INVESTMENT OPTION AGREEMENT
Exhibit
10.3
THE
SECURITIES REPRESENTED BY THIS AGREEMENT AND ISSUABLE UPON THE EXERCISE OF
THE
OPTION EVIDENCED HEREBY (COLLECTIVELY, THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE
STATE SECURITIES LAWS AND THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER
AND AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT
REQUIRED AND IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION FROM REGISTRATION
UNDER ANY APPLICABLE STATE SECURITIES LAWS WITH AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY REGARDING COMPLIANCE WITH AND THE AVAILABILITY
OF
ANY SUCH STATE SECURITIES LAWS.
INVESTMENT
OPTION AGREEMENT
This
INVESTMENT OPTION AGREEMENT, dated as of August 31, 2006, by and between
SOLIDUS
NETWORKS, INC., a Delaware corporation (the “Optionee”)
and
WINWIN GAMING, INC., a Delaware corporation (the “Company”).
Capitalized terms used, but not otherwise defined, herein have the meanings
ascribed to those terms in the JV Agreement (as defined below).
BACKGROUND
The
Optionee and the Company are parties to a Second Amended and Restated Joint
Venture Agreement, dated August 31, 2006 (the “JV
Agreement”).
It is
a condition precedent of the Initial Closing that the Company grant to the
Optionee this option to acquire an additional number of shares of the Company’s
Series A-1 Preferred Stock, prior to the Filing Date (as defined below),
or
Series A Preferred Stock, from and after the Filing Date, such that upon
exercise of this option, the Optionee will be the beneficial owner of a
percentage of the Company’s outstanding common stock on a Fully Diluted Basis
(as defined below) indicated by the Optionee on the Option Notice (as defined
below) after giving effect to the exercise of this Option (the “Election
Percentage”),
which
Election Percentage may not be greater than eighty percent (80%).
The
Company is issuing shares of its Series A-1 Preferred Stock to the Optionee
at
the Initial Closing and is seeking stockholder approval of the adoption and
filing of the Restated Charter under which, among other things, its Series
A
Preferred Stock will be authorized, each outstanding share of Series A-1
Preferred Stock will be automatically converted into one tenth of a share
of
Series A Preferred Stock and additional shares of common stock will be
authorized such that there will be sufficient authorized common stock for
issuance upon the conversion of the Series A Preferred Stock. The date of
the
filing of the Restated Charter is referred to herein as the “Filing
Date”.
NOW,
THEREFORE, in consideration of the premises, mutual covenants herein set
forth
and other good and valuable consideration, subject to the terms and conditions
herein, the Company and the Optionee hereby agree as follows:
1. Grant
of Option; Term; Exercise Price.
(a) Subject
to the terms and conditions herein, the Company hereby grants to the Optionee
an
option (the “Option”),
prior
to the Filing Date, to acquire a number of shares of the Company’s Series A-1
Preferred Stock, and from and after the Filing Date, to purchase a number
of
shares of the Company’s Series A Preferred Stock (such shares of Series A-1
Preferred Stock or Series A Preferred Stock, as applicable, being referred
to
herein as the “Option
Shares”)
that,
together with other securities of the Company held by the Optionee at the
time
of exercise, constitute a percentage of the common stock of the Company on
a
Fully Diluted Basis after giving effect to the exercise of the Option equal
to
the Election Percentage. For purposes of this Agreement, “Fully
Diluted Basis”
means
the number of shares of the Company’s Common Stock outstanding assuming, for
such purpose, the exercise, exchange, or conversion into Common Stock of
the
Company of all options, warrants and other securities of the Company that
are
exercisable or exchangeable for, or convertible into, Common Stock at the
time
of the exercise of the Option.
(b) The
Option is exercisable by Optionee’s delivery to the Company of an Exercise
Notice at any time from the date of this Investment Option Agreement until
Midnight Pacific Time on the date that is third anniversary of the date of
this
Investment Option Agreement (the “Exercise
Period”);
provided, however, that the Option shall automatically terminate upon the
closing of the sale of all or substantially all of the assets of the Optionee,
or upon the closing of a merger, consolidation or similar transaction in
which
the stockholders of the Optionee as of immediately prior to the transaction
do
not own a majority of the voting power of the surviving company as of
immediately following such transaction.
(c) The
exercise price per Option Share (the “Exercise
Price”)
shall
be equal to the fair market value of a share of the Company’s Series A-1
Preferred Stock or Series A Preferred Stock, as applicable, as of the date
of
exercise as determined by an Appraisal (as defined below). Whenever this
Option
calls for an “Appraisal,”
the
fair market value of the Option Shares will be determined on the basis of
the
value of the percentage of the entire Company represented by the Option Shares
at the time of determination in accordance with the following mechanism.
A
representative of the Optionee and a representative of the Company shall
attempt
to negotiate a mutually agreeable fair market value within thirty (30) days
of
the date that the Company receives an Exercise Notice from the Optionee.
If the
representatives are unable to reach an agreement within such time period,
each
of the Optionee and the Company will at its own cost appoint a nationally
recognized investment banking firm as an appraiser of the value of the Option
Shares. Each of the investment banking firms shall separately determine,
within
forty-five (45) days of the end of such thirty (30) day period, the fair
market
value of the shares taking into account the fact that the exercise of the
Option
may involve the acquisition of a controlling interest in the Company by the
Optionee to the extent that the Optionee does not already own a controlling
interest in the Company. Each of the investment banking firms shall express
its
valuation as a single number in US dollars. The mid-point of the valuations
(the
“Mid-Point”)
will
then be calculated by dividing the sum of the separate valuations by two
(2). To
the extent that each valuation is within the range which is 10% above or
10%
below the Mid-Point (the “Range”),
the
Mid-Point shall be used. If either or both of the valuations falls outside
of
the Range, then the parties shall jointly choose (or if the parties are unable
to so jointly choose within three (3) business days, the two appraisers shall
choose) a disinterested nationally recognized investment banking firm as
a third
appraiser, at a cost to be shared on an equal basis between the parties,
to
complete an appraisal within an additional forty-five (45) days, which appraisal
shall be equal to or somewhere between the two prior appraisals and such
third
appraisal shall be the final and binding determination of the fair market
value.
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(d) The
Exercise Price shall be payable in cash; provided, however, that if at the
time
the Option is exercised there is a public trading market for the Optionee’s
common stock, then, at the option of the Optionee, the Optionee may pay the
Exercise Price in cash or registered (“free-trading”)
shares
of the Optionee’s common stock, or a combination thereof. If the Optionee elects
to pay the Exercise Price, in whole or in part, by delivery of registered
shares
of the Optionee’s common stock, then such shares shall be valued at the average
closing price of the Optionee’s common stock over a period of twenty (20)
trading days prior to the exercise of the Option.
(e) this
Investment Option Agreement shall terminate and cease to be effective on
the
date on which the JV Agreement is validly terminated in accordance with Section
13 thereof.
2. Exercise
Procedure.
(a) Procedure.
(i) The
Optionee may exercise the Option, in whole, but not in part, at any time
during
the Exercise Period, by delivering to the Company a written notice duly signed
by the Optionee indicating that the Optionee is exercising the Option and
the
Election Percentage (the “Exercise
Notice’).
The
Option shall not be deemed exercised, however, until full payment in an amount
equal to the full purchase price for the Option Shares has been made. Optionee
may withdraw the Exercise Notice and elect not to exercise the Option at
any
time before making full payment.
(ii) Following
receipt by the Company of such Exercise Notice and full payment of the Exercise
Price, the Company shall issue, as soon as practicable, a stock certificate
for
the Option Shares in the name as designated by the Optionee and deliver the
certificate to the Optionee.
(b) Other
Terms.
Other
than the terms regarding pricing and consideration set forth in Section 1
of
this Investment Option Agreement, the issuance and sale of the Option Shares
shall be subject to the same conditions of and on the same terms as the issuance
and sale of the Second Closing WinWin Shares in the Second Closing.
(c) Legend.
If the
Option Shares are not then covered by a registration statement, each certificate
for the Option Shares shall bear a legend that is substantially similar to
the
following:
“THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS THE REGISTRATION PROVISIONS OF SAID ACT HAVE BEEN COMPLIED WITH OR
UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF ITS COUNSEL THAT SUCH REGISTRATION
IS NOT
REQUIRED.”
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3. Rights
of Optionee.
The
Optionee shall not have any rights to dividends or any other rights of a
stockholder with respect to any Option Shares until such Option Shares shall
have been issued to Optionee (as evidenced by the appropriate entry on the
transfer books of the Company).
4. Notices.
Any
notices and other communications required or permitted under this Agreement
shall be in writing and shall be delivered (i) personally by hand or by courier,
(ii) mailed by United States first-class mail, postage prepaid or (iii) sent
by
facsimile, to a Party's address or facsimile number as follows:
if
to
WinWin: WinWin
Gaming, Inc.
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Tel:
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Fax:
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Attention:
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with
a
copy to:
▇▇▇▇▇▇
▇▇▇▇ & Priest LLP
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Tel:
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Attention:
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if
to
PBT: Solidus
Networks, Inc.
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Fax:
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Attention:
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with
a
copy to:
Cooley
Godward
llp
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Fax:
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Attention:
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or
at
such other address or facsimile number as a Party may designate by giving
at
least ten days' advance written notice to the other Party. All such notices
and
other communications shall be deemed given upon (I) receipt or refusal of
receipt, if delivered personally, (II) three days after being placed in the
mail, if mailed, or (III) confirmation of facsimile transfer, if
faxed.
5. Binding;
Assignment.
Optionee shall not assign this Agreement, or any rights hereunder, without
the
Company's prior written consent. This Agreement shall be binding upon and
inure
to the benefit of the parties hereto, and their successors and permitted
assigns, if any.
6. Dispute
Resolution.
Any
unresolved controversy or claim arising out of or relating to this Agreement,
except as (i) otherwise provided in this Agreement, or (ii) any such
controversies or claims arising out of either party’s intellectual property
rights for which a provisional remedy or equitable relief is sought, shall
be
submitted to arbitration by one arbitrator mutually agreed upon by the parties,
and if no agreement can be reached within 30 days after names of potential
arbitrators have been proposed by the American Arbitration Association (the
“AAA”),
then
by one arbitrator having reasonable experience in corporate finance transactions
of the type provided for in this Agreement and who is chosen by the AAA.
The
arbitration shall take place in San Francisco, California, in accordance
with
the AAA rules then in effect, and judgment upon any award rendered in such
arbitration will be binding and may be entered in any court having jurisdiction
thereof. There shall be limited discovery prior to the arbitration hearing
as
follows: (a) exchange of witness lists and copies of documentary evidence
and
documents relating to or arising out of the issues to be arbitrated, (b)
depositions of all party witnesses and (c) such other depositions as may
be
allowed by the arbitrators upon a showing of good cause. Depositions shall
be
conducted in accordance with the California Code of Civil Procedure, the
arbitrator shall be required to provide in writing to the parties the basis
for
the award or order of such arbitrator, and a court reporter shall record
all
hearings, with such record constituting the official transcript of such
proceedings. The prevailing party shall be entitled to reasonable attorney’s
fees, costs, and necessary disbursements in addition to any other relief
to
which such party may be entitled.
7. Entire
Agreement.
This
Agreement constitutes the entire agreement between the parties hereto with
respect to the matters herein, and cannot be amended, modified or terminated
except by an agreement in writing executed by the parties hereto.
8. Governing
Law.
This
Agreement shall be construed in accordance with and governed by the laws
of the
State of Delaware without regard to the conflicts of law principles
thereof.
[Signature
page follows]
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IN
WITNESS WHEREOF, the parties hereto have executed this Investment Option
Agreement as of the date first set forth above.
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Solidus
Networks, Inc.
By:_______________________
Name:
Title:
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WinWin
Gaming, Inc.
By:
/s/
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▇▇▇▇▇▇
Name:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
President/CEO
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[Signature
page to Investment Option Agreement]
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IN
WITNESS WHEREOF, the parties hereto have executed this Investment Option
Agreement as of the date first set forth above.
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Solidus
Networks, Inc.
By:
/s/
▇▇▇▇▇
▇▇▇▇▇▇▇▇
Name:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title:
EVP & GC
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WinWin
Gaming, Inc.
By:______________________
Name:
Title:
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[Signature
page to Investment Option
Agreement]
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