NOTE PURCHASE AGREEMENT among YOUNGEVITY INTERNATIONAL, INC. and THE PURCHASERS LISTED ON EXHIBIT A Dated as of July , 2017
Exhibit
4.1
among
and
THE PURCHASERS LISTED ON EXHIBIT A
Dated as of July , 2017
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Table
of Contents
ARTICLE
1
PURCHASE AND SALE
OF THE UNITS
Section
1.1
Purchase and Sale
of Units
Section
1.2
Warrants
Section
1.3
Note and Warrant
Shares
Section
1.4
Purchase Price and
Closing
ARTICLE
2
REPRESENTATIONS AND
WARRANTIES
Section
2.1
Representations and
Warranties of the Company and Subsidiary
Section
2.2
Representations and
Warranties of the Purchasers
ARTICLE
3
COVENANTS
Section
3.1
Use of
Proceeds
Section
3.2
Securities
Compliance
Section
3.3
Liquidation
Section
3.4
Keeping of Records
and Books of Account
Section
3.5
Amendments
Section
3.6
Other
Agreements
Section
3.7
Senior
Status
Section
3.8
Reservation of
Shares
Section
3.9
Disposition of
Assets
Section
3.8
Reporting
Status
Section
3.9
Disclosure of
Transaction
Section
3.10
▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act
Section
3.11
Conversion and
Exercise Procedures
Section
3.12
No Integrated
Offerings
Section
3.13
Subsequent
Financing
Section
3.14
No Commissions in
Connection with Conversion of Notes
Section
3.15
Registration
Rights
Section
3.16 No Manipulation of Price
Section
3.17
Independent Nature
of Purchasers' Obligations and Rights
Section
3.18
Additional
Collateral; Further Assurances
Section
3.19
Best
Efforts
ARTICLE
4
CONDITIONS
Section
4.1
Conditions
Precedent to the Obligation of the Company to Sell the
Units
Section
4.2
Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Units
ARTICLE
5
STOCK CERTIFICATE
LEGEND
Section
5.1
Legend
ARTICLE
6
INDEMNIFICATION
Section
6.1
General
Indemnity
Section
6.2
Indemnification
Procedure
ARTICLE
7
MISCELLANEOUS
Section
7.1
Fees and
Expenses
Section
7.2
Specific
Enforcement, Consent to Jurisdiction
Section
7.3
Entire Agreement;
Amendment
Section
7.4
Notices
Section
7.5
Waivers
Section
7.6
Headings
Section
7.7
Successors and
Assigns
Section
7.8
Rescission and
Withdrawal Right
Section
7.9
Replacement of
Securities
Section
7.10
Limitation of
Liability
Section
7.11
No Third Party
Beneficiaries
Section
7.12
Governing
Law
Section
7.13
Survival
Section
7.14
Counterparts
Section
7.15
Severability
Section
7.16
Further
Assurances
Section
7.17
Currency
Section
7.18
Termination
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EXHIBIT LIST
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Exhibit
A
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List of
Purchasers
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Exhibit
B
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Definition
of Accredited Investor
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Exhibit
B-1
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Accredited
Investor Representations and Acknowledgements
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Exhibit
B-2
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Subscription
Agreement
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Exhibit
C
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Form of
Convertible Note
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Exhibit
D
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Form of
Series D Warrant
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Exhibit
E
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Form of
Escrow Deposit Agreement
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Exhibit
F
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Form of
Registration Rights Agreement
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This
NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as
of July , 2017 by and among Youngevity International, Inc., a
Delaware corporation (the “Company”), and each of
the Purchasers whose names are set forth on Exhibit A hereto (individually,
a “Purchaser” and
collectively, the “Purchasers”).
RECITALS
WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant
to Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities
Act”) and/or Rule 506 promulgated thereunder, the
Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the
Company, securities of the Company as more fully described in this
Agreement;
WHEREAS, the
Company is offering a minimum of $100,000 of Units (the
"Minimum Offering
Amount") and a maximum of $9,000,000 of Units (the
“Maximum Offering
Amount”), with a right to
offer up to an additional $1,000,000 of Units (the
“Over-allotment
Option”) for a total
possible offering amount of $10,000,000; the final offering
amount being hereinafter referred to as the “Financing Transaction”,
with each Unit (each a “Unit”)consisting of: (i)
a three (3) year convertible note (the “Note(s)”) in the
principal amount of $25,000 initially convertible into shares of
the Company’s common stock, par value $0.001 per share (the
“Common
Stock”) at the lessor of (x) the volume weighted average price
(“VWAP”) of the
Company’s Common Stock for the five Business Days prior to
the Initial Closing Date, or (y) $4.60 per share (subject to
adjustment); and (ii) one (1) Series D Warrant (the
“Series D
Warrant” or “Warrant(s)”), each
exercisable to purchase 50% of the number of shares of Common Stock
issuable upon conversion of the Note at an exercise price equal to
equal to one hundred twenty percent (120%) of the closing price of
the Company’s common stock on the Initial Closing Date;
and
AGREEMENT
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 Purchasers hereby agree as follows:
Section
1.1 Purchase and Sale of Units.
Upon the following terms and conditions, the Company is offering to
each Purchaser the number of Units set forth opposite such
Purchaser’s name as Exhibit A hereto, up to
$9,000,000, consisting of: (i) convertible Notes, in substantially
the form attached hereto as Exhibit C, initially
convertible into up to ________ shares of Common Stock (subject to
adjustment); and (ii) up to ________ Series D Warrants. The terms
and provisions of the Notes are set forth therein.
Section
1.2 Warrants. Each of the
Purchasers shall be issued, as part of the Units and per each Unit,
one (1) Series D Warrant, each of which is exercisable to purchase
50% of the number of shares of Common Stock issuable upon
conversion of the Note, at a price equal to one hundred twenty
percent (120%) of the closing price of the Company’s Common
Stock on its Trading Market (as herein defined) on the Initial
Closing Date. The Series D Warrant, in substantially the form
attached hereto as Exhibit
D, shall expire thirty six (36) months following the Closing
Date.
Section
1.3 Note and Warrant Shares. The
Company has authorized and has reserved and covenants to continue
to reserve, free of preemptive rights and other similar contractual
rights of stockholders, a number of shares of Common Stock equal to
one hundred ten percent (110%) of the number of shares of Common
Stock as shall from time to time be sufficient to effect conversion
of all of the Notes and exercise of the Warrants then outstanding.
Any shares of Common Stock issuable upon conversion of the Notes
and exercise of the Warrants (and such shares when issued) are
herein referred to as the “Note Shares” and the
“Warrant
Shares”, respectively. The Note Shares and the Warrant
Shares are sometimes collectively referred to as the
“Shares” and together with
the Notes and Warrants, the “Securities”.
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Section
1.4 Purchase Price and Closing.
Subject to the terms and conditions hereof, the Company agrees to
issue and sell to the Purchasers and, in consideration of and in
express reliance upon the representations, warranties, covenants,
terms and conditions of this Agreement, the Purchasers, severally
but not jointly, agree to purchase the Units for $25,000.00 per
Unit (the “Unit
Price”) for an aggregate purchase price up to
$10,000,000, including the over allotment options, (the amount paid
by each Purchaser is referred herein as the “Purchase Price”). Subject
to all conditions to closing being satisfied or waived, the closing
of the purchase and sale of the Units shall take place at the
offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Li LLC (the
“Closing”) by the earlier
to occur of (a) completion of the Minimum Offering Amount and
receipt by the Escrow Agent (as defined in the Escrow Deposit
Agreement) of the Minimum Offering Amount, or (b) by 5:00 pm
(Eastern Time) on _______ [ ], 2017 (the “Initial Closing Date”);
or by the earlier of (a) completion of the sale of all Units
included in the Maximum Offering (subject to increase to cover
over-allotments, if any), or (b) by 5:00 p.m. (Eastern Time) on
_______ [ ], 2017 (the “Final Closing Date”)
which can be further extended up to 30 days by the mutual agreement
of the Company and the Placement Agent if the sale of all Units in
the Maximum Offering has not been completed by _______ [ ], 2017
(the Final Closing Date, collectively with the Initial Closing Date
are sometimes referred herein as the “Closing Date”). Subject
to the terms and conditions of this Agreement, at the Closing the
Company shall deliver or cause to be delivered to each Purchaser
(x) Notes in the amount set forth opposite the name of such
Purchaser on Exhibit
A hereto, (y) the Warrants to purchase such number of shares
of Common Stock as is set forth opposite the name of such Purchaser
on Exhibit A
attached hereto, and (z) any other documents required to be
delivered pursuant to Article 4 hereof. At the time of
the Closing, each Purchaser shall have delivered its Purchase Price
by wire transfer to the escrow account pursuant to the Subscription
Agreement and Escrow Deposit Agreement (as such terms are hereafter
defined). Subject to Section 7.18, the Company and Tripoint may
also, by mutual agreement, terminate the offering and the Company
and TriPoint Global Equities, LLC (the “Placement Agent”) would
then notify the Escrow Agent to return the funds deposited in
escrow, in accordance with the Escrow Deposit
Agreement.
ARTICLE
2
Representations and
Warranties
Section
2.1 Representations and Warranties of the
Company and Subsidiary. The Company hereby represents and
warrants to the Purchasers on behalf of itself, its Subsidiaries,
as set forth on Schedule
2.1(e), as of the date hereof (except as set forth on the
Schedule of Exceptions attached hereto with each numbered Schedule
corresponding to the section number herein), as
follows:
(a) Organization, Good Standing and
Power. Each of the Company and its Subsidiaries is a
corporation or other entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization (as applicable)
and has the requisite corporate power to own, lease and operate its
properties and assets and to conduct its business as it is now
being conducted. Except as set forth on Schedule 2.1(a), each of the
Company and its Subsidiary is duly qualified to do business and is
in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a
Material Adverse Effect (as defined in Section 2.1(g) hereof) on
the Company’s consolidated financial condition.
(b) Corporate Power; Authority and
Enforcement. The Company has the requisite corporate power
and authority to enter into and perform this Agreement, the Escrow
Deposit Agreement by and among the Company, the Placement Agent and
the escrow agent named therein, substantially in the form of
Exhibit E attached
hereto (the “Escrow
Deposit Agreement”), the Registration Rights
Agreement, substantially in the form of Exhibit F attached hereto (the
“Registration Rights
Agreement”), the Notes, and the Warrants
(collectively, the “Transaction Documents”),
and to issue and sell the Units in accordance with the terms
hereof. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action, and no
further consent or authorization of the Company or its Board of
Directors or stockholders is required. Each of the Transaction
Documents constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor’s rights and
remedies or by other equitable principles of general
application.
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(c) Capitalization. The authorized
capital stock of the Company and the shares thereof currently
issued and outstanding as of the date hereof is set forth on
Schedule 2.1(c)
hereto. All of the issued and outstanding shares of the Common
Stock have been duly and validly authorized. Except as contemplated
by the Transaction Documents or as set forth on Schedule 2.1(c)
hereto:
(i) no shares of Common
Stock are entitled to preemptive, conversion or other rights and
there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares
of capital stock of the Company;
(ii) there
are no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares
of capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the
Company;
(iii) the
Company is not a party to any agreement granting registration or
anti-dilution rights to any person with respect to any of its
equity or debt securities; and
(iv) the
Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the
capital stock of the Company.
The
offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the
Closing complied with all applicable Federal and state securities
laws. The Company has furnished or made available to the Purchasers
true and correct copies of the Company’s Certificate of
Incorporation, as amended and in effect on the date hereof (the
“Certificate of
Incorporation”), and the Company’s Bylaws, as
amended and in effect on the date hereof (the “Bylaws”). Except as
restricted under applicable federal, state, local or foreign laws
and regulations, the Certificate of Incorporation, or the
Transaction Documents, or as set forth on Schedule 2.1 (c), no written or
oral contract, instrument, agreement, commitment, obligation, plan
or arrangement of the Company shall limit the payment of dividends
on the Company’s Common Stock.
(d) Issuance of Shares. The Units,
the Notes, and the Warrants to be issued at the Closing have been
duly authorized by all necessary corporate action and immediately
after the Closing, the Purchasers will be the record and beneficial
owners of all of such securities and have good and valid title to
all of such securities, free and clear of all encumbrances. When
the Note Shares and the Warrant Shares are issued in accordance
with the terms of the Notes and the Warrants, respectively, such
Shares will be duly authorized by all necessary corporate action
and validly issued and outstanding, fully paid and nonassessable,
and the holders will be entitled to all rights accorded to a holder
of Common Stock and will be the record and beneficial owners of all
of such securities and have good and valid title to all of such
securities, free and clear of all encumbrances.
(e) Subsidiaries. Schedule 2.1(e) hereto sets
forth each Subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of
ownership of each Subsidiary. There are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted
or issued by or binding upon any Subsidiary for the purchase or
acquisition of any shares of capital stock of any Subsidiary or any
other securities convertible into, exchangeable for or evidencing
the rights to subscribe for any shares of such capital stock.
Neither the Company, nor any Subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the
type described in the preceding sentence. Except as filed as
exhibits to the Commission Documents (as defined below), neither
the Company nor any Subsidiary is party to, nor has any knowledge
of, any agreement restricting the voting or transfer of any shares
of the capital stock of any Subsidiary. All of the outstanding
shares of capital stock of each Subsidiary has been duly authorized
and validly issued, and are fully paid and non-assessable. For the
purposes of this Agreement, “Subsidiary” shall mean
any corporation or other entity of which at least a majority of the
securities or other ownership interests having ordinary voting
power (absolutely or contingently) for the election of directors or
other persons performing similar functions are at the time owned
directly or indirectly by the Company and/or any
Subsidiary.
-6-
(f) Shell Company Status. The
Company is not a shell company (as defined in Rule 405 under the
Securities Act) and has never been an issuer subject to Rule 144(i)
under the Securities Act.
(g) Commission Documents, Financial
Statements. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it
with the Securities and Exchange Commission (the
“Commission”)
pursuant to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), including
material filed pursuant to Section 13(a) or 15(d) of the Exchange
Act (all of the foregoing including filings incorporated by
reference therein being referred to herein as the
“Commission
Documents”). The Company has not provided to the
Purchasers any material non-public information or other information
which, according to applicable law, rule or regulation, was
required to have been disclosed publicly by the Company but which
has not been so disclosed, other than (i) with respect to the
transactions contemplated by this Agreement, or (ii) pursuant to a
non-disclosure or confidentiality agreement signed by the
Purchasers. At the time of the respective filings, the Annual
Report on Form 10-K for the year ended December 31, 2016 (the
“Form
10-K”) and the Quarterly Report on Form 10-Q for the
quarter ended on March 31, 2017 (the “Form 10-Q”) complied in
all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder
and other federal, state and local laws, rules and regulations
applicable to such documents. As of their respective filing dates,
neither the Form 10-K nor the Form 10-Q contained any untrue
statement of a material fact; and neither 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. The financial statements of
the Company included in the Commission Documents (the
“Financial
Statements”) comply as to form in all material
respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules
and regulations with respect thereto. The Financial Statements have
been prepared in accordance with United States generally accepted
accounting principles (“GAAP”) applied on a
consistent basis during the periods involved (except: (i) as may be
otherwise indicated in the Financial Statements or the notes
thereto; or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects
the consolidated financial position of the Company as of 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 year-end audit adjustments).
(h) No Material Adverse Effect.
Since March 31, 2017, neither the Company, nor any Subsidiary has
experienced or suffered any Material Adverse Effect. For the
purposes of this Agreement, “Material Adverse Effect”
means any of: (i) a material and adverse effect on the legality,
validity or enforceability of this Agreement or the other
Transaction Documents; (ii) a material adverse effect on the
business, operations, properties, or financial condition of the
Company, its Subsidiaries, individually, or in the aggregate and/or
any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement or the other
Transaction Documents in any material respect; or (iii) an adverse
impairment to the Company’s ability to perform on a timely
basis its obligations under this Agreement or the other Transaction
Document.
(i) No Undisclosed Liabilities.
Other than as disclosed on Schedule 2.1(i) or set forth in
the Commission Documents, to the knowledge of the Company, neither
the Company, nor any Subsidiary has any liabilities, obligations,
claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company’s and
any Subsidiary’s respective businesses since March 31, 2017
and those which, individually or in the aggregate, do not have a
Material Adverse Effect on the Company and any
Subsidiary.
(j) No Undisclosed Events or
Circumstances. To the Company’s knowledge, no event or
circumstance has occurred or exists with respect to the Company or
any Subsidiary or their respective businesses, properties,
operations or financial condition, which, under applicable law,
rule or regulation, requires public disclosure or announcement by
the Company but which has not been so publicly announced or
disclosed.
-7-
(k) Indebtedness. Other than as set
forth on Schedule
2.1(k), the Financial Statements set forth all outstanding
secured and unsecured Indebtedness of the Company, or for which the
Company, or any Subsidiary have commitments as of the date of the
Financial Statements or any subsequent period that would require
disclosure. For the purposes of this Agreement, “Indebtedness” shall mean
(i) any liabilities for borrowed money or amounts owed (other than
trade accounts payable incurred in the ordinary course of
business); (ii) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not
the same should be reflected in the Company’s consolidated
balance sheet (or the Units thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (iii)
the present value of any lease payments due under leases required
to be capitalized in accordance with GAAP. Neither the Company, nor
any Subsidiary is in default with respect to any Indebtedness
which, individually or in the aggregate, would have a Material
Adverse Effect.
(l) Title to Assets. Except as set
forth on Schedule
2.1(l), the Company has good and marketable title in fee
simple to all real property owned by it and good and marketable
title in all personal property owned by it that is material to the
business of the Company, in each case free and clear of all Liens,
except for: (i) 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 the Company; and (ii) Liens
for the payment of federal, state or other taxes, for which
appropriate reserves have been made therefore in accordance with
GAAP and, the payment of which is neither delinquent nor subject to
penalties (liens referenced in subsection (i) and (ii) above are
collectively referred to as “Permitted Liens”). Any
real property and facilities held under lease by the Company are
held by it under valid, subsisting and enforceable leases with
which the Company is in compliance.
(m) Actions Pending. Except as
disclosed in the Commission Documents or on Schedule 2.1(m), there is no
action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the
knowledge of the Company, threatened against or involving the
Company, any Subsidiary: (i) which questions the validity of this
Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby or any action taken or
to be taken pursuant hereto or thereto; or (ii) involving any of
their respective properties or assets. To the knowledge of the
Company, there are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any of
their respective executive officers or directors in their
capacities as such.
(n) Compliance with Law. The
Company and its Subsidiaries have all material franchises, permits,
licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of their
respective business as now being conducted by it unless the failure
to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals,
individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
(o) Compliance. Except as set forth
in the in Schedule
2.1(o), the Company: (i) is not in default under or in
violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a
default by the Company), nor has the Company received notice of a
claim that it is in default under or that it is in violation of,
any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any judgment, decree or order
of any court, arbitrator or other governmental authority or (iii)
is or has been in violation of any statute, rule, ordinance or
regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to
taxes, environmental protection, occupational health and safety,
product quality and safety and employment and labor matters, except
in each case as could not have or reasonably be expected to result
in a Material Adverse Effect.
-8-
(p) No Violation. The business of
the Company and any Subsidiary is not being conducted in violation
of any federal, state, local or foreign governmental laws, or
rules, regulations and ordinances of any governmental entity,
except for possible violations which singularly or in the aggregate
could not reasonably be expected to have a Material Adverse Effect.
The Company is not required under federal, state, local or foreign
law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform
any of its obligations under the Transaction Documents, or issue
and sell the Units, the Notes, the Warrants, the Notes Shares or
the Warrant Shares in accordance with the terms hereof or thereof
(other than (x) any consent, authorization or order that has been
obtained as of the date hereof, (y) any filing or registration that
has been made as of the date hereof or (z) any filings which may be
required to be made by the Company with the Commission or state
securities administrators subsequent to the Closing).
(q) No Conflicts. The execution,
delivery and performance of this Agreement and the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated herein and therein do not and will not:
(i) violate any provision of the Certificate of Incorporation or
Bylaws; (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument
or obligation to which the Company or any Subsidiary is a party or
by which it or its properties or assets are bound; (iii) create or
impose a lien, mortgage, security interest, pledge, charge or
encumbrance (collectively, “Lien”) of any nature on
any property of the Company or any Subsidiary under any agreement
or any commitment to which the Company or any Subsidiary is a party
or by which the Company, or any Subsidiary is bound or by which any
of its respective properties or assets are bound; or (iv) result in
a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any
Subsidiary or by which any property or asset of the Company, or any
Subsidiary are bound or affected, provided, however, that, excluded from
the foregoing in all cases are such conflicts, defaults,
terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect.
(r) Taxes. Other than as set forth
on Schedule 2.1(r),
each of the Company and any Subsidiary, to the extent its
applicable, has accurately prepared and filed all federal, state
and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due
other than payment being contested and all additional assessments,
and adequate provisions have been and are reflected in the
consolidated financial statements of the Company for all current
taxes and other charges to which the Company, or any Subsidiary, if
any, is subject and which are not currently due and payable. None
of the federal income tax returns of the Company have been audited
by the Internal Revenue Service. The Company has no knowledge of
any additional assessments, adjustments or contingent tax liability
(whether federal, state or foreign) of any nature whatsoever,
whether pending or threatened against the Company or any Subsidiary
for any period, nor of any basis for any such assessment,
adjustment or contingency.
(s) Certain Fees. The Company has
agreed to pay Tripoint Global Equities, LLC
(“Tripoint”) or its assigns, a cash placement agent fee
equal to eight percent (8%) of the amount of the gross cash
proceeds received by the Company in connection with the Financing
Transaction and warrants to purchase securities of the Company
equal to eight percent (8%) of the amount of securities underlying
the Notes, exercisable at the Conversion Price of the Notes, and
eight percent (8%) of the amount of securities underlying the
Warrants, exercisable at the Exercise Price of the Warrants,
whether or not converted or exercised, respectively.
Notwithstanding the foregoing, the Company shall pay Tripoint or
its assigns, a cash placement agent fee equal to six percent (6%)
of the amount of the gross cash proceeds received by the Company
from any investor identified directly by its officers, directors or
shareholders, including current shareholder ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, in
connection with the Financing Transaction and warrants to purchase
securities of the Company equal to six percent (6%) of the amount
of securities underlying the Notes, exercisable at the Conversion
Price of the Notes, and six percent (6%) of the amount of
securities underlying the Warrants, exercisable at the Exercise
Price of the Warrants, whether or not converted or exercised,
respectively. Furthermore, The Company has agreed to pay Tripoint
or its assigns, a cash placement agent fee equal to two and one
half percent (2.5%) of the gross amount of any debt conversion from
current Company debt holders (▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇) into the Financing Transaction (“Debt Conversion”), a
common stock fee of two and one half percent (2.5%) of the Debt
Conversion and warrants to purchase securities of the Company equal
to seven percent (7%) of the amount of securities underlying the
Notes, exercisable at the Conversion Price of the Notes, and seven
percent (7%) of the amount of securities underlying the Warrants,
exercisable at the Exercise Price of the Warrants, whether or not
converted or exercised, respectively. The warrants to be issued to
Tripoint will provide that cashless exercise of such warrants will
be available at any time before the three year anniversary of the
Closing Date. The Company shall also be prepared to pay reasonable
legal fees, not to exceed $15,000 in the aggregate. Except as set
forth herein, no brokers fees, finders fees or financial advisory
fees or commissions will be payable by the Company with respect to
the transactions contemplated by this Agreement and the other
Transaction Documents.
-9-
(t) Intellectual Property. Each of
the Company and any Subsidiary, owns or has the lawful right to use
all patents, trademarks, domain names (whether or not registered)
and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating
thereto, service marks, trade names, copyrights, licenses and
authorizations, if any, and all rights with respect to the
foregoing, if any, which are necessary for the conduct of their
respective business as now conducted without any conflict with the
rights of others, except where the failure to so own or possess
would not have a Material Adverse Effect.
(u) Books and Records Internal Accounting
Controls. Except as may have otherwise been disclosed in the
Commission Documents, the books and records of the Company, and any
Subsidiary accurately reflect in all material respects the
information relating to the business of the Company and any
Subsidiary, the location and collection of their assets, and the
nature of all transactions giving rise to the obligations or
accounts receivable of the Company, or any Subsidiary. Except as
disclosed on Schedule
2.1(u), the Company and any Subsidiary maintain a system of
internal accounting controls sufficient, in the judgment of the
Company, 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 actions are taken with respect to any
differences.
(v) Material Agreements. Any and
all written or oral contracts, instruments, agreements,
commitments, obligations, plans or arrangements, the Company and
any Subsidiary is a party to, that a copy of which would be
required to be filed with the Commission as an exhibit to a
registration statement (collectively, the “Material Agreements”) if
the Company or any Subsidiary were registering securities under the
Securities Act has previously been publicly filed with the
Commission in the Commission Documents. Each of the Company and any
Subsidiary has in all material respects performed all the
obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and are
not in default under any Material Agreement now in effect the
result of which would cause a Material Adverse Effect.
(w) Transactions with Affiliates.
Except as set forth in the Financial Statements or in the
Commission Documents or on Schedule 2.1(w), there are no
loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing
transactions between: (i) the Company, or any Subsidiary on the one
hand; and (ii) on the other hand, any officer, employee, consultant
or director of the Company or any Subsidiary, or any person owning
more than ten percent (10%) capital stock of the Company, or any
Subsidiary, or any member of the immediate family of such officer,
employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of
such officer, employee, consultant, director or
stockholder.
(x) Private Placement and
Solicitation. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 2.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby.
Based in part on the accuracy of the representations of the
Purchasers in Section
2.2, and subject to timely applicable Form D filings
pursuant to Regulation D of the Securities Act with the Commission
and pursuant to applicable state securities laws, the offer, sale
and issuance of the Securities to be issued pursuant to and in
conformity with the terms of this Agreement, will be issued in
compliance with all applicable federal and state securities laws.
Neither the Company nor any of its affiliates, nor any person
acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer
or sale of any of the Units, Notes or Warrants.
(y) Governmental Approvals. Except
for the filing of any notice prior or subsequent to the Closing
Date that may be required under applicable state and/or federal
securities laws (which if required, shall be filed on a timely
basis), including the filing of a Form D, no authorization,
consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will
be necessary for, or in connection with, the execution or delivery
of the Units, the Notes and the Warrants, or for the performance by
the Company of its obligations under this Agreement and the
Transaction Documents.
-10-
(z) Employees. Except as disclosed
on Schedule 2.1(z),
neither the Company nor any Subsidiary has any collective
bargaining arrangements covering any of its employees. Schedule 2.1(z) sets forth a
list of the employment contracts, agreements regarding proprietary
information, non-competition agreements, non-solicitation
agreements, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any
officer, employee or consultant to be employed or engaged by the
Company. Since March 31, 2017, no officer, consultant or key
employee of the Company or any Subsidiary whose termination, either
individually or in the aggregate, would have a Material Adverse
Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or
engagement with the Company or any Subsidiary.
(aa) Absence
of Certain Developments. Except as disclosed on Schedule 2.1(aa), since March
31, 2017, other than in the ordinary course of business, neither
the Company, nor any Subsidiary have:
(i) issued any stock,
bonds or other corporate securities or any rights, options or
warrants with respect thereto;
(ii) borrowed
any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course
of business during the comparable portion of its prior fiscal year,
as adjusted to reflect the current nature and volume of the
business of the Company and any Subsidiary;
(iii) discharged
or satisfied any lien or encumbrance or paid any obligation or
liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(iv) declared
or made any payment or distribution of cash or other property to
stockholders with respect to its stock, or purchased or redeemed,
or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or
transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names,
copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the
ordinary course of business or to the Purchasers or their
representatives;
(vii) suffered
any material losses or waived any rights of material value, whether
or not in the ordinary course of business, or suffered the loss of
any material amount of prospective business;
(viii) made
any changes in employee compensation except in the ordinary course
of business and consistent with past practices;
(ix) made
capital expenditures or commitments therefor that aggregate in
excess of $50,000;
(x) entered into any
other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the
ordinary course of business;
(xi) made
charitable contributions or pledges in excess of
$10,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not
covered by insurance;
-11-
(xiii) experienced
any material problems with labor or management in connection with
the terms and conditions of their employment;
(xiv) effected
any two or more events of the foregoing kind which in the aggregate
would be material to the Company or any Subsidiary; or
(bb) entered
into an agreement, written or otherwise, to take any of the
foregoing actions.
(cc) Public
Utility Holding Company Act; Investment Company Act and U.S. Real
Property Holding Corporation Status. The Company is not a
“holding company” or a “public utility
company” as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended. The Company is not, and as
a result of and immediately upon the Closing will not be, an
“investment company” or a company
“controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended. The Company is not and has never been a U.S. real property
holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended.
(dd) ERISA.
No liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any Plan (as defined below) by the Company
or any of its subsidiaries which is or would be materially adverse
to the Company and its subsidiaries. The execution and delivery of
this Agreement and the other Transaction Documents and the issuance
and sale of the Units, the Note Shares and the Warrants will not
involve any transaction which is subject to the prohibitions of
Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of
1986, as amended, provided, that, if any of the Purchasers, or any
person or entity that owns a beneficial interest in any of the
Purchasers, is an “employee pension benefit plan”
(within the meaning of Section 3(2) of ERISA) with respect to which
the Company is a “party in interest” (within the
meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in
this Section 2.1(aa), the term “Plan” shall mean an
“employee pension benefit plan” (as defined in Section
3 of ERISA) which is or has been established or maintained, or to
which contributions are or have been made, by the Company or any
Subsidiary by any trade or business, whether or not incorporated,
which, together with the Company and any Subsidiary is under common
control, as described in Section 414(b) or (c) of the
Code.
(ee) Disclosure.
All disclosure provided to the Purchasers regarding the Company and
any Subsidiary or their respective businesses and the transactions
contemplated hereby, furnished by or on behalf of the Company
(including the Company’s representations and warranties set
forth in this Agreement and the disclosure set forth in any
diligence report or business plan provided by the Company or any
person acting on the Company’s behalf) are true and correct
in all material aspects and do 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.
(ff) No
Additional Agreements. Neither the Company nor any Affiliate
has any agreement or understanding with any Purchaser with respect
to the transactions contemplated by this Agreement and the
Transaction Documents other than as specified in this Agreement and
the Transaction Documents.
(gg) Foreign
Corrupt Practices Act. Neither the Company or 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, directly or indirectly: (i) used any funds, or
will use any proceeds from the sale of the Units, 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 their behalf of which the Company or any
Subsidiary is aware) or any members of their respective management
which is in violation of any applicable law; or (iv) 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 or is applicable to the Company, any
Subsidiary.
-12-
(hh) PFIC.
None of the Company or any Subsidiary is or intends to become a
“passive foreign investment company” within the meaning
of Section 1297 of the U.S. Internal Revenue Code of 1986, as
amended.
(ii) OFAC.
None of the Company or any Subsidiary nor, to the knowledge of the
Company, any director, officer, agent, employee, affiliate or
person acting on behalf of any of the Company or any of its
Subsidiaries, is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”); and the Company
will not directly or indirectly use the proceeds of the sale of the
Units, or lend, contribute or otherwise make available such
proceeds to any of its Subsidiaries, joint venture partner or other
Person or entity, towards any sales or operations in Cuba, Iran,
Syria, Sudan, Myanmar or any other country sanctioned by OFAC or
for the purpose of financing the activities of any Person currently
subject to any U.S. sanctions administered by OFAC.
(jj) Money
Laundering Laws. The operations of each of the Company and
any Subsidiary have been conducted at all times in compliance with
the money laundering requirements of all applicable governmental
authorities and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental
authority (collectively, the “Money Laundering Laws”)
and no action, suit or proceeding by or before any court or
governmental authority or any arbitrator involving any of the
Company or any Subsidiary with respect to the Money Laundering Laws
is pending or, to the best knowledge of the Company,
threatened.
(kk) Regulatory
Permits. The Company possesses 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 could not reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and
the Company has not received any notice of proceedings relating to
the revocation or modification of any Material Permit.
(ll) Registration
Rights. Except as contemplated herein or in the Registration
Rights Agreement, and except as set forth on Schedule 2.1(ll), no
Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the
Company or any Subsidiaries.
(mm) Acknowledgment
Regarding Purchasers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and
any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely
incidental to the Purchasers’ purchase of the Securities. The
Company further represents to each Purchaser that the
Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company
and its representatives.
(nn) Subsequent
Closings/No Integration. The Company has not
made any prior offering nor sold any securities in any prior
offering that would be integrated pursuant to Rule 502(a) with the
sale of the Securities and the transactions contemplated by this
Agreement in which the Company has not taken reasonable steps to
verify that the purchasers of such securities were accredited
investors. Further, the Company covenants and agrees it shall take
reasonable steps to verify that all investors are accredited
investors in connection with: (i) the offer, sale and issuance of
the Securities pursuant to this Agreement in all Closings; and (ii)
pursuant to any other future securities offering that would be
integrated with the transactions contemplated by this
Agreement.
(oo) ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act. Except as specified in the Commission Documents, the
Company is in compliance with the applicable provisions of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 (the “▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act”), and
the rules and regulations promulgated thereunder, that are
effective and for which compliance by the Company is required as of
the date hereof.
-13-
(pp) Solvency.
Based on the financial condition of the Company as of the Closing
Date (and assuming that the Closing shall have occurred): (i) the
Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now
conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of
the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when
such amount are required to be paid. The Company does not intend to
incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable
on or in respect of its debt).
(qq) Listing
and Maintenance Requirements. Except as specified in the
Commission Documents, the Company has not, in the two years
preceding the date hereof, received notice from any Trading Market
to the effect that the Company is not in compliance with the
listing maintenance requirement thereof. The Company is, and has no
reason to believe that it will not in the foreseeable future
continue to be, in compliance with the listing and maintenance
requirements for continued listing of the Common Stock on the
Trading Market on which the Common Stock is currently listed or
quoted. The issuance and sale of the Notes under this Agreement and
the Transaction Documents do not contravene the rules and
regulations of the Trading Market which the Common Stock is
currently listed or quoted, and, except as otherwise set forth in
the Transaction Documents, no approval of the stockholders of the
Company thereunder is required for the Company to issue and deliver
to the Purchasers the Notes contemplated by this Agreement and the
Transaction Documents. “Trading Market” means whichever
of the New York Stock Exchange, NYSE MKT, the NASDAQ Global Select
Market, the NASDAQ Global Market, the NASDAQ Capital Market, OTC
Markets or OTC Bulletin Board on which the Common Stock is listed
or quoted for trading on the date in question.
Section
2.2 Representations and Warranties of the
Purchasers. Each Purchaser hereby makes the following
representations and warranties to the Company as of the date
hereof, with respect solely to itself and not with respect to any
other Purchaser:
(a) Organization and Good Standing of the
Purchasers. If the Purchaser is an entity, such Purchaser is
a corporation, partnership or limited liability company duly
incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Each
Purchaser has the requisite power and authority to enter into and
perform this Agreement and each of the other Transaction Documents
to which such Purchaser is a party and to purchase the Units,
consisting of the Notes and Warrants, being sold to it hereunder.
The execution, delivery and performance of this Agreement and each
of the other Transaction Documents to which such Purchaser is a
party by such Purchaser and the consummation by it of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate, partnership or limited
liability company action, and no further consent or authorization
of such Purchaser or its Board of Directors, stockholders,
partners, members, or managers, as the case may be, is required.
This Agreement and each of the other Transaction Documents to which
such Purchaser is a party has been duly authorized, executed and
delivered by such Purchaser and constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of such
Purchaser enforceable against such Purchaser in accordance with the
terms hereof.
-14-
(c) No Conflicts. The execution,
delivery and performance of this Agreement and each of the other
Transaction Documents to which such Purchaser is a party and the
consummation by such Purchaser of the transactions contemplated
hereby and thereby or relating hereto do not and will not: (i)
result in a violation of such Purchaser’s charter documents,
bylaws, operating agreement, partnership agreement or other
organizational documents; or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument or obligation to which such
Purchaser is a party or by which its properties or assets are
bound, or result in a violation of any law, rule, or regulation, or
any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such
conflicts, defaults and violations as would not, individually or in
the aggregate, have a material adverse effect on such Purchaser).
Such Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or any other
Transaction Document to which such Purchaser is a party or to
purchase the Units in accordance with the terms hereof, provided,
that for purposes of the representation made in this sentence, such
Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) Status of Purchasers. Each
Purchaser is an “accredited investor”
(“Accredited
Investor”) as defined in Regulation D. Such Purchaser
is not required to be registered as a broker-dealer under Section
15 of the Exchange Act and such Purchaser is not a broker-dealer,
nor an affiliate of a broker-dealer.
(e) Acquisition for Investment.
Each Purchaser is acquiring the Units, and the Notes, the
underlying Note Shares, the Warrants and the shares underlying the
Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with a
distribution. The Purchaser does not have a present intention to
sell the Units, the Notes, the Note Shares, the Warrants or the
shares underlying the Warrants, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of
the Units, Notes, Note Shares, the Warrants or the shares
underlying the Warrants to or through any person or entity;
provided,
however, that by
making the representations herein and subject to Section 2.2(h)
below, such Purchaser does not agree to hold the Units, the Notes,
the Note Shares, the Warrants or the shares underlying the Warrants
for any minimum or other specific term and reserves the right to
dispose of the Units, the Notes, the Note Shares, the Warrants or
the shares underlying the Warrants at any time in accordance with
federal and state securities laws applicable to such
disposition.
(f) Knowledge. Each Purchaser
acknowledges that it is able to bear the financial risks associated
with an investment in the Units, the Notes, the Note Shares, the
Warrants and the shares underlying the Warrants and has sufficient
knowledge and experience in investing in companies similar to the
Company in terms of the Company’s stage of development so as
to be able to evaluate the risks and merits of its investment in
the Company. Each Purchaser further acknowledges that the purchase
of the Units, Notes, Warrants and the shares underlying the
Warrants involves substantial risks.
(g) Review of Commission Documents.
Each Purchaser represents that such Purchaser has reviewed the
Commission Documents and has been given full and complete access to
the Company for the purpose of obtaining such information as such
Purchaser or its qualified representative has reasonably requested
in connection with the decision to purchase the Securities. Each
Purchaser represents that such Purchaser has been afforded the
opportunity to ask questions of the officers of the Company
regarding its business prospects and the Securities as Purchaser or
Purchaser’s qualified representative have found necessary to
make an informed investment decision to purchase the Securities
hereunder. Each Purchaser acknowledges that it has access to the
Company’s publicly available reports and registration
statements filed with the Commission prior to the Closing via the
internet at ▇▇▇.▇▇▇.▇▇▇.
The Purchaser is satisfied that it has received adequate
information with respect to all matters which it or its advisors,
if any, consider material to its decision to make this
investment.
(h) Additional Representations and
Warranties of Accredited Investors. Each Purchaser
indicating that such Purchaser is an Accredited Investor, severally
and not jointly, further makes the representations and warranties
to the Company set forth on Exhibit B-1.
-15-
(i) Opportunities for Additional
Information. Each Purchaser acknowledges that such Purchaser
has had the opportunity to ask questions of and receive answers
from, or obtain additional information from, the executive officers
of the Company concerning the financial and other affairs of the
Company.
(j) No General Solicitation. Each
Purchaser acknowledges that the Units were not offered to such
Purchaser by means of any form of general or public solicitation or
general advertising, or publicly disseminated advertisements or
sales literature, including: (i) any advertisement, article, notice
or other communication published in any newspaper, magazine, or
similar media, or broadcast over television or radio; or (ii) any
seminar or meeting to which such Purchaser was invited by any of
the foregoing means of communications.
(k) Rule 144. Such Purchaser
understands that each of the Note Shares, the Warrants and the
shares underlying the Warrants must be held indefinitely unless
such Note Shares, the Warrants or the shares underlying the
Warrants are registered under the Securities Act or an exemption
from registration is available. Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144, of the rules and
regulations of the Commission, as amended, promulgated pursuant to
the Securities Act (“Rule 144”), and that such
person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the
extent that Rule 144 is not available, such Purchaser will be
unable to sell any of the Note Shares, the Warrants or the shares
underlying the Warrants without either registration under the
Securities Act or the existence of another exemption from such
registration requirement.
(l) General. Such Purchaser
understands that the Units, the Notes and Warrants are being
offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and
the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability
of such Purchaser to acquire the Units, the Notes and
Warrants.
(m) Independent Investment. Except
as may be disclosed in any filings with the Commission by the
Purchasers under Section 13 and/or Section 16 of the Exchange Act,
no Purchaser has agreed to act with any other Purchaser for the
purpose of acquiring, holding, voting or disposing of the Units,
the Notes, the Note Shares, the Warrants and the shares underlying
the Warrants purchased hereunder for purposes of Section 13(d)
under the Exchange Act, and each Purchaser is acting independently
with respect to its investment in the Units.
(n) Brokers. Other than the
Placement Agent and selected dealers of the Placement Agent, no
Purchaser has any knowledge of any brokerage or finder’s fees
or commissions that are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other person or entity with respect to
the transactions contemplated by this Agreement and the Transaction
Documents.
(o) Confidential Information. Each
Purchaser agrees that such Purchaser and its employees, agents and
representatives will keep confidential and will not disclose,
divulge or use (other than for purposes of monitoring its
investment in the Company) any confidential information which such
Purchaser may obtain from the Company pursuant to financial
statements, reports and other materials submitted by the Company to
such Purchaser pursuant to this Agreement, unless such information
is: (i) known to the public through no fault of such Purchaser or
his or its employees or representatives; (ii) becomes part of the
public domain other than by a breach of this Agreement; (iii)
becomes known by the action of a third party not in breach of a
duty of confidence; or (iv) is required to be disclosed to a third
party pursuant to any applicable law, government resolution, or
decision of any court or tribunal of competent jurisdiction;
provided,
however, that a
Purchaser may disclose such information: (i) to its attorneys,
accountants and other professionals in connection with their
representation of such Purchaser in connection with such
Purchaser’s investment in the Company; (ii) to any
prospective permitted transferee of the Securities; or (iii) to any
general partner or affiliate of such Purchaser, so long as the
prospective transferee agrees to be bound by the provisions of this
Section 2.2(o).
-16-
ARTICLE 3
Covenants
The
Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted
assignees (as defined herein).
Section
3.1 Use of Proceeds. The Company
shall use the proceeds from this Financing Transaction for working
capital purposes.
Section
3.2 Securities Compliance. The
Company shall notify the Commission in accordance with its rules
and regulations, of the transactions contemplated by this Agreement
and the Transaction Documents, including filing a Form D with
respect to the Units, as required under Regulation D and applicable
“blue sky” laws if such Units are offered pursuant to
Rule 506 of Regulation D (“Regulation D”) and shall
take all other necessary action and proceedings as may be required
and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Units to the Purchasers or subsequent
holders.
Section
3.3 Liquidation. Subject to the
terms of the Transaction Documents, the Company covenants that it
will take such further action as the Purchasers may reasonably
request, all to the extent required from time to time to enable the
Purchasers to sell the Units without registration under the
Securities Act within the limitation of the exemptions provided by
Rule 144 promulgated under the Securities Act, as
amended.
Section
3.4 Keeping of Records and Books of
Account. The Company shall keep and cause each Subsidiary to
keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business
shall be made.
Section
3.5 Intentionally
Omitted.
Section
3.6 Other Agreements. The Company
shall not and shall cause its Subsidiaries, enter into any
agreement the terms of which would restrict or impair the ability
of the Company to perform its obligations under this Agreement and
the Transaction Document.
Section
3.7 Intentionally Left
Blank.
Section
3.8 Reservation of Shares. So long
as any of the Notes or Warrants remain outstanding, the Company
shall take all actions necessary to at all times have authorized,
and reserved for the purpose of issuance, no less than one hundred
ten percent (110%) of the aggregate number of shares of Common
Stock needed to provide for the complete issuance of the Note
Shares and the Warrant Shares underlying such outstanding Notes and
Warrants.
Section
3.9 Disposition of Assets. So long
as any Notes remain outstanding, neither the Company, nor any of
its Subsidiaries shall sell, transfer or otherwise dispose of any
of its material properties, assets and rights including, without
limitation, its software and intellectual property, to any person
except for: (i) sales to customers in the ordinary course of
business; (ii) sales or transfers between the Company and its
Subsidiaries; (iii) disposition of obsolete or worn out equipment;
or (iv) otherwise with the prior written consent of the Majority
Holders (as defined in Section 7.3 of this
Agreement”).
Section
3.10 Reporting Status. So long as a
Purchaser beneficially owns any of the Securities, the Company
shall timely file all reports required to be filed with the
Commission pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under
the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination.
-17-
Section
3.11 Disclosure of Transaction. The
Company shall file with the Commission, a Current Report on Form
8-K describing the material terms of the transactions contemplated
hereby and all material non-public information disclosed to the
Purchasers prior to the filing as soon as practicable after the
Closing but in no event later than 5:30 p.m. (Eastern Time) on the
fourth Business Day following the Closing. In the event that the
Company is unable to disclose specific non-public information in
the Form 8-K, the Company shall include such information in its
Form 10-Q for the interim period during which the Closing
contemplated hereby occurs. “Business Day” means any
day during which the NASDAQ (or other principal
exchange) shall be open for trading.
Section
3.12 ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act. The Company
shall be in compliance with the applicable provisions of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, and the rules and regulations
promulgated thereunder, as required under such Act.
Section
3.13 Conversion and Exercise
Procedures. Each of the form of Notice of Exercise included
in the Warrants and the form of Notice of Conversion included in
the Note set forth the totality of the procedures required of the
Purchasers in order to exercise the Warrants or convert the Note.
The Company shall honor exercises of the Warrants and conversions
of the Note and shall deliver Warrant Shares and Note Shares in
accordance with the terms, conditions and time periods set forth in
the Transaction Documents
Section
3.14 No Integrated Offerings. The
Company shall not make any offers or sales of any security (other
than the securities being offered or sold hereunder) under
circumstances that would require registration of the securities
being offered or sold hereunder under the Securities
Act.
Section
3.15 Intentionally
Omitted.
Section
3.16 Intentionally
Omitted.
Section
3.17 Registration Rights. The Purchasers are eligible for the registration
rights set forth in the Registration Rights
Agreement.
Section
3.18 No Manipulation of Price. The
Company will not take, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
Section
3.19 Independent Nature of Purchasers'
Obligations and Rights. The obligations of each Purchaser
under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of
any other Purchaser under any Transaction Document. The decision of
each Purchaser to purchase Securities pursuant to the Transaction
Documents has been made by such Purchaser independently of any
other Purchaser and independently of any information, materials,
statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have
been made or given by any other Purchaser or by any agent or
employee of any other Purchaser, and no Purchaser and none of its
agents or employees shall have any liability to any other Purchaser
(or any other Person) relating to or arising from any such
information, materials, statements or opinions. Nothing contained
herein or in any other Transaction Document, and no action taken by
any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that
the Purchasers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser acknowledges that no other
Purchaser has acted as agent for such Purchaser in connection with
making its investment hereunder and that no Purchaser will be
acting as agent of such Purchaser in connection with monitoring its
investment in the Securities or enforcing its rights under the
Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the
other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any
Proceeding for such purpose. It is expressly understood and agreed
that each provision contained in this Agreement is between the
Company and a Purchaser, solely, and not between the Company and
the Purchasers collectively and not between and among the
Purchasers.
-18-
Section
3.20 Best Efforts. The Company shall
exert its best efforts to satisfy the closing conditions set forth
in Section 4.1 hereof or cause such closing conditions to be
satisfied at or before the Closing.
ARTICLE
4
CONDITIONS
Section
4.1 Conditions Precedent to the Obligation
of the Company to Sell the Units. The obligation hereunder
of the Company to issue and sell the Units, and the underlying Note
and the Warrants to the Purchasers is subject to the satisfaction
or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company’s sole
benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of Each Purchaser’s
Representations and Warranties. The representations and
warranties of each Purchaser in this Agreement and each of the
other Transaction Documents to which such Purchaser is a party
shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at that time,
except for representations and warranties that are expressly made
as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers.
Each Purchaser shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such
Purchaser at or prior to the Closing.
(c) No Injunction. No statute,
rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated
by this Agreement.
(d) Purchaser Deliverables. On or
prior to the applicable Closing Date, each Purchaser shall deliver
or cause to be delivered to the Company the following:
i.
this Agreement duly
executed by such Purchaser, which includes completed Exhibit B-1
and the completed Subscription Agreement, which is attached as
Exhibit B-2; by executing this Agreement, such Purchaser will be
deemed to have executed each of the Transaction Documents and will
be bound by each of their terms even if the Purchaser does not
physically sign such other Transaction Documents; and
ii.
such
Purchaser’s Purchase Price by wire transfer to the account as
specified in writing by the Company or by check as per the payment
terms set forth in the Subscription Agreement.
Section
4.2 Conditions Precedent to the Obligation
of the Purchasers to Purchase the Units. The obligation
hereunder of each Purchaser to acquire and pay for the Units is
subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below. These conditions are for
each Purchaser’s sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company’s
Representations and Warranties. Each of the representations
and warranties of the Company in this Agreement and the other
Transaction Documents that are qualified by materiality or by
reference to any Material Adverse Effect shall be true and correct
in all respects, and all other representations and warranties shall
be true and correct in all material respects, as of the date when
made and as of the Closing Date as though made at that time, except
for representations and warranties that are expressly made as of a
particular date, which shall be true and correct in all respects as
of such date.
-19-
(b) Performance by the Company. The
Company shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing.
(c) No Injunction. No statute,
rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated
by this Agreement and the Transaction Documents.
(d) No Proceedings or Litigation.
No action, suit or proceeding before any arbitrator or any
governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been
threatened, against the Company or any Subsidiary, or any of the
officers, directors or affiliates of the Company or any Subsidiary
seeking to restrain, prevent or change the transactions
contemplated by this Agreement and the Transaction Documents, or
seeking damages in connection with such transactions.
(e) Securities. The Company shall
have executed and delivered to the Purchasers the Notes and
Warrants underlying the Units being acquired by such Purchaser at
the Closing to such address set forth next to each Purchasers name
on Exhibit A with
respect to the Closing.
(f) Resolutions. The Board of
Directors of the Company shall have adopted resolutions consistent
with Section 2.1(b) hereof in a form reasonably acceptable to such
Purchaser (the “Resolutions”).
(g) Reservation of Shares. As of
the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Notes and the exercise of the
Warrants, a number of shares of Common Stock equal to one hundred
ten percent (110%) of the aggregate number of Note Shares issuable
upon conversion of the Notes issued or to be issued pursuant to
this Agreement and the number of Warrant Shares issuable upon
exercise of the number of Warrants issued or to be issued pursuant
to this Agreement.
(h) Secretary’s Certificate.
The Company shall have delivered to such Purchaser a
secretary’s certificate, dated as of the Closing Date,
certifying attached copies of: (i) the Organizational Documents of
the Company; (ii) the resolutions of the Company's Board approving
this Agreement and the transactions contemplated hereby; and (iii)
the incumbency of each authorized officer of the Company signing
this Agreement and the Transaction Documents and any other
documents required to be executed or delivered in connection
herewith and therewith.
(i) Officer’s Certificate.
The Company shall have delivered to the Purchasers a certificate of
an executive officer of the Company, dated as of the Closing Date,
confirming the accuracy of the Company’s representations,
warranties and covenants as of the Closing Date and confirming the
compliance by the Company with the conditions precedent set forth
in this Section 4.2 as of the Closing Date.
(j) Transaction Documents. On the
Closing Date, the Company shall have executed and delivered the
Transaction Documents, including all required exhibits and
schedules to each Purchaser.
(k) Material Adverse Effect. No
Material Adverse Effect shall have occurred at or before the
Closing Date.
(l) Intentionally
Omitted
(m) Stop Orders. No stop order or
suspension of trading shall have been imposed by the Commission or
any other governmental or regulatory body having jurisdiction over
the Company or the Trading Market(s) where the Common Stock is
listed or quoted, with respect to public trading in the Common
Stock.
-20-
ARTICLE
5
Stock Certificate
Legend
Section
5.1 Legend. Each certificate
representing the Notes Shares, the Warrants and Warrant Shares and
if appropriate, securities issued upon conversion or exercise
thereof, shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend
required by applicable state securities or “blue sky”
laws):
“THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
“SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.”
(a)
The restrictions on
transfer contained in this Section 5.1 shall be in
addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this
Agreement. Whenever a certificate representing the Note Shares or
the Warrant Shares is required to be issued to a Purchaser without
a legend, in lieu of delivering physical certificates representing
the Note Shares or the Warrant Shares (provided that a registration
statement under the Securities Act providing for the resale of the
Warrant Shares and Note Shares is then in effect), the Company may
cause its transfer agent to electronically transmit the Note Shares
or Warrant Shares to a Purchaser by crediting the account of such
Purchaser or such Purchaser’s prime broker with the DTC
through its DWAC system (to the extent not inconsistent with any
provisions of this Agreement).
(b)
Certificates
evidencing the Note Shares and the Warrant Shares shall not contain
any legend (including the legend set forth in Section 5.1 hereof): (i) while
a registration statement covering the resale of such security is
effective under the Securities Act (the date such registration
statement is declared effective, being referred to as the
“Effective
Date”); (ii) following any sale of such Note Shares or
Warrant Shares pursuant to Rule 144; (iii) if such Note Shares or
Warrant Shares are eligible for sale under Rule 144, without the
requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Note Shares
or Warrant Shares and without volume or manner-of-sale
restrictions; or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to its transfer agent promptly after the Effective Date if
required by the transfer agent to effect the removal of the legend
hereunder. If all or any Note is converted or Warrant is exercised
at a time when there is an effective registration statement to
cover the resale of the Note Shares or Warrant Shares, or if such
Note Shares or Warrant Shares may be sold under Rule 144 and the
Company is then in compliance with the current public information
required under Rule 144, or if such Note Shares or Warrant Shares
may be sold under Rule 144 without the requirement for the Company
to be in compliance with the current public information required
under Rule 144 as to such Note Shares or Warrant Shares and without
volume or manner-of-sale restrictions or if such legend is not
otherwise required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued
by the staff of the Commission) then such Note Shares or Warrant
Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no
longer required under this Section 5.1, it will, no later
than three Business Days following the delivery by a Purchaser to
the Company or the transfer agent of a certificate representing
Note Shares or Warrant Shares, as applicable, issued with a
restrictive legend (such third Business Day, the
“Legend Removal
Date”), deliver or cause to be delivered to such
Purchaser a certificate representing such shares that is free from
all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the transfer agent
that enlarge the restrictions on transfer set forth in this Article
5.
(c)
Each
Purchaser, severally and not jointly with the other Purchasers,
agrees with the Company that such Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are
sold pursuant to a registration statement, they will be sold in
compliance with the plan of distribution set forth therein, and
acknowledges that the removal of the restrictive legend from
certificates representing Securities as set forth in this Article 5
is predicated upon the Company’s reliance upon this
understanding.
-21-
ARTICLE 6
Indemnification
Section
6.1 General Indemnity. The Company
agrees to indemnify and hold harmless the Purchasers (and their
respective directors, officers, managers, partners, members,
shareholders, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable
attorneys’ fees, charges and disbursements) incurred by the
Purchasers as a result of any material breach of the material
representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to
indemnify and hold harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and
against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable
attorneys’ fees, charges and disbursements) incurred by the
Company as a result of any breach of the representations,
warranties or covenants made by such Purchaser herein. The maximum
aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article 6 shall not exceed
the portion of the Purchase Price paid by such Purchaser hereunder.
In no event shall any “Indemnified Party” (as defined
below) be entitled to recover consequential or punitive damages
resulting from a breach or violation of this
Agreement.
Section
6.2 Indemnification Procedure. Any
party entitled to indemnification under this Article 6 (an
“Indemnified
Party”) will give written notice to the indemnifying
party of any matters giving rise to a claim for indemnification;
provided, that the
failure of any party entitled to indemnification hereunder to give
notice as provided herein shall not relieve the indemnifying party
of its obligations under this Article 6 except to the extent that
the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought
against an Indemnified Party in respect of which indemnification is
sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the
Indemnified Party a conflict of interest between it and the
indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel
reasonably satisfactory to the Indemnified Party. In the event that
the indemnifying party advises an Indemnified Party that it will
contest such a claim for indemnification hereunder, or fails,
within thirty (30) days of receipt of any indemnification notice to
notify, in writing, such person of its election to defend, settle
or compromise, at its sole cost and expense, any action, proceeding
or claim (or discontinues its defense at any time after it
commences such defense), then the Indemnified Party may, at its
option, defend, settle or otherwise compromise or pay such action
or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any
such claim, proceeding or action, the Indemnified Party’s
costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be losses
subject to indemnification hereunder. The Indemnified Party shall
cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party which
relates to such action or claim. The indemnifying party shall keep
the Indemnified Party fully apprised at all times as to the status
of the defense or any settlement negotiations with respect thereto.
If the indemnifying party elects to defend any such action or
claim, then the Indemnified Party shall be entitled to participate
in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any
settlement of any action, claim or proceeding effected without its
prior written consent, provided, however, that the indemnifying
party shall be liable for any settlement if the indemnifying party
is advised of the settlement but fails to respond to the settlement
within thirty (30) days of receipt of such notification.
Notwithstanding anything in this Article 6 to the contrary, the
indemnifying party shall not, without the Indemnified Party’s
prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as
an unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability
in respect of such claim. The indemnity agreements contained herein
shall be in addition to (a) any cause of action or similar rights
of the Indemnified Party against the indemnifying party or others,
and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.
-22-
ARTICLE 7
Miscellaneous
Section
7.1 Fees and Expenses. The Company
has engaged Tripoint Global Equities, LLC, as exclusive placement
agent for the Company (the “Placement Agent). The Company
has agreed to pay the Placement Agent, in connection with sales of
the Units made to Persons introduced to the Company by either
themselves or the Placement Agent, the fees set forth in
Schedule 7.1 hereto
and legal fees related hereto up to $15,000. The Company shall
deliver to each Purchaser, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as
Annex A. Except as
expressly set forth in the Transaction Documents to the contrary,
each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
The Company shall pay all Transfer Agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of
any Securities to the Purchasers.
Section
7.2 Specific Enforcement, Consent to
Jurisdiction.
(a) The Company and the
Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or
the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement or the other Transaction Documents and
to enforce specifically the terms and provisions hereof or thereof,
this being in addition to any other remedy to which any of them may
be entitled by law or equity.
(b) Each of the Company
and the Purchasers: (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New
York located in New York county for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement
or any of the other Transaction Documents or the transactions
contemplated hereby or thereby; and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such
court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) 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 in this
Section 7.2 shall
affect or limit any right to serve process in any other manner
permitted by law. 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 to such party
at the address for such notices to it under this Agreement and
agrees that such service shall constitute good and sufficient
service of process and notice thereof. The Company hereby appoints
Gracin & ▇▇▇▇▇▇, LLP as its agent for service of process in New
York. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by
law.
Section
7.3 Entire Agreement; Amendment.
This Agreement and the other Transaction Documents contain the
entire understanding and agreement of the parties with respect to
the matters covered hereby and, except as specifically set forth
herein or in the Transaction Documents, neither the Company nor any
of the Purchasers makes any representations, warranty, covenant or
undertaking with respect to such matters and they supersede all
prior understandings and agreements with respect to said subject
matter, all of which are merged herein. No provision of this
Agreement nor any of the Transaction Documents may be waived or
amended other than by a written instrument signed by the Company
and the holders of at least fifty percent (50%) of the Note Shares
then outstanding (the “Majority Holders”), and
no provision hereof may be waived other than by a written
instrument signed by the consenting parties. No such amendment
shall be effective to the extent that it applies to less than all
of the holders of the Note Shares then outstanding. No
consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents or holders of
Note Shares, as the case may be.
-23-
Section
7.4 Notices. All notices, demands,
consents, requests, instructions and other communications to be
given or delivered or permitted under or by reason of the
provisions of this Agreement and the Transaction Documents or in
connection with the transactions contemplated hereby and thereby
shall be in writing and shall be deemed to be delivered and
received by the intended recipient as follows: (i) if personally
delivered, on the business day of such delivery (as evidenced by
the receipt of the personal delivery service); (ii) if delivered by
overnight courier (with all charges having been prepaid), on the
business day of such delivery (as evidenced by the receipt of the
overnight courier service of recognized standing); or (iii) if
delivered by facsimile or electronic transmission, on the business
day of such delivery if sent by 6:00 p.m. in the time zone of the
recipient, or if sent after that time, on the next succeeding
business day (as evidenced by the printed confirmation of delivery
generated by the sending party’s telecopier machine). If any
notice, demand, consent, request, instruction or other
communication cannot be delivered because of a changed address of
which no notice was given (in accordance with this Section 7.4), or the refusal to
accept same, the notice, demand, consent, request, instruction or
other communication shall be deemed received on the second business
day the notice is sent (as evidenced by a sworn affidavit of the
sender). Notwithstanding the foregoing, routine communications may
be sent by ordinary first-class mail and contemporaneous e-mail.
All such notices, demands, consents, requests, instructions and
other communications will be sent to the following addresses or
facsimile numbers as applicable:
If to
the Company:
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
with
copies (which shall not constitute notice) to:
▇▇▇▇▇▇
▇▇▇▇▇▇, Esq.
Gracin
& ▇▇▇▇▇▇, LLP
▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇
If to
any Purchaser: At the address of such Purchaser set
forth on Exhibit A
to this Agreement, as the case may be, with copies to
Purchaser’s counsel as set forth on Exhibit A or as specified in
writing by such Purchaser.
Any
party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed
address to the other party hereto.
Section
7.5 Waivers. No waiver by any party
of any default with respect to any provision, condition or
requirement of this Agreement and the other Transaction Documents
shall be deemed to be a continuing waiver in the future or a waiver
of any other provisions, condition or requirement hereof and
thereof, nor shall any delay or omission of any party to exercise
any right hereunder and thereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section
7.6 Headings. The section headings
contained in this Agreement (including, without limitation, section
headings and headings in the exhibits and schedules) are inserted
for reference purposes only and shall not affect in any way the
meaning, construction or interpretation of this Agreement and the
other Transaction Documents. Any reference to the masculine,
feminine, or neuter gender shall be a reference to such other
gender as is appropriate. References to the singular shall include
the plural and vice versa.
-24-
Section
7.7 Successors and Assigns. This
Agreement may not be assigned by a party hereto without the prior
written consent of the Company or the Purchasers, as applicable,
provided,
however, that,
subject to federal and state securities laws and as otherwise
provided in the Transaction Documents, a Purchaser may assign its
rights and delegate its duties hereunder in whole or in part: (i)
to a third party acquiring all or substantially all of its Shares
or Warrants in a private transaction; or (ii) to an affiliate, in
each case, without the prior written consent of the Company or the
other Purchasers, after notice duly given by such Purchaser to the
Company provided,
that no such assignment or obligation shall affect the obligations
of such Purchaser hereunder and that such assignee agrees in
writing to be bound, with respect to the transferred securities, by
the provisions hereof that apply to the Purchasers. The provisions
of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. If any Purchaser transfers
the Note Shares purchased hereunder, any such penalty shares or
liquidated damages, as the case may be, pursuant to this Agreement
shall similarly transfer to such transferee with no further action
required by the purchaser or the Company.
Section
7.8 Rescission and Withdrawal
Right. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) this Agreement and
the Transaction Documents, whenever any Purchaser exercises a
right, election, demand or option under this Agreement or a
Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time
to time upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its
future actions and rights.
Section
7.9 Replacement of Securities. If
any certificate or instrument evidencing any Unit is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants
for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs associated with the
issuance of such replacement Unit. If a replacement certificate or
instrument evidencing any Unit is requested due to a mutilation
thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance
of a replacement.
Section
7.10 Limitation of Liability.
Notwithstanding anything herein to the contrary, the Company
acknowledges and agrees that the liability of any Purchaser arising
directly or indirectly, under this Agreement and the other
Transaction Documents of any and every nature whatsoever shall be
satisfied solely out of the assets of such Purchaser, and that no
trustee, officer, other investment vehicle or any other Affiliate
of such Purchaser or any Purchaser, shareholder or holder of shares
of beneficial interest of such a Purchaser shall be personally
liable for any liabilities of such Purchaser.
Section
7.11 No Third Party Beneficiaries.
This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns and is not
for the benefit of, nor may any provision hereof be enforced by,
any other person.
Section
7.12 Governing Law. This Agreement
and the other Transaction Documents shall be governed by and
construed in accordance with the laws of the State of New York,
without giving effect to any of the conflicts of law principles
which would result in the application of the substantive law of
another jurisdiction. This Agreement and the other Transaction
Documents shall not be interpreted or construed with any
presumption against the party causing this Agreement and the other
Transaction Documents to be drafted.
Section
7.13 Survival. The representations
and warranties of the Company hereunder and under the other
Transaction Documents shall survive the execution and delivery
hereof and the Closing hereunder for a period of three (3) years
following the Closing Date.
-25-
Section
7.14 Counterparts. This Agreement
may be executed in any number of counterparts, each of which when
so executed shall be deemed to be an original and, all of which
taken together shall constitute one and the same Agreement and
shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart. In
the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.
Section
7.15 Severability. The provisions of
this Agreement and the Transaction Documents are severable and, in
the event that any court of competent jurisdiction shall determine
that any one or more of the provisions or part of the provisions
contained in this Agreement or the Transaction Documents shall, for
any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provision or part of a provision of this Agreement
or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section
7.16 Further Assurances. From and
after the date of this Agreement, upon the request of any Purchaser
or the Company, each of the Company and the Purchasers shall
execute and deliver such instrument, documents and other writings
as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this
Agreement and the other Transaction Documents.
Section
7.17 Currency. Unless otherwise
indicated, all dollar amounts referred to in this Agreement are in
United States Dollars (“US Dollars”). All amounts
owed under this Agreement or any Transaction Document shall be paid
in US Dollars.
Section
7.18 Termination. This Agreement may
be terminated prior to the Closing:
(a) by mutual written
agreement of the Purchasers and the Company, a copy of which shall
be provided to the escrow agent appointed under the Escrow Deposit
Agreement; and
(b) by the Company or a
Purchaser (as to itself but no other Purchaser) upon written notice
to the other, with a copy to the Escrow Agent, if the Closing shall
not have taken place by 5:00 p.m. Eastern time on [ ], 2017, unless
extended to a later date by the mutual consent of the Company and
the Placement Agent; provided, that the right to terminate this
Agreement under this Section 7.18(b) shall not be available to any
person whose failure to comply with its obligations under this
Agreement has been the cause of or resulted in the failure of the
Closing to occur on or before such time.
(c) In the event of a
termination pursuant to Section 7.18(a) or 7.18(b), each Purchaser
shall have the right to a return of up to its entire Purchase Price
deposited with the Escrow Agent pursuant to this Agreement and the
Escrow Agreement, without interest or deduction. The Company
covenants and agrees to cooperate with such Purchaser in obtaining
the return of its Purchase Price, and shall not communicate any
instructions to the contrary to the Escrow Agent.
(d) In the event of a
termination pursuant to this Section 7.18, the Company shall
promptly notify all non-terminating Purchasers. Upon a termination
in accordance with this Section 7.18, the Company and
the terminating Purchaser(s) shall not have any further obligation
or liability (including as arising from such termination) to the
other and no Purchaser will have any liability to any other
Purchaser under the Transaction Documents as a result
therefrom.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
-26-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officer as of the
date first above written.
By:
Name:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title:
Chief Executive Officer
-27-
PURCHASER
SIGNATURE PAGE TO
Purchaser
hereby elects to purchase a total of ____ Units in an amount of
$___________.
Date
(NOTE: To be completed by the Purchaser): _____ , 2017
If the
Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS,
as
TENANTS
IN COMMON, or as COMMUNITY PROPERTY:
Print
Name(s)
Social
Security Number(s)
Signature(s)
of Purchaser(s)
Signature
Date
Address
If the
Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY
or TRUST:
Name
of Partnership,
Federal
Taxpayer Corporation, LimitedIdentification Number Liability
Company or Trust
By:
Name:
State
of Organization
Title:
Date
Address
-28-
EXHIBIT A TO THE
|
Investor
|
Investment Amount
|
Convertible Note
|
Series D Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Purchasers
-29-
EXHIBIT B TO THE
DEFINITION OF “ACCREDITED INVESTOR”
The term “accredited investor” means:
1)
A bank as defined
in Section 3(a)(2) of the Securities Act, or a savings and loan
association or other institution as defined in Section 3(a)(5)(A)
of the Securities Act, whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934; an insurance
company as defined in Section 2(13) of the Securities Act; an
investment company registered under the Investment Company Act of
1940 (the “Investment Company Act”) or a business
development company as defined in Section 2(a)(48) of the
Investment Company Act; a Small Business Investment Company
licensed by the U.S. Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political subdivisions
or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan has
total assets in excess of US $5,000,000; an employee benefit plan
within the meaning of the Employee Retirement Income Security Act
of 1974 (“ERISA”), if the investment decision is made
by a plan fiduciary, as defined in Section 3(21) of ERISA, which is
either a bank, savings and loan association, insurance company, or
registered investment advisor, or if the employee benefit plan has
total assets in excess of US $5,000,000 or, if a self-directed
plan, with investment decisions made solely by persons that are
accredited investors.
2)
A private business
development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
3)
An organization
described in Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of US
$5,000,000.
4)
A director or
executive officer of the Company.
5)
A natural person
whose individual net worth, or joint net worth with that
person’s spouse, at the time of his or her purchase exceeds
US $1,000,000.
6)
A natural person
who had an individual income in excess of US $200,000 in each of
the two most recent years or joint income with that person’s
spouse in excess of US $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the
current year.
7)
A trust, with total
assets in excess of US $5,000,000, not formed for the specific
purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule
506(b)(2)(ii) (i.e., a person who has such knowledge and experience
in financial and business matters that he is capable of evaluating
the merits and risks of the prospective investment).
8)
An entity in which
all of the equity owners are accredited investors. (The Purchaser,
as an entity, must identify each equity owner and provide
statements signed by each demonstrating how each is qualified as an
accredited investor.)
-30-
EXHIBIT B-1 TO THE
EXHIBIT B-1
ACCREDITED INVESTOR
REPRESENTATIONS AND ACKNOWLEDGEMENT
ACCREDITED
INVESTOR CERTIFICATION
For
Individual Investors Only
(All
individual investors must INITIAL where appropriate. Where there
are joint investors both parties must INITIAL):
Initial
_________
I certify that I
have a “net worth” of at least $1 million either
individually or through aggregating my individual holdings and
those in which I have a joint, community property or other similar
shared ownership interest with my spouse. For purposes hereof,
“net worth” shall be deemed to include all of your
assets, liquid or illiquid (excluding the value of your principal
residence), minus all of your liabilities (excluding the amount of
indebtedness secured by your principal residence up to its fair
market value).
Initial
________
I certify that I
have had an annual gross income for the past twoyears of at least
$200,000 (or $300,000 jointly with my spouse) andexpect my income
(or joint income, as appropriate) to reach the same level in the
current year.
For
Non-Individual Investors
(all
Non-Individual Investors must INITIAL where
appropriate):
Initial
_________
The undersigned
certifies that it is a partnership, corporation, limited liability
company or business trust that is 100% owned by persons who meet
either of the criteria for Individual Investors,
above.
Initial
_________
The undersigned
certifies that it is a partnership, corporation, limited liability
company or business trust that has total assets of at least
$5,000,000 and was not formed for the purpose of investing in
Company.
Initial
_________
The undersigned
certifies that it is an employee benefit plan whose investment
decision is made by a plan fiduciary (as defined in ERISA
§3(21)) that is a bank, savings and loan association,
insurance company or registered investment adviser.
Initial
_________
The undersigned
certifies that it is an employee benefit plan whose total assets
exceed $5,000,000 as of the date of the Purchase
Agreement.
Initial
_________
The
undersigned certifies that it is a self-directed employee benefit
plan whose investment decisions are made solely by persons who meet
either of the criteria for Individual Investors,
above.
Initial
_________
The undersigned
certifies that it is a U.S. bank, U.S. savings and loan association
or other similar U.S. institution acting in its individual or
fiduciary capacity.
Initial
_________
The undersigned
certifies that it is a broker-dealer registered pursuant to
§15 of the Securities Exchange Act of 1934.
Initial
_________
The undersigned
certifies that it is an organization described in §501(c)(3)
of the Internal Revenue Code with total assets exceeding $5,000,000
and not formed for the specific purpose of investing in
Company.
Initial
_________
The undersigned
certifies that it is a trust with total assets of at least
$5,000,000, not formed for the specific purpose of investing in
Company, and whose purchase is directed by a person with such
knowledge and experience in financial and business matters that he
is capable of evaluating the merits and risks of the prospective
investment.
Initial
_________
The undersigned
certifies that it is a plan established and maintained by a state
or its political subdivisions, or any agency or instrumentality
thereof, for the benefit of its employees, and which has total
assets in excess of $5,000,000.
Initial
_________
The undersigned
certifies that it is an insurance company as defined in
§2(a)(13) of the Securities Act of 1933, as amended, or a
registered investment company.
-31-
EXHIBIT C TO THE
FORM OF CONVERTIBLE NOTE
-32-
EXHIBIT D TO THE
FORM OF SERIES D WARRANT
-33-
EXHIBIT E TO THE
FORM OF ESCROW DEPOSIT AGREEMENT
-34-
EXHIBIT F TO THE
NOTE PURCHASE AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
-35-