FLUX POWER HOLDINGS, INC. SUBSCRIPTION AGREEMENT
Exhibit 10.1
THIS
SUBSCRIPTION AGREEMENT (this “Agreement”), dated December
[___], 2018, is entered into by and between Flux Power Holdings,
Inc., a Nevada corporation (the “Company”), and the person or
entity executing the Agreement (the “Investor”). In this Agreement,
the pronoun “it” means “he, “she,” or
“it,” as appropriate.
A. The Company is
offering to selected “accredited investors” up to
4,545,455
shares of the Company’s Common Stock, par value $0.001
(“Shares”) for
aggregate amount of $5,000,000, or $1.10 per Share (the
“Offering”),
subject to the terms, conditions, acknowledgements,
representations, and warranties stated herein; however, the Company
reserves the right to (i) increase the Offering to $7,000,000,
and/or (ii) accept subscriptions for lesser amounts as well as the
right to reject in whole or in part subscriptions received during
the Offering.
B.
The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from registration afforded
by Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities
Act”), and Rule 506 of Regulation D
(“Regulation
D”) as promulgated by the United States Securities and
Exchange Commission (the “SEC”) under the Securities
Act.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the Company
and the Investor agree as follows:
ARTICLE I
DEFINITIONS
1. Definitions.
In addition to the terms defined elsewhere in this Agreement, the
following terms have the meanings indicated:
“Aggregate Purchase Price” means
the product of the aggregate number of Shares subscribed by the
Investor under this Agreement and purchase price of
$ 1.10 per
Share.
“Agreement” has the meaning set
forth in the preamble.
“Business Day” means any day other
than Saturday, Sunday, any day which shall be a federal legal
holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by
law or other governmental action to close.
“Company” has the meaning set
forth in the preamble.
“Common Stock” means common stock
of the Company, par value $0.001.
“Disclosure Materials” means the
SEC Documents and this Agreement.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
“Investor” has the meaning set
forth in the preamble.
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“Liens” means a lien, charge
pledge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.
“Material Adverse Effect” means
(i) a material adverse effect on the results of operations, assets,
business, prospects or financial condition of the Company or (ii)
material and adverse impairment of the Company’s ability to
perform its obligations under any of the Transaction
Documents.
“Regulation D” has the meaning set
forth in the preamble.
“Rule 144,” “Rule 415,” and
“Rule 424”
means Rule 144, Rule 415 and Rule 424, respectively, promulgated by
the SEC pursuant to the Securities Act, as such rules may be
amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect
as such rule.
“SEC” has the meaning set forth in
the preamble.
“SEC Documents” has the meaning
set forth in Section 3.4.
“Securities Act” has the meaning
set forth in the preamble.
“Shares” means shares of the
Company’s Common Stock.
“Subsidiary” means any subsidiary
of the Company and shall, where applicable, also include any direct
or indirect material subsidiary of the Company formed or acquired
after the date hereof.
“Transaction Documents” means this
Agreement, the schedules and exhibits attached hereto, including
but not limited to the Verification.
“Verification” means the
Accredited Investor Verification, substantially in the form
attached as Exhibit
A or such other forms as acceptable by the Company, as
completed and executed.
ARTICLE II
PURCHASE AND SALE
2.
Offering and Purchase of the Shares.
2.1 Offering.
The Company is offering to sell up to 4,545,455 Shares for
aggregate amount of $5,000,000 (“Offering Amount”), or $1.10 per
Share (the “Offering”); provided, however,
the Company reserves the right to increase the Offering to
6,363,637 for an aggregate amount of $7,000,000. The Company has
the sole discretion to increase the Offering Amount. The minimum
investment amount in this Offering per Investor is $50,000,
however, the Company reserves the right to accept subscriptions for
lesser amounts as well as the right to reject in whole or in part
subscriptions received during the Offering.
2.2 Subscription.
The Investor hereby irrevocably subscribes to purchase from the
Company, upon the terms and conditions stated in this Agreement,
that aggregate number of Shares for the Aggregate Purchase Price
set forth on such Investor’s signature page to this
Agreement.
2.3 Investor
Deliverables. Promptly upon execution of this Agreement, the
Investor agrees to deliver to Company (a) a duly executed
Agreement, (b) a duly completed and executed Verification, and (c)
in United States dollars and in immediately available funds by wire
transfer to the Company pursuant to the instructions provided by
the Company and/or such other consideration as approved by the
Company in an amount equal to the Aggregate Purchase Price set
forth on such Investor’s signature page to this Agreement
(collectively, referred to as the “Investor
Deliverables”).
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2.4
Acceptance or Rejection of
Subscription. The Investor understands and agrees that the
Company reserves the right, in its sole discretion, to reject this
subscription, in whole or in part, if (a) the Investor is not an
“accredited investor” as confirmed by the Verification,
(b) fails to deliver payment of the Aggregate Purchase Price, or
(c) fails to deliver a completed Investor Deliverables, until there
has been notice of acceptance of the Investor’s subscription.
In the event of rejection of this subscription, the
Investor’s funds (without interest) or, in the event of a
partial rejection a check in the amount of the rejected portion,
will be promptly issued to the Investor.
2.5
Closing. The
issuance of the Shares pursuant to this Offering shall take place
from time to time promptly after the acceptance of the subscription
by the Company and the Company has received Investors Deliverables
(the date on which such Shares are issued shall be referred to
herein as the “Initial
Closing Date”); provided that if Investor is
purchasing the Shares subsequent to the Initial Closing Date, the
issuance of the Shares shall occur upon payment of the Aggregate
Purchase Price by Investor and acceptance of Investor’s
Agreement by the Company. The date on which the Shares are issued,
whether on the Initial Closing Date or thereafter, shall be
referred to herein as the “Closing Date;” provided, however,
that no sales to subsequent Investors may be made after January 31,
2019, 5:00 pm (PST). Following the Closing Date, the Company will
promptly deliver to the Investor:
(a) an
“accepted” Agreement; and
(b) the stock
certificate representing the number of Shares purchased by the
Investor, as set forth on the Investor’s signature page to
this Agreement.
2.6 No
Escrow or Minimum Investment Amount. No escrow or minimum
investment amount will be used for the Offering.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY
3. Representations
and Warranties of the Company. Except as disclosed in the
SEC Documents and as otherwise stated to the contrary herein, the
Company hereby represents and warrants to the Investor as of the
date hereof, and, if this Agreement is accepted by the Company in
whole or in part, will be true and correct on the Closing Date
that:
3.1
Subsidiaries. The
Company owns, directly or indirectly, all of the capital stock or
other equity interests of each Subsidiary free and clear of any
Liens, and all of 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 to
subscribe for or purchase securities.
3.2
Authorization. All
corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization,
execution and delivery of this Agreement has been taken. The
Company has the requisite corporate power to enter into this
Agreement and carry out and perform its obligations under the terms
of this Agreement. The Company has the requisite corporate power to
issue and sell the Shares. This Agreement has been duly executed
and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against it in accordance
with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited
by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (iii) insofar as
indemnification and contribution provisions may be limited by
applicable law.
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3.3 Organization,
Good Standing and Qualification. The Company and each
Subsidiary is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the
requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither
the Company nor any Subsidiary is in violation or default of any of
the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.
The Company and each Subsidiary is duly qualified to transact
business and is in good standing in each jurisdiction in which the
failure so to qualify would have a Material Adverse
Effect.
3.4 Delivery
of SEC Documents; Business. The Company has made available
to the Investor through the SEC’s ▇▇▇▇▇ system, true and
complete copies of the Company’s most recent Annual Report on
Form 10-K for the fiscal year ended June 30, 2018, and Form 10-Q
for the quarter ended September 30, 2018, and all other reports
filed by the Company pursuant to the Exchange Act since the filing
of the Form 10-Q for the quarter ended September 30, 2018 prior to
the date hereof (collectively, the “SEC Documents”). The Company is
engaged in all material respects only in the business described in
the SEC Documents and the SEC Documents contain a complete and
accurate description of the business of the Company in all material
respects. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities
Act and the Exchange Act, as applicable, and none of the SEC
Documents, 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
the light of the circumstances under which they were made, not
misleading.
3.5
No Conflict with Other
Instruments. The execution, delivery and performance of this
Agreement, the issuance and sale of the Shares to be sold by the
Company under this Agreement and the consummation of the actions
contemplated by this Agreement will not (a) result in any violation
of, be in conflict with, or constitute a material default under,
with or without the passage of time or the giving of notice (i) any
provision of the Company’s or any Subsidiary’s Articles
of Incorporation, as amended, or Bylaws, as amended (or similar
governing documents); (ii) any provision of any judgment,
arbitration ruling, decree or order to which the Company or a
Subsidiary is a party or by which the Company is bound; or (iii)
any bond, debenture, note or other evidence of indebtedness, or any
material lease, contract, mortgage, indenture, deed of trust, loan
agreement, joint venture or other agreement, instrument or
commitment to which the Company or a Subsidiary is a party or by
which the Company or a Subsidiary or its properties are bound; or
(b) result in the creation or imposition of any lien, encumbrance,
claim, security interest or restriction whatsoever upon any of the
properties or assets of the Company or a Subsidiary or any
acceleration of indebtedness pursuant to any obligation, agreement
or condition contained in any bond, debenture, note or any other
evidence of indebtedness or any indenture, mortgage, deed of trust
or any other agreement or instrument to which the Company or a
Subsidiary is a party or by which the Company or a Subsidiary is
bound or to which any of the property or assets of the Company or a
Subsidiary is subject.
3.6
Capitalization. As
of December 15, 2018, the authorized capital stock of the Company
consists only of (a) 300,000,000 shares of Common Stock, of which
(i) 46,932,368 shares are issued and outstanding, and (ii)
5,503,356 shares are reserved for issuance upon the exercise or
conversion, as the case may be, of outstanding options, warrants or
other convertible securities, and (c) 5,000,000 shares of preferred
stock, none of which, are outstanding or reserved for issuance upon
the exercise or conversion, as the case may be, of outstanding
options, warrants or other convertible securities. Except as
disclosed in the Company’s SEC Documents and set forth in the
Company’s Articles of Incorporation, as amended and
contemplated in the Transaction Documents, there are no
anti-dilution or price adjustment provisions, co-sale rights,
registration rights, rights of first refusal, redemption or other
similar rights contained in the terms governing any outstanding
security of the Company or any Subsidiary that will be triggered by
the issuance of the Shares.
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3.7 Valid
Issuance of the Shares. The Shares are duly and validly
authorized and, when issued and paid for pursuant to this
Agreement, will be validly issued, fully paid and non-assessable,
and shall be free and clear of all encumbrances and restrictions
(other than those created by the Investor), except for restrictions
on transfer set forth in this Agreement or imposed by applicable
securities laws.
3.8 Litigation.
Except as set forth in the Company’s SEC Documents, there is
no action, suit, proceeding nor investigation pending or, to the
Company’s knowledge, currently threatened against the Company
or any Subsidiary that (a) if adversely determined would reasonably
be expected to have a Material Adverse Effect or (b) would be
required to be disclosed in the Company’s Annual Report on
Form 10-K under the requirements of Item 103 of Regulation S-K. The
foregoing includes, without limitation, any action, suit,
proceeding or investigation, pending or threatened, that questions
the validity of this Agreement or the right of the Company to enter
into such Agreement and perform its obligations hereunder. The
Company or any Subsidiary is not subject to any injunction,
judgment, decree or order of any court, regulatory body, arbitral
panel, administrative agency or other government body.
3.9 Governmental
Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing
with, any federal, state, local or provincial governmental
authority on the part of the Company is required in connection with
the consummation of the transactions contemplated by this
Agreement, 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.
3.10 No
Material Changes. Except as disclosed in the Company’s
SEC Documents and since September 30, 2018, there has not been any
material change that has had a Material Adverse
Effect.
3.11 Investment
Company. The Company is not an “investment
company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for
an investment company, within the meaning of the Investment Company
Act of 1940 and will not be deemed an “investment
company” as a result of the transactions contemplated by this
Agreement.
3.12
Placement Agent.
The Company may retain registered broker-dealers as its placement
agent (the “Selling
Agent(s)”). In general, any agreements entered into
with the Selling Agent(s) will be on a “best efforts”
basis and the fees to be paid will be capped at seven percent (7%)
of the subscription attributable to the Selling
Agent(s).
3.13
SEC Reports; Financial
Statements. Except for the late filing of Form 8-Ks filed on
July 3, 2017, April 24, 2017, February 9, 2017, and August 18, 2016
(“Late Form
8-Ks”), the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the
foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to
herein as the “SEC
Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. As of their
respective dates, except for the Late Form 8-Ks, the SEC Reports
complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and none of the
SEC Reports, 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 the light of the circumstances under which they were
made, not misleading. The Company (i) is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act,
(ii) is not, and has not been for the two years preceding the
date hereof, a “shell company” as defined in Rule 12b-2
under the Exchange Act, and (iii) has filed current
“Form 10 information” (as defined in Rule 144(i)) with
the SEC reflecting that it is no longer a shell company as defined
in Rule 12b-2 under the Exchange Act more than one year from the
date hereof. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC
with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United
States 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.
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3.14 Furnishing
Information. As long as the Investor owns Shares and the
Company remains subject to the requirements of the Exchange Act,
the Company covenants to take all reasonable actions to timely file
(or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long
as the Investor owns Shares, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish
to the Investor and make publicly available in accordance with Rule
144(c) such information as is required for the Investor to sell the
Shares under Rule 144. The Company further covenants that it will
take such further action as any holder of Shares may reasonably
request, to the extent required from time to time to enable such
person to sell such Shares without registration under the
Securities Act within the requirements of the exemption provided by
Rule 144, provided however, any expenses associated with the
Investor’s request for legend removal shall be borne solely
by the Investor.
3.15 No
Disqualification Events. With respect to the Shares to be
offered and sold hereunder in reliance on Rule 506 under the
Securities Act, none of the Company, any of its predecessors, any
affiliated issuer, any director, executive officer, other officer
of the Company participating in the Offering hereunder, any
beneficial owner of 20% or more of the Company’s outstanding
voting equity securities, calculated on the basis of voting power,
nor any promoter (as that term is defined in Rule 405 under the
Securities Act) connected with the Company in any capacity at the
time of sale (each, an “Issuer Covered Person” and,
together, “Issuer Covered
Persons”) is subject to any of the “Bad
Actor” disqualifications described in Rule 506(d)(1)(i) to
(viii) under the Securities Act (a “Disqualification Event”), except
for a Disqualification Event covered by Rule 506(d)(2) or (d)(3).
The Company has complied, to the extent applicable, with its
disclosure obligations under Rule 506(e), and has furnished to the
Investor a copy of any disclosures provided thereunder. The Company
will notify the Investor in writing prior to the Closing Date of
(i) any Disqualification Event relating to any Issuer Covered
Person of which the Company becomes aware and (ii) any event of
which the Company becomes aware that would, with the passage of
time, become a Disqualification Event relating to any Issuer
Covered Person.
3.16 ▇▇▇▇▇▇▇▇-▇▇▇▇▇;
Internal Accounting Controls. The Company and each
Subsidiary is in compliance with any and all applicable
requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as amended, that
are effective and applicable to the Company as of the date hereof,
and any and all applicable rules and regulations promulgated by the
SEC thereunder that are effective as of the date hereof and as of
the Closing Date. The Company and each Subsidiary maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that: (i) transactions are executed in
accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
The Company and each Subsidiary has established disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and each Subsidiary and designed such
disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s
rules and forms. The Company’s certifying officers have
evaluated the effectiveness of the disclosure controls and
procedures of the Company and each Subsidiary as of the end of the
period covered by the most recently filed periodic report under the
Exchange Act (such date, the “Evaluation Date”). The Company
presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act)
of the Company and each Subsidiary that have materially affected,
or are reasonably likely to materially affect, the internal control
over financial reporting of the Company or each
Subsidiary.
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3.17 Foreign
Corrupt Practices. Neither the Company nor any Subsidiary,
nor to the knowledge of the Company or any Subsidiary, any agent or
other person acting on behalf of the Company or any Subsidiary,
has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) 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, (iii) failed to disclose fully any
contribution made by the Company or any Subsidiary (or made by any
person acting on its behalf of which the Company is aware) which is
in violation of law or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as
amended.
3.18 Money
Laundering. The operations of the Company and each
Subsidiary are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements
of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, applicable money laundering statutes and applicable rules
and regulations thereunder (collectively, the “Money Laundering Laws”), and no
action or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company or any
Subsidiary with respect to the Money Laundering Laws is pending or,
to the knowledge of the Company or any Subsidiary,
threatened.
3.19 Regulation
M Compliance. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Shares, (ii) sold, bid
for, purchased, or paid any compensation for soliciting purchases
of, any of the Shares, or (iii) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii)
and (iii), compensation paid to the Company’s placement
agent, if any, in connection with the placement of the
Shares.
3.20 Disclosure.
The Company understands and confirms that the Investor will rely on
the foregoing representation in effecting transactions in
securities of the Company. All of the disclosure furnished by or on
behalf of the Company to the Investor regarding the Company and
each Subsidiary, their respective businesses and the transactions
contemplated hereby is true and correct and does not contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR
4.
Representations and Warranties of the
Investor. The Investor hereby represents and warrants to the
Company as follows
4.1 Organization,
Authority If the Investor is an entity, such Investor is a
corporation, partnership, limited liability company or partnership,
association, joint stock company, trust, unincorporated
organization or other entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
organization with the requisite corporate, partnership or other
power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder.
The purchase by such Investor of the Securities hereunder has been,
to the extent such Investor is an entity, duly authorized by all
necessary corporate, partnership or other action on the part of
such Investor. This Agreement has been duly executed and delivered
by such Investor and constitutes the valid and binding obligation
of such Investor, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable
law.
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4.2 Investment
Representations. In connection with the sale and issuance of
the Shares, the Investor, for itself and no other Investor, makes
the following representations:
(a) Investment for Own Account. The
Investor is acquiring the Shares for its own account, not as
nominee or agent, and not with a view to, or for resale in
connection with, any distribution or public offering thereof within
the meaning of the Securities Act. The Investor has no present
intention of selling, granting any participation in, or otherwise
distributing the Shares. The Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell,
transfer or grant participation in any of the Shares to such person
or to any third person.
(b) SEC Documents; Disclosure
Materials. The Investor has received, read and fully
understands the SEC Documents and the Disclosure Materials. The
Investor acknowledges that the Investor is basing its decision to
invest in the Shares on the Disclosure Materials and the exhibits
thereto and has relied only on the information contained in said
material and has not relied upon any representations made by any
other person. The Investor recognizes that an investment in the
Shares involves substantial risks and is fully cognizant of and
understands all of the risk factors related to the purchase of the
Shares, including but not limited to, those risks set forth in the
section of the SEC Documents and Disclosure Materials entitled
“RISK FACTORS.”
(c) Accredited Investor Status. At
the time such Investor was offered the Shares, it was and, at the
date hereof it is, an “accredited investor” as defined
in Rule 501(a) under the Securities Act or a “qualified
institutional buyer” as defined in Rule 144A(a) under the
Securities Act. Such Investor is not a registered broker dealer
registered under Section 15(a) of the Exchange Act, or a member of
the Financial Industry Regulatory Authority, Inc.
(“FINRA”) or an
entity engaged in the business of being a broker dealer. Such
Investor is not affiliated with any broker dealer registered under
Section 15(a) of the Exchange Act, or a member of FINRA or an
entity engaged in the business of being a broker dealer. Investor
has provided the Company a duly completed and executed original of
the Verification verifying that the Investor is an
“accredited investors.”
(d) Representations and Reliance.
Investor understands that the Shares are being offered and sold to
it in reliance on specific exemptions from the registration
requirements of the United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of the Investor set forth herein to determine the
applicability of such exemptions and the suitability of the
Investor to acquire the Shares. All information which the Investor
has provided to the Company in the Verification concerning itself
is true and accurate in all material respects, and if there should
be any material change in such information the Investor will
immediately provide the Company with such information. The Investor
will promptly notify the Company of any material fact or
circumstance that would cause any of the foregoing representations
to be untrue, incomplete, or misleading.
(e) Restricted Securities. Investor
understands that the Shares the Investor is purchasing are
characterized as “restricted securities” under the
federal securities laws inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and
that under such laws and regulations such securities may be resold
without registration under the Securities Act only in certain
limited circumstances. The Investor is familiar with Rule 144, as
presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act. The Investor also acknowledges
that the Company was a former “shell company” (as
defined in Rule 12b-2 under the Exchange Act) and as such the
Investor understands Rule 144 is not currently available for the
sale of the Shares and may not be so available as the Company was a
former “shell company” as defined in Rule 12b-2 under
the Exchange Act..
8
(f) Transfer Restrictions; Legends.
Investor understands that (i) the Shares have not been registered
under the Securities Act; (ii) the Shares are being offered and
sold pursuant to an exemption from registration, based in part upon
the Company’s reliance upon the statements and
representations made by the Investor, and that the Shares must be
held by the Investor indefinitely, and that the Investor must,
therefore, bear the economic risk of such investment indefinitely,
unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration; and (iii) each
Certificate representing the Shares will be endorsed with a legend
substantially in the following form until the earlier of (1) such
date as the Shares have been registered for resale by the Investor
or (2) the date the Shares are eligible for sale under Rule
144.
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE
SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. UNLESS SOLD PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, THE ISSUER OF
THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(g) Limited Public Market. Investor
understands and acknowledges that there is only a limited public
market for our Common Shares on the OTCQB, and which market is very
volatile, and the Company has made no assurances that a broader or
more active public trading market for our Common Shares will ever
exist.
(h) No Transfer. The Investor
covenants not to dispose of any of the Shares other than in
conjunction with an effective registration statement under the
Securities Act or in compliance with Rule 144 or pursuant to
another exemption from registration or to an entity affiliated with
the Investor and other than in compliance with the applicable
securities regulations laws of any state.
(i) Investment Experience. Investor
acknowledges that the Investor is able to bear the economic risk of
the Investor’s investment, including the complete loss
thereof. The Investor has a preexisting personal or business
relationship with the Company or one or more of its officers,
directors or other persons in control of the Company, and the
Investor has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of
the investment in the Shares.
(j) Financial Sophistication; Due
Diligence. The Investor has such knowledge and experience in
financial or business matters that it is capable of evaluating the
merits and risks of the investment in connection with the
transactions contemplated in this Agreement. Such Investor has, in
connection with its decision to purchase the Shares, relied only
upon the representations and warranties contained herein and the
information contained in the Company’s SEC Documents.
Further, the Investor has had such opportunity to obtain additional
information and to ask questions of, and receive answers from, the
Company, concerning the terms and conditions of the investment and
the business and affairs of the Company, as the Investor considers
necessary in order to form an investment decision.
9
(k) General Solicitation. The
Investor is not purchasing the Shares as a result of any
advertisement, article, notice or other communication regarding the
Shares published in any newspaper, magazine or similar media or
broadcast over the television or radio or presented at any seminar
or any other general solicitation or general advertisement. Prior
to the time that the Investor was first contacted by the Company or
either of the agents such Investor had a pre-existing and
substantial relationship with the Company or one of the agents. The
Investor will not issue any press release or other public statement
with respect to the transactions contemplated by this Agreement
without the prior written consent of the Company. Other than to
other parties to this Agreement, the Investor has maintained and
will continue to maintain the confidentiality of all disclosures
made to Investor in connection with this transaction, including the
existence and terms of this transaction.
4.3 No
Investment, Tax or Legal Advice. The Investor understands
that nothing in the Company SEC Documents, this Agreement, or any
other materials presented to the Investor in connection with the
purchase and sale of the Shares constitutes legal, tax or
investment advice. The Investor has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of
Shares.
4.4 Disclosure
of Information. The Investor understands that no United
States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or
endorsement of the Shares. The Investor has reviewed the documents
publicly filed by the Company with the SEC and has read and
understands the risk factors disclosed therein. The Investor has
received all the information it considers necessary or appropriate
for deciding whether to purchase the Shares. The Investor is solely
responsible for conducting its own due diligence investigation of
the Company.
4.5 Additional
Acknowledgement. The Investor acknowledges that it has
independently evaluated the merits of the transactions contemplated
by this Agreement, that it has independently determined to enter
into the transactions contemplated hereby, that it is not relying
on any advice from or evaluation by any other person. The Investor
acknowledges that, if it is a client of an investment advisor
registered with the SEC, the Investor has relied on such investment
advisor in making its decision to purchase Shares pursuant
hereto.
4.6 Subscription
Rejection Right. The Investor acknowledges that the Company
reserves the right to reject any subscription, to accept any
subscription in part only, or to prorate subscriptions, to
negotiate any checks or other tenders of payment for discrepant
amounts and to refund the excess to the Investor if (a) the
Investor is not an “accredited investor” as confirmed
by the Verification, (b) fails to deliver payment of the Aggregate
Purchase Price, or (c) fails to deliver the completed Investor
Deliverables substantially in the form as reasonably acceptable to
the Company.
4.7 No
Short Position As of the date hereof, and from the date
hereof through the date of the Closing Date, the Investor
acknowledges and agrees that it does not and will not (between the
date hereof and the Closing Date) engage in any short sale of the
Company’s voting stock or any other type of hedging
transaction involving the Company’s securities (including,
without limitation, depositing shares of the Company’s
securities with a brokerage firm where such securities are made
available by the broker to other customers of the firm for purposes
of hedging or short selling the Company’s
securities).
10
ARTICLE V
ADDITIONAL COVENANTS
5.
Additional Covenants.
5.1 Material
Non-Public Information. The Investor acknowledges that it
has entered into a non-disclosure agreement with the Company. The
Investor is aware of and will comply with the securities laws of
the United States that prohibit any investor who has received from
the Company or any of the directors, officers, employees,
representatives, agents or advisers of the Company material,
non-public information relating to the Company from trading (buying
or selling) creating, transferring or otherwise disposing of or
relinquishing any interest (including by the creation of an option)
in any Shares or other securities of the Company until such
material, non-public information has been publicly
disclosed.
5.2 Transfer
Restrictions. The Investor covenants that the Shares will
only be disposed of pursuant to an effective registration statement
under, and in compliance with the requirements of, the Securities
Act or pursuant to an available exemption from the registration
requirements of the Securities Act, and in compliance with any
applicable state securities laws. Commencing six months after the
date of this Agreement, upon the request of the Investor, the
Company shall promptly provide the Investor with the agreed Company
representation letter and upon receipt of the Investor’s
representation letter and the opinion of counsel, each as agreed to
by the Company and the requesting Investor, the Company will
deliver all required documents to and will instruct the
Company’s transfer agent to remove any transfer restriction
legend (including, but not limited to, the form of legend
identified in Section 4.2(f) of this Agreement) from all of the
Investor’s Shares; provided that, if as of the date of the
request, the Company is not subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, as applicable, has not
filed all reports and other materials required to be filed by
section 13 or 15(d) of the Exchange Act, as applicable, during the
preceding 12 months, has not filed current “Form 10
information” (as defined in Rule 144(i)) or is a “shell
company” as defined in Rule 12b-2 under the Exchange Act
(collectively, the “Former
Shell Company Requirements”), then the Company shall
not provide its representation letter and the transfer restriction
legend will not be removed until the Former Shell Company
Requirements have been satisfied; provided further that, if the transfer
restriction legend was previously removed from the Investor’s
Shares and the Company does not satisfy the Former Shell Company
Requirements at any time, then, upon notice by the Company, the
Investor agrees to promptly return any Shares owned by it to the
Company’s transfer agent to be re-legended. Nothing in this
section shall relieve the Company of its obligation to provide the
information required in Section 3.14. In connection with any
transfer of the Investor’s Shares that have a restricted
legend affixed to them other than pursuant to an effective
registration statement or to the Company, or at such time that the
Shares may be sold without the requirement to be in compliance with
Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144, the Company may require the transferor to
provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act.
Subject to this Section 5.2, the Investor agrees to the imprinting
of the restrictive legend in substantially the form set forth in
Section 4.2(f).
ARTICLE VI
MISCELLANEOUS
6.
Miscellaneous.
6.1 Termination.
This Agreement may be terminated by the Investor by written notice
to the Company if the Offering has not been consummated on or
before June 30, 2018 or as may be extended in accordance with
Section 2.5; provided, however, that such termination will not
affect the right of any party to ▇▇▇ for any breach by any other
party (or parties).
11
6.2 Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard
to the choice of law provisions thereof, and the federal laws of
the United States.
6.3 Successors
and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators
of the parties hereto.
6.4 Entire
Agreement. This Agreement and the exhibits hereto, and the
other documents delivered pursuant hereto, constitute the full and
entire understanding and agreement among 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, or agreements except as specifically set forth herein or
therein. Nothing in this Agreement, express or implied, is intended
to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
6.5 Severability.
In the event any provision of this Agreement shall be invalid,
illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the
validity, legality, and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.
6.6 Amendment
and Waiver. Except as otherwise provided herein, any term of
this Agreement may be amended, modified, supplemented and the
observance of any term of this Agreement may be waived (either
generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and the
holders of a majority of common stock sold in this Offering. Any
amendment or waiver affected in accordance with this paragraph will
be binding upon each holder of any Shares purchased under this
Agreement, each future holder of the Shares, and the
Company.
6.7 Fees
and Expenses. Except as otherwise set forth herein, the
Company and the Investor shall bear their own expenses and legal
fees incurred on their behalf with respect to this Agreement and
the transactions contemplated hereby; provided that the Company
shall, upon written request, promptly reimburse Cleveland Capital
Management L.L.C. for its legal expenses in an amount not to exceed
$10,000. Each party hereby agrees to indemnify and to hold harmless
of and from any liability the other party for any commission or
compensation in the nature of a finder’s fee to any broker or
other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which such
indemnifying party or any of its employees or representatives are
responsible, provided that, such amount shall not
exceed the Aggregate Purchase Price.
6.8 Notices.
All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed effectively given
upon the earlier of actual receipt or (i) personal delivery to the
party to be notified, (ii) when sent, if sent by electronic mail or
facsimile during normal business hours of the recipient, and if not
sent during normal business hours, then on the recipient’s
next Business Day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid, or (iv) one (1) Business Day after deposit with a
nationally recognized overnight courier, freight prepaid,
specifying next Business Day delivery, with written verification of
receipt. All communications shall be sent to the respective parties
at the address indicated for such party in the Agreement, or at
such other address as such party may designate by ten (10) days
advance written notice to the other party given in the foregoing
manner:
12
if to the Company,
to:
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Fax
(▇▇▇) ▇▇▇-▇▇▇▇
Attn:
President
if to
the Investor, at its address on the signature page to this
Agreement.
6.9
Survival of
Representations, Warranties and Agreements. Notwithstanding
any investigation made by any party to this Agreement or by any of
the agents, all covenants, agreements, representations and
warranties made by the Company and the Investor herein shall
survive the execution of this Agreement, the delivery to the
Investor of the Shares being purchased and the payment therefor,
and a party’s reliance on such representations and warranties
shall not be affected by any investigation made by such party or
any information developed thereby.
6.10
Counterparts. This
Agreement may be executed by facsimile signature and in any number
of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one instrument.
13
SUBSCRIPTION
AGREEMENT SIGNATURE PAGE
In
addition to the foregoing, Investor hereby certifies that it (a)
agrees to all the terms and conditions of this Agreement, (b) meets
the suitability standards set forth in this Agreement, (c) all
representations and warranties set forth in this Agreement and
Verification are complete and true, and (d) is a resident of the
state and jurisdiction indicated below.
Date:
Name of
Investor:
Entity
Name (if any)
By:
Title:
Address:
State
of Principal Residence:
State
of Incorporation/Organization:
EIN/Social Security
Number:
Telephone
No.:
Facsimile
No.:
Email
Address:
Number
of Shares:
Aggregate Purchase
Price :
Delivery
Instructions (if different than above):
c/o:
Address:
Telephone
No.:
Facsimile No.
:
Other Special
Instructions:
14
SUBSCRIPTION ACCEPTED
By:
Title:
Chief Executive
Officer
15