OF THE SHARES
3.1 Without
in any way limiting the representations and warranties herein, the Creditor
further agrees that the Creditor will not pledge, hypothecate, sell, transfer,
assign or otherwise dispose of any of the Conversion Shares in violation of any
applicable securities laws.
ARTICLE
4
CLOSING
AND DELIVERY OF DOCUMENTS
4.1 Closing. The
Closing shall be deemed to have occurred upon the date of signing of this
Agreement. Subsequent to the signing, the following shall occur as a
single integrated transaction:
4.2 Delivery by the
Company.
(a) The
Company shall deliver, or cause to be delivered, to Creditor the stock
certificates and any and all other instruments of conveyance and transfer
required by Section 1.4.
ARTICLE
5
TERMINATION,
AMENDMENT AND WAIVER
5.1 Termination. Notwithstanding
anything to the contrary contained in this Agreement, this Agreement may be
terminated and the transactions contemplated hereby may be abandoned at any time
prior to delivery of the Purchase Price solely by the mutual written consent of
all of the parties.
5.2 Waiver and
Amendment. Any term, provision, covenant, representation,
warranty or condition of this Agreement may be waived, but only by a written
instrument signed by the party entitled to the benefits thereof. The
failure or delay of any party at any time or times to require performance of any
provision hereof or to exercise its rights with respect to any provision hereof
shall in no manner operate as a waiver of or affect such party’s right at a
later time to enforce the same. No waiver by any party of any
condition, or of the breach of any term, provision, covenant, representation or
warranty contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach or waiver of any other condition or of the breach of any
other term, provision, covenant, representation or warranty. No
modification or amendment of this Agreement shall be valid and binding unless it
be in writing and signed by all parties hereto.
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5.3 Conversion of
Debt. In the event the Company is unsuccessful in raising at
least $750,000 in equity funding pursuant to its Private Placement Memorandum
contemplated by the Transactions, then during the thirty (30) days following the
Termination Date (as set forth in the Private Placement Memorandum), Creditor
may elect to convert the Conversion Shares back into a note and warrant
identical to the Note and Warrant and return the Conversion Shares to the
Company.
ARTICLE
6
MISCELLANEOUS
6.1 Entire
Agreement. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof. No
understanding, promise, inducement, statement of intention, representation,
warranty, covenant or condition, written or oral, express or implied, whether by
statute or otherwise, has been made by any party hereto which is not embodied in
this Agreement or the written statements, certificates, or other documents
delivered pursuant hereto or in connection with the transactions contemplated
hereby, and no party hereto shall be bound by or liable for any alleged
understanding, promise, inducement, statement, representation, warranty,
covenant or condition not so set forth.
6.2 Notices. Any
notice, request, instruction or other document required by the terms of this
Agreement, or deemed by any of the parties hereto to be desirable, to be given
to any other party hereto shall be in writing and shall be delivered by
facsimile or overnight courier to the following addresses:
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To
the Company:
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▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
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Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
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Attn: President
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with
a copy to:
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The
Lebrecht Group, APLC
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▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
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Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
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Attn: ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, Esq.
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To
Creditor:
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The
persons and addresses set forth above may be changed from time to time by a
notice sent as aforesaid. Notice shall be conclusively deemed given
at the time of delivery if made during normal business hours, otherwise notice
shall be deemed given on the next business day.
6.3 Choice of Law and
Venue. This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of California
including all matters of construction, validity, performance, and enforcement
and without giving effect to the principles of conflict of laws. Any
action brought by any party hereto shall be brought within the State of
California, County of Orange.
6.4 Jurisdiction. The
parties submit to the jurisdiction of the Courts of the State of California or a
Federal Court empanelled in the State of California for the resolution of all
legal disputes arising under the terms of this Agreement.
6.5 Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which shall together constitute one and the same
instrument.
6.6 Attorneys’
Fees. Except as otherwise provided herein, if a dispute should
arise between the parties including, but not limited to arbitration, the
prevailing party shall be reimbursed by the non-prevailing party for all
reasonable expenses incurred in resolving such dispute, including reasonable
attorneys’ fees exclusive of such amount of attorneys’ fees as shall be a
premium for result or for risk of loss under a contingency fee
arrangement.
6.7 Taxes. Any
income taxes required to be paid in connection with the payments due hereunder,
shall be borne by the party required to make such payment. Any
withholding taxes in the nature of a tax on income shall be deducted from
payments due, and the party required to withhold such tax shall furnish to the
party receiving such payment all documentation necessary to prove the proper
amount to withhold of such taxes and to prove payment to the tax authority of
such required withholding.
6.8 No Interpretation Against
Drafter. This Agreement has been negotiated at arms length
between persons sophisticated and knowledgeable in these types of
matters. Accordingly, any normal rules of construction that would
require a court to resolve matters of ambiguities against the drafting party is
hereby waived and shall not apply in interpreting this Agreement.
6.9 Indemnification. The
Creditor hereby agrees to indemnify and defend the Company and its directors and
officers and hold them harmless from and against any and all liability, damage,
cost or expense incurred on account of or arising out of:
(a) Any
breach of or inaccuracy in the Creditor’s representations, warranties or
agreements herein;
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(b) Any
disposition of any Conversion Shares contrary to any of the Creditor’s
representations, warranties or agreements herein;
(c) Any
action, suit or proceeding based on (i) a claim that any of said
representations, warranties or agreements were inaccurate or misleading or
otherwise cause for obtaining damages or redress from the Company or any
director or officer of the Company under the Act, or (ii) any disposition of any
Conversion Shares.
6.10 Successors. The
representations, warranties and agreements contained in this Agreement shall be
binding on the Creditor’s successors, assigns, heirs and legal representatives
and shall inure to the benefit of the respective successors and assigns of the
Company and its directors and officers.
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of page intentionally left blank; signature page to follow]
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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the date
first written herein above.
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“Creditor”
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“Company”
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a
Delaware corporation
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By:
▇▇▇▇▇ ▇▇▇▇▇▇▇
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Its:
Chief Executive
Officer
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Page 10
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Exhibit
A
TERM
SHEET
for
NOTE,
WARRANT, AND OPTION CONVERSIONS
FOR
FREEZE TAG, INC.
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Company:
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Freeze
Tag, Inc., a Delaware corporation
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Creditor’s
Conversion Amounts:
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·
Principal and Interest on Notes: $_______ - ______
shares
·
Warrant Conversion - _____ shares
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Total
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·
Principal and
Interest on Notes: $375,853.33 – approximately 3,758,534
shares
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Conversion
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·
Warrant
Conversions – approximately 837,000 shares
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| Amounts: |
·
Option Conversions – approximately 1,123,065
shares
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Capital
Raise:
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Up
to $1,250,000 at $0.10 per share – 12,500,000 shares
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Price:
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$0.10
per share
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Capitalization:
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Before the conversions and capital
raise:
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·
There are 33,145,779
shares of common stock outstanding.
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After the offering:
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·
There will be
approximately 51,384,378 shares of common stock outstanding if all of the
conversions are accomplished and the entire offering is
sold.
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·
There will be no options, warrants, or convertible debts
outstanding if all of the conversions are accomplished.
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Future
Capital Needs:
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The
Company has additional capital needs. The terms upon which the
Company will be able to raise additional capital are unknown, and as a
result investors will likely suffer future dilution.
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Contact:
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▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇
▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Email:
▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
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