SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
April 9, 2014
(Exact name of registrant as specified in charter)
(State or other Jurisdiction of Incorporation or Organization)
(Commission File Number)
(IRS Employer Identification No.)
20301 Ventura Blvd. #309, Woodland Hills, CA 91364
(Address of Principal Executive Offices and zip code)
number, including area code)
West Balboa Blvd. Suite C, Newport Beach, CA 92661
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b))
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
The information in Items 3.03 and 5.02 below are incorporated herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On April 9, 2014, DigiPath, Inc. (the “Registrant”) invested $1,000,000 in its wholly-owned subsidiary, DigiPath, Corp., a Kansas corporation, in exchange for 3,030,303 shares of DigiPath, Corp.
Item 3.02 Unregistered Sales of Equity Securities.
The information in Item 3.03 below is incorporated herein by reference.
Item 3.03 Material Modification to Rights of Security Holders.
On April 9, 2014, the Registrant entered into various Series A Convertible Preferred Stock Purchase Agreements with certain accredited investors (the “Investors”) pursuant to which the Registrant agreed to issue 6,000,000 shares, in the aggregate, of a newly formed Series A Convertible Preferred Stock (the “Series A Preferred”) in exchange for $6,000,000, in the aggregate, which consisted of money paid by investors and advances made to the Registrant by such Investors (each agreement, a “Securities Purchase Agreement” and collectively, the “Securities Purchase Agreements”). All the Securities Purchase Agreements have the same terms, whereby the shares of Series A Preferred are convertible after three months from the date of issue based on a conversion formula equal to the price per share ($1.00) divided by a conversion price equal to the lesser of (A) $0.02 and (B) seventy percent (70%) of the average of the three (3) lowest daily volume weighted average prices (“VWAPs”) occurring during the twenty (20) consecutive trading days immediately preceding the applicable conversion date on which the Holder elects to convert any shares of Series A Preferred Stock. The conversion price is further adjustable in the event of stock splits and other adjustments in the Registrant’s capitalization, and in the event of certain negative actions undertaken by the Registrant. At a conversion price equal to $0.02 per share, the Series A Preferred are convertible into 300,000,000 shares of the common stock of the Registrant . No holder is permitted to convert its shares of Series A Preferred Stock if such conversion would cause the holder to beneficially own more than 4.99% of the issued and outstanding common stock of the Registrant immediately after such conversion, unless waived by such holder by providing at least sixty-five days’ notice.
The additional terms of the Series A Preferred include the following:
|·||The shares of Series A Preferred are entitled to dividends when, as and if declared by the Board as to the shares of the common stock of the Registrant, but only with respect to the shares under the beneficial ownership limitation described above.|
|·||Upon the liquidation or dissolution of the Registrant, or any merger or sale of all or substantially all of the assets, the shares of Series A Preferred are entitled to receive, prior to any distribution to the holders of common stock, 100% of the purchase price plus all accrued but unpaid dividends.|
|·||The Series A Preferred plus all declared but unpaid dividends thereon automatically will be converted into common stock, at the then applicable conversion rate, upon the affirmative vote of 50% of the outstanding shares of Series A Preferred.|
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|·||Each share of Series A Preferred will carry a number of votes equal to the number of shares of common stock then issuable upon its conversion into common stock, e.g., only with respect to the shares under the beneficial ownership limitation described above. The Series A Preferred generally will vote together with the common stock and not as a separate class, except as provided below.|
|·||Consent of the holders of the outstanding Series A Preferred will be required in order for the Registrant to: (i) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred; (ii) authorize, create or issue shares of any class of stock having rights, preferences, privileges or powers superior to the Series A Preferred; (iii) reclassify any outstanding shares into shares having rights, preferences, privileges or powers superior to the Series A Preferred; or (iv) amend the Registrant’s Articles of Incorporation or Bylaws in a manner that adversely affects the rights of the Series A Preferred.|
|·||Holders of Series A Preferred will be entitled to unlimited “piggyback” registration rights on registrations by the Registrant, subject to pro rata cutback at any underwriter’s discretion. The registration rights may be transferred to a transferree who acquires all of the Series A Preferred.|
The issuance of the Series A Preferred to Investors was intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(2) thereof and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (“Commission”) under the Securities Act, as the Series A Preferred was issued to accredited investors, without a view to distribution and were not issued through any general solicitation or advertisement. The Series A Preferred issued to Investors may not be offered or sold in the United States unless they are registered under the Securities Act, or an exemption from the registration requirements of the Securities Act is available. No registration statement covering these securities has been filed with the Commission or with any state securities commission. A copy of the Certificate of Designations, Preferences, Rights and Limitations of the Series A Convertible Preferred Stock is attached as Exhibit 3.2 to this Current Report on Form 8-K, and is incorporated herein by reference. A copy of the form of Securities Purchase Agreement is attached as Exhibit 10.1 to this Current Report on Form 8-K, and is incorporated herein by reference.
The Registrant invested $1,000,000 of the gross proceeds received from the sale of its Series A Preferred (the “Gross Proceeds”) into DigiPath, Corp. for general working capital purposes in its existing digital pathology business. The remaining Gross Proceeds will be used to explore new lines of business associated with the research, development, licensing and operation of botanical and nutri-pharmaceutical products and services, including, without limitation, the licensing of brand name nutri-pharmaceutical products.
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Item 1.01 Entry into a Material Definitive Agreement.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.
Eric Stoppenhagen Resignation
Effective April 9, 2014, the Registrant received notice from Mr. Eric Stoppenhagen regarding his decision to resign from his position as president of the Registrant. Mr. Stoppenhagen also intends to resign from the Registrant's Board on April 20, 2014. Mr. Stoppenhagen’s decision to resign was not due to any disagreements with the Registrant on any matter relating to the Registrant’s operations, policies or practices. Effective April 9, 2014, the Registrant released Mr. Stoppenhagen from any and all employment agreements with the Registrant, including the Consulting, Confidentiality and Proprietary Rights Agreement, dated February 15, 2012.
Pursuant to the terms of the Registrant’s Bylaws, dated as of February 28, 2014, Board vacancies may be filled by majority of the directors then in office or by a sole remaining director of the Registrant. The Board intends to appoint a new director to fill the vacancy created by Mr. Stoppenhagen’s resignation.
Appointment of Todd Denkin to Board of Directors
On April 9, 2014, the Registrant’s Board, pursuant to authority granted under the Registrant’s Bylaws, increased the size of the Registrant’s Board from one seat to two seats and nominated Todd Denkin to fill the vacant seat on the Board. Mr. Denkin was unanimous written consent of the Board. Mr. Denkin shall receive no compensation as a board member.
Appointment of Todd Denkin as President
On April 9, 2014, Todd Denkin signed an At-Will employment agreement from DigiPath, Inc. (the “Denkin Employment Agreement”) to serve as president of the Registrant. Under the terms of the Denkin Employment Agreement, Mr. Denkin shall be paid an annual salary of $156,000 for his services, which DigiPath, Inc. may increase from time to time. Mr. Denkin shall also be issued 4,000,000 shares of stock which will vest quarterly over a period of one year. The shares shall be restricted from resale for a period of eighteen months. A copy of the Denkin Employment Agreement is attached as Exhibit 10.2 to this Current Report on Form 8-K, and is incorporated herein by reference. There are no familial relationships between Mr. Denkin and the Registrant.
Mr. Denkin, 50, has over 5 years in the "legal" marijuana industry. From 2009 until 2013, Mr. Denkin was a founder and director of GrowLife, Inc. Prior to joining GrowLife, Inc., Mr. Denkin was the head of the direct sales and marketing teams from 2002 through 2008 with Digital FX International, and helped build a sales organization of over 30,000 representatives. He is a 30-year veteran of the TV and film industry, working at top companies like Dick Clark Productions, Barris/Guber/Peters, Chris Bearde Productions, the Nickelodeon Network, Disney/MGM Studios and Time Warner. Mr. Denkin has been a key contributor to shows for ABC, NBC, CBS, ESPN and MTV. He was also involved in “The Australian Experience,” a film featured on The Today Show and screened at the opening ceremonies of the 2000 Olympics.
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During the past ten years, Mr. Denkin has not been the subject of the following events:
|1.||A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;|
|2.||Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);|
|3.||The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities;|
|i)||Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company,|
|ii)||Engaging in any type of business practice; or|
|iii)||Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;|
|4.||The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;|
|5.||Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;|
|6.||Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;|
|7.||Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:|
|i)||Any Federal or State securities or commodities law or regulation; or|
|ii)||Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or|
|iii)||Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or|
|8.||Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.|
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Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
Effective as of April 4, 2014, the authorized shares of the Registrant’s common stock was increased from 50,000,000 to 900,000,000 and the designations, rights and preferences of the preferred shares changed to blank check preferred. This description of the amendment is not complete and is qualified in its entirety by reference to the Amended Articles of Incorporation, a copy of which is filed as Exhibit 3.1 to this report and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
|(a)||Financial statements of business acquired. None.|
|(b)||Pro forma financial information. None.|
|(c)||Shell company transactions. Not applicable.|
|3.1||Certificate of Amendment to Articles of Incorporation|
|3.2||Certificate of Designations, Preferences, Limitations, Restrictions and Relative Rights of Convertible Preferred Stock.|
|10.1||Securities Purchase Agreement Dated April 9, 2014|
|10.2||Denkin Employment Agreement|
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: April 9, 2014
By: /s/ ERIC STOPPENHAGEN
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CERTIFICATE OF DESIGNATIONS,
PREFERENCES, RIGHTS AND LIMITATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 78.195 of the General Corporation Law
of the State of Nevada
DigiPath, Inc., a Nevada corporation (hereinafter called the “ Corporation ”), hereby certifies that, pursuant to the authority expressly vested in the Board of Directors of the Corporation by the Articles of Incorporation, as amended (the “ Articles of Incorporation ”), and in accordance with the provisions of Section 78.195 of the General Corporation Law of the State of Nevada, the Board of Directors (the “ Board ”) has duly adopted the following resolutions.
RESOLVED, that, pursuant to the Articles of Incorporation (which authorizes 10,000,000 shares of preferred stock, $0.001 par value per share (“ Preferred Stock ”)), the Board of Directors hereby fixes the powers, designations, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions, of the Series A Preferred Stock.
RESOLVED, that the Corporation is authorized to issue Series A Preferred Stock on the following terms and with the provisions herein set forth:
(1) Designation and Number of Shares . Of the 10,000,000 shares of Preferred Stock authorized pursuant to the Third Article of the Corporation's Articles of Incorporation, 6,000,000 shares are hereby designated as Series A Preferred Stock (the “ Series A Preferred Stock ”).
(2) Stated Value . Each share of Series A Preferred stock will have stated value of $0.001 per share (the “ Stated Value ”).
(3) Dividends . The Series A Preferred Stock will not be entitled to dividends unless the Corporation pays cash dividends or dividends in other property to holders of outstanding shares of Common Stock, in which event, each outstanding share of the Series A Preferred Stock will, if and only to the extent of the Beneficial Ownership Limitation and accordingly, if and only to the extent convertible into shares of common stock, $0.001 par value per share, of the Corporation (the “ Common Stock ”) pursuant to Section 6 below, be entitled to receive dividends of cash or property in an amount or value equal to the Conversion Rate multiplied by the amount paid in respect of one share of Common Stock. Any dividend payable to the Series A Preferred Stock will have the same record and payment date and terms as the dividend is payable on the Common Stock.
(4) Liquidation .
(a) Liquidation Preference . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (a “ Liquidation Event ”), subject to the rights of any other series of Preferred Stock that are in existence or may, from time to time, come into existence, the cash and other assets of the Corporation available for distribution to shareholders shall be distributed among the holders of the Series A Preferred Stock, prior to any amount being distributed to or among the holders of Common Stock, such that for each share of Series A Preferred Stock, a holder of Series A Preferred Stock shall be entitled to receive an amount equal to the Purchase Price, as adjusted for any stock dividends, combinations or splits with respect to such shares, plus all accrued but unpaid dividends on each such share, if any (the “ Liquidation Preference ”). The cash value of any remaining cash and other distributable property that is available for distribution to the holders of equity of the Corporation (after payment of the Liquidation Preference to the Series A Preferred Stock and any other liquidation preference amount to any other class of equity securities of the Corporation) shall be distributed among among all holders of Common Stock pro rata. For purposes of this Certificate of Designations, the “ Purchase Price ” for each share of Series A Preferred Stock shall be $1.00 per share.
(b) Merger; Sale . The following events shall be deemed to constitute a Liquidation Event under this Section 4 : (i) the sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Corporation, or (ii) the acquisition of the Corporation by another entity by means of merger, consolidation, share exchange, reorganization or otherwise pursuant to which shares of capital stock of the Corporation are converted into cash, securities or other property of the acquiring entity or any of its affiliates and which results in the holders of voting securities (excluding shares of the surviving entity held by holders of the capital stock of the Corporation acquired by means other than the exchange or conversion of the capital stock of the Corporation for shares of the surviving entity) of the Corporation immediately prior to such merger, consolidation, share exchange, reorganization or sale of assets beneficially owning, directly or indirectly, less than a majority of the combined voting power of the surviving entity resulting from such merger, consolidation, share exchange, reorganization or sale of assets (any of the foregoing transactions, a “ Deemed Liquidation Event ”).
(c) Valuation of Consideration . If the consideration received by the Corporation is other than cash in connection with any of the events set forth above, its value shall be deemed its fair market value as determined in good faith by the Board; provided , however , that if the consideration consists of securities, the fair market value of such securities shall be valued as follows:
(i) if traded on a securities exchange or through the NASDAQ Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) day period ending three (3) days prior to the closing;
(ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and
(iii) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board.
(d) Alternative Amount . Notwithstanding Section 4(a) above, each holder of Series A Preferred Stock shall have the right to elect the conversion benefits of the provisions of Section 6 or other applicable conversion provisions in lieu of receiving the Liquidation Preference pursuant to Section 4(a) .
(5) Redemption . The Series A Preferred Stock does not have any redemption rights.
(6) Conversion .
(a) Right to Convert . Subject to the provisions of Section 6(d) , each share of Series A Preferred Stock shall be convertible, at the option of the Holder, at any time after the three month anniversary of the date of issuance of the Series A Preferred Stock, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) the Purchase Price plus all accrued but unpaid dividends on each such share, if any, by (ii) the Conversion Price, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion (such quotient is referred to as the “ Conversion Rate ”), subject to the Conversion Minimum. The Corporation shall pay any and all transfer agent fees, legal fees, costs and any other fees or costs that may be incurred or charged in connection with the issuance of shares of Common Stock to the Holder arising out of or relating to the conversion of the Series A Preferred Stock. For purposes of this Certificate of Designations:
(i). “Conversion Price ” means the lesser of (A) $0.02 and (B) seventy percent (70%) of the average of the three (3) lowest daily VWAPs occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert any shares of Series A Preferred Stock, subject to adjustment as provided herein.
(ii). “ Conversion Minimum ” shall, unless otherwise approved in writing by the Corporation, constitute any individual conversion of Series A Preferred Stock of at least 20,000 shares of the Series A Preferred Stock.
(iii). “ Trading Day ” means a day on which the principal Primary Market is open for business;
(iv). “ VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Over the Counter Bulletin Board market (the “ Primary Market ”) and the OTCQB; (b) if the Common Stock is not then quoted for trading on the Primary Market and if prices for the Common Stock are then reported on the OTC Pink marketplace published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Corporation.
(b) Automatic Conversion . Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Rate at the time in effect immediately upon the date specified by written consent or agreement of the holders of a majority of the then outstanding Series A Preferred Stock.
(c) Mechanics of Conversion .
(i). Conversion . To convert any shares of Series A Preferred Stock into shares of Common Stock on any date (a “ Conversion Date ”), the Holder shall transmit by email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Los Angeles, CA Time, on such date, a copy of an executed notice of conversion (the “ Conversion Notice ”) to the Corporation. On or before the third (3rd) Business Day following the date of receipt of a Conversion Notice, the Corporation shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“ Rule 144 ”) and provided that the Corporation’s transfer agent is participating in the Depository Trust Company's (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC, or (B) if the Corporation’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144. If a certificate representing the shares of Series A Preferred Stock is physically surrendered for conversion and there remain shares to be converted, then the Corporation shall, upon request of the Holder, as soon as practicable and in no event later than three (3) Business Days after receipt of this conversion and at its own expense, issue and deliver to the holder a new Series A Preferred Stock certificate representing the outstanding shares not converted. The individual, corporation, partnership, limited liability company, limited liability partnership, trust, association, organization or other entity entitled to receive the shares of Common Stock issuable upon a conversion of Series A Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock upon the transmission of a Conversion Notice. For the purposes hereof, the term “ Business Day ” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.
(ii). Corporation’s Failure to Timely Convert. If within three (3) Business Days after the Corporation’s receipt of the facsimile or email copy of a Conversion Notice, the Corporation shall fail to issue and deliver to Holder the number of shares of Common Stock to which the Holder is entitled upon such Holder's conversion of any shares of Series A Preferred Stock (a “ Conversion Failure ”), the Corporation shall pay to the Holder $3,000 per day until the Corporation issues and delivers a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any shares of Series A Preferred Stock. If the Corporation fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded portion returned to shares of Series A Preferred Stock with the rescinded shares of Common Stock returned to the Corporation.
(iii). Adjustment to Conversion Price for Certain Actions . In the event of any Negative Action, as hereinafter defined, the Conversion Price shall thereafter be redefined to mean the lesser of (A) $0.02 and (B) fifty percent (50%) of the lowest trade occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert any shares of Series A Preferred Stock, subject to adjustment as provided herein. For purposes of this Certificate of Designations, “ Negative Action ” means:
(I) (1) the Corporation or any subsidiary of the Corporation shall commence, or there shall be commenced against the Corporation or any subsidiary of the Corporation under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Corporation or any subsidiary of the Corporation commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Corporation or any subsidiary of the Corporation or there is commenced against the Corporation or any subsidiary of the Corporation any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of sixty-one (61) days; or (2) the Corporation or any subsidiary of the Corporation is adjudicated insolvent or bankrupt; or (3) any order of relief or other order approving any such case or proceeding is entered; or (4) the Corporation or any subsidiary of the Corporation suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty-one (61) days; or (5) the Corporation or any subsidiary of the Corporation makes a general assignment for the benefit of creditors; or (6) the Corporation or any subsidiary of the Corporation shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; (7) or the Corporation or any subsidiary of the Corporation shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (8) the Corporation or any subsidiary of the Corporation shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or (9) any corporate or other action is taken by the Corporation or any subsidiary of the Corporation for the purpose of effecting any of the foregoing;
(II) t he Corporation or any subsidiary of the Corporation shall default in any of its obligations under any note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Corporation or any subsidiary of the Corporation in an amount exceeding $100,000, whether such indebtedness now exists or shall hereafter be created;
(III) t he Common Stock is suspended or delisted for trading on the Primary Market and the OTCQB;
(IV) t he Corporation loses its status as “DTC Eligible” for any reason; or
(V) the Corporation shall become late or delinquent in its filing requirements as a fully-reporting issuer registered with the Securities amd Exchange Commission.
(iv). Book-Entry . Notwithstanding anything to the contrary set forth herein, upon conversion of any shares of Series A Preferred Stock in accordance with the terms hereof, the Holder shall not be required to physically surrender a certificate evidencing such Series A Preferred Stock to the Corporation unless (A) all of the shares underlying a given certificate representing Series A Preferred Stock are being converted or (B) the Holder has provided the Corporation with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of another certificate representing shares of Series A Preferred Stock upon physical surrender of a certificate representing shares of Series A Preferred Stock. The Holder and the Corporation shall maintain records showing the number of shares of Series A Preferred Stock converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Corporation, so as not to require physical surrender of stock certificates upon conversion.
(d) Limitations on Conversion. The Corporation shall not effect any conversion of the Series A Preferred Stock and the Holder thereof shall not have the right to convert any shares of the Series A Preferred Stock held thereby to the extent that after giving effect to such conversion, such Holder, together with any affiliate thereof and any other person or entity acting as a group together with such Holder or any of such Holder’s affiliates, would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion (the “ Beneficial Ownership Limitation ”). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted Series A Preferred Stock then held by the given Holder or any of its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the given Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 6(d) , beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules promulgated thereunder. For purposes of this section, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Corporation’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Corporation; or (C) a more recent notice by the Corporation or the Corporation’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall within three Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. Since a Holder will not be obligated to report to the Corporation the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of the Beneficial Ownership Limitation without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of the number of shares of Series A Preferred Stock that may be convertible shall be the responsibility and obligation of the Holder. If a Holder has delivered a Conversion Notice that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the Beneficial Ownership Limitation, the Corporation shall notify the Holder of this fact and shall honor the conversion for the maximum number of shares of Series A Preferred Stock permitted to be converted on such Conversion Date in accordance with Section 6(a) and, any shares of Series A Preferred Stock tendered for conversion in excess of the Beneficial Ownership Limitation shall remain outstanding. By written notice to the Corporation, a Holder may at any time and from time to time increase or decrease the Beneficial Ownership Limitation to any other percentage specified in such notice (or specify that the Beneficial Ownership Limitation shall no longer be applicable), provided, however, that (A) any such increase (or inapplicability) shall not be effective until the sixty-fifth (65 th ) day after such notice is delivered to the Corporation, and (B) any such increase or decrease shall apply only to the given Holder and not to any other holder of Series A Preferred Stock. The provisions of this section shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this section to correct this section (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this section shall apply to a successor holder of any shares of Series A Preferred Stock.
(e) Adjustments to Conversion Rate and Reorganization . The Conversion Rate for the number of shares of Common Stock into which the Series A Preferred Stock shall be converted on a conversion shall be subject to adjustment from time to time as hereinafter set forth:
(i) Stock Dividends - Recapitalization, Reclassification, Split-Ups . If, prior to the date of a conversion, the number of outstanding shares of Common Stock is increased by a stock dividend on the Common Stock payable in shares of Common Stock or by a stock split, recapitalization or reclassification of shares of Common Stock or other similar event, then, on the effective date thereof, the Conversion Rate will be adjusted so that the number of shares of Common Stock issuable on the conversion of the Series A Preferred Stock shall be increased in proportion to such increase in outstanding shares of Common Stock.
(ii) Aggregation of Shares . If prior to the date of conversion, the number of outstanding shares of Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Common Stock or other similar event, then, upon the effective date thereof, the number of shares of Common Stock issuable on the conversion of the Series A Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock.
(iii) Change Resulting from Reorganization or Change in Par Value, etc. In case of any reclassification or reorganization of the outstanding shares of Common Stock which solely affects the par value of the shares of Common Stock, or in the case of any merger or consolidation of the Corporation with or into another corporation (other than a consolidation or merger in which the Corporation is the continuing corporation and which does not result in any reclassification or reorganization of the outstanding shares of Common Stock), or in the case of any sale or conveyance to another corporation or entity of the property of the Corporation as an entirety or substantially as an entirety in connection with which the Corporation is dissolved, the holders of the Series A Preferred Stock shall have the right thereafter (unless otherwise converted) to receive upon the conversion of the Series A Preferred Stock the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or other transfer, by a holder of the number of shares of Common Stock into which the Series A Preferred Stock is convertible immediately prior to such event; and if any reclassification also results in a change in shares of Common Stock, then such adjustment also shall be made.
(iv) Successive Changes. The provisions of this Section shall similarly apply to successive reclassifications, reorganizations, mergers or consolidations, sales or other transfers.
(7) Voting Rights . The holders of record of shares of Series A Preferred Stock shall be entitled to the following voting rights:
(a) Subject to the provisions of Section 7(d) , those voting rights required by applicable law and as provided in Section (12) hereof;
(b) Subject to the provisions of Section 7(d), the right to vote together with the holders of the Common Stock, as a single class, upon all matters submitted to holders of Common Stock for a vote. Subject to the provisions of Section 7(d) , each share of Series A Preferred Stock will carry a number of votes equal to the number of shares of Common Stock issuable in a conversion based on the then applicable Conversion Rate; and
(c) Whenever holders of Series A Preferred Stock are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken and signed by the holders of the outstanding capital stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all such shares entitled to vote thereon were present and voted. Subject to the provisions of Section 7(d) , each share of the Series A Preferred Stock shall entitle the holder thereof to one vote on all matters to be voted on by the holders of the Series A Preferred Stock, as set forth in this Section 7(c) .
(d) Limitations on Voting . Notwithstanding any portion of this Certificate of Designations to the contrary, the Corporation shall not effect any voting with respect to any shares of Series A Preferred Stock held by a Holder or its affiliates that, and the Holder thereof (or its affiliates) shall not have the right to vote any shares of the Series A Preferred Stock held thereby that, upon conversion in accordance with Section 6 , would exceed the Beneficial Ownership Limitation. The provisions of this Section may be waived by a Holder (but only as to itself and not as to any other Holder) upon not less than sixty-five (65) days’ prior notice to the Corporation. Other Holders shall be unaffected by any such waiver.
(8) No Impairment . The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this section and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series A Preferred Stock against impairment.
(9) No Fractional Shares and Certificate as to Adjustments . No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. The number of shares issuable upon conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.
(10) Notices of Record Date . In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or any other right, the Corporation shall mail to each holder of Series A Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.
(11) Notices . Any notice required by the provisions of this Certificate of Designations to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.
(12) Protective Provisions . So long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class: (i) amend, alter or repeal the preferences, privileges, special rights or other powers of the Series A Preferred Stock, as set forth herein, in a manner adverse to the holders thereof ; (ii) create, issue, or obligate itself to issue any new class or series of stock or any other equity security (including any security convertible into or exercisable for any equity security) ranking senior to the Series A Preferred Stock as to dividend rights, redemption rights, conversion rights or liquidation preferences ; (iii) reclassify any existing class or series of outstanding shares into a class or series of stock or any other equity security (including any security convertible into or exercisable for any equity security) ranking senior to, or on a parity with, the Series A Preferred Stock as to dividend rights, redemption rights, conversion rights or liquidation preferences ; or (iv) amend its Articles of Incorporation or Bylaws in any manner that adversely affects the preferences, privileges, restrictions or other rights of the holders of Series A Preferred Stock .
(13) Return of Status as Authorized Shares . Upon a conversion or any other redemption or extinguishment of the Series A Preferred Stock, the shares converted, redeemed or extinguished will be automatically returned to the status of authorized and unissued shares of Preferred Stock, available for future designation and issuance pursuant to the terms of the Articles of Incorporation.
FURTHER RESOLVED, that the statements contained in the foregoing resolutions creating and designating the said Series A Convertible Preferred Stock and fixing the number, powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the Articles of Incorporation of the Corporation pursuant to the provisions of Sections 104 and 151 of the General Corporation Law of the State of Nevada.
IN WITNESS WHEREOF , the undersigned has executed this Certificate of Designation of the Series A Convertible Preferred Stock on this 9th day of April, 2014 .
By: / s/ Eric Stoppenhagen
Name: Eric Stoppenhagen
Title: Chief Financial Officer
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this “ Agreement ”), is made as of April 9, 2014 (the “ Effective Date ”), by and among DigiPath, Inc., a Nevada corporation, (the “ Company ”), and the undersigned investor listed on the signature page and on Exhibit A attached hereto (the “ Investor ”).
WHEREAS , the Company wishes to issue and sell to the Investor and to other investors in the Company (the “ Other Investors ,” and together with the Investor, the “ A Investors ”) up to an aggregate of 6,000,000 shares (the “ Preferred Shares ”) of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “ Series A Preferred Stock ”), in exchange for money and the cancellation of certain indebtedness due and owing to the A Investors on the Effective Date, in each case, as set forth in each A Investor’s Series A Convertible Preferred Stock Purchase Agreement; and
WHEREAS , the A Investors, severally and not jointly, wish to purchase a portion of the Preferred Shares on the terms and subject to the conditions set forth in this Agreement, with respect to the Investor, and in other Series A Convertible Preferred Stock Purchase Agreements entered into by the Other Investors, each in form and substance substantially similar to this Agreement.
NOW, THEREFORE , in consideration of the premises, representations, warranties and the mutual covenants contained in this Agreement, the parties agree as follows:
|1.||Authorization and Sale of Preferred Shares|
1.1 Issuance, Sale and Delivery of the Preferred Shares at the Closing . At the Closing (as defined in Section 1.2 hereof), on the terms and subject to the conditions of this Agreement, the Company shall issue and sell to the Investor, and the Investor shall, severally and not jointly with the Other Investors, purchase from the Company, that number of Preferred Shares set forth opposite the name of the Investor under the heading “Number of Preferred Shares to be Purchased” on Exhibit A hereto, at a price of $1.00 per share for the aggregate purchase price set forth opposite the name of the Investor under the heading “Aggregate Purchase Price for Preferred Shares” on Exhibit A hereto.
1.2 Closing . The Closing shall take place at the offices of Stubbs Alderton & Markiles, LLP, 15260 Ventura Blvd., 20 th Floor, Sherman Oaks, California 91403, at such date and time as may be agreed upon between the Company and the Investor (such closing being called the “Closing” and such date and time being called the “Closing Date” ). At the Closing, the Company shall issue and deliver to the Investor a stock certificate or certificates in definitive form, registered in the name of the Investor, representing the Preferred Shares being purchased by it at the Closing. As payment in full for the Preferred Shares being purchased by it under this Agreement, and against delivery of the stock certificate or certificates therefor as aforesaid, on the Closing Date, the Investor shall deliver to the Company by such method as may be reasonably acceptable to the Company, money (wire instructions included as Exhibit C ), or a promissory note or other evidence of indebtedness for cancellation, as applicable, in the amount and as set forth opposite the name of the Investor under the heading “Aggregate Purchase Price for Preferred Shares” on Exhibit A . All amounts shall be paid to the account of the Company as shall have been designated in writing a reasonable time in advance to the Investor by the Company.
1.3 Filing of Certificate of Designations . The Company has authorized the number of Preferred Shares of Series A Preferred Stock having the rights, preferences, privileges and restrictions set forth in the Certificate of Designations, Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “ Certificate ”), which, in the form attached hereto as Exhibit B , shall be adopted and filed with the Secretary of State of the State of Nevada on or before the Closing.
1.4 Conversion Shares . Shares of Common Stock issuable upon conversion of the Preferred Shares are referred to herein as the “ Conversion Shares .” A form Notice of Conversion is included as Exhibit D .
|2.||Representations and Warranties of the Company|
The Company represents and warrants to the Investor that:
2.1 Organization and Standing; Qualifications . The Company is a corporation validly existing and in good standing under the laws of the State of Nevada. The Company has all requisite power and authority to own and operate its properties and assets, and to carry on its business as conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify could, singly or in the aggregate, have a material adverse effect on the business, assets, liabilities, financial condition or results of operations of the Company as presently conducted or proposed to be conducted.
2.2 Corporate Power . The Company has all requisite power and authority to execute and deliver this Agreement, to sell and issue the Preferred Shares hereunder, to issue the Conversion Shares and to carry out and perform its obligations under the terms of this Agreement.
2.3.1 All corporate action on the part of the Company, its officers, directors and stockholders, necessary for (i) the authorization, execution and delivery of the Agreement by the Company, (ii) the authorization, sale, issuance and delivery of the Preferred Shares and the Conversion Shares, (iii) the filing of the Certificate, and (iv) the performance of all of the Company’s obligations under the Agreement has been taken. The Agreement has been duly and validly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally.
2.3.2 The Preferred Shares, when sold, issued and delivered in compliance with the provisions of this Agreement, will be duly and validly issued, fully paid and nonassessable and shall have the rights, preferences, privileges and restrictions described in the Certificate, and shall be free of any liens, preemptive or similar rights, encumbrances or restrictions on transfer; provided, however, that the Preferred Shares may be subject to restrictions on transfer under state and/or federal securities laws. The Conversion Shares have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Certificate, will be duly and validly issued, fully paid, and nonassessable and shall be free of any liens, preemptive or similar rights, encumbrances or restrictions on transfer; provided, however, that the Conversion Shares may be subject to restrictions on transfer under state and/or federal securities laws.
|3.||Representations and Warranties of the Investor|
The Investor hereby represents and warrants to the Company with respect to the purchase of the Preferred Shares to be purchased by it as follows:
3.1 Experience . The Investor acknowledges that it is able to bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Preferred Shares and the Conversion Shares and is able to bear the economic risk of its investment in the Preferred Shares and Conversion Shares for an indefinite period of time.
3.2 Disclosure of Information . The Investor further represents that it has had an opportunity to ask questions of and receive answers from the Company regarding the terms and conditions of the offering of the Preferred Shares and the business, prospects, properties and financial condition of the Company.
3.3 Investment . The Investor is acquiring the Preferred Shares and the Conversion Shares for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. It understands that the Preferred Shares have not been, and the Conversion Shares will not be, (except for specific registration rights granted to the Investors), registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Investor’s representations as expressed herein.
3.4 Accredited Investors . The Investor is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.5 Legends . It is understood that the certificates evidencing the Preferred Shares and the Conversion Shares may bear one or all of the following legends:
“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.”
Any other legend required by the securities laws of the State of Nevada.
3.6 Authorization . The execution, delivery and performance by the Investor of the Agreement has been duly authorized by all requisite action of the Investor. The Agreement, when executed and delivered by the Investor, shall constitute valid and legally binding obligations of the Investor, enforceable in accordance with their terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally.
3.7 Independent Nature of Investor’s Obligations and Rights . The obligations of the Investor under this Agreement are several and not joint with the obligations of any other purchaser of Series A Preferred Stock, and the Investor shall not be responsible in any way for the performance of the obligations of any other purchaser of Series A Preferred Stock under any other agreement executed in connection with the proposed offering. The Closing is not conditioned on the sale of shares of Series A Preferred Stock to any other purchaser. The decision of the Investor to purchase shares of Series A Preferred Stock pursuant to this Agreement has been made by the Investor independently of any other purchaser of shares of Series A Preferred Stock. Nothing contained herein or in any other agreement executed in connection with the proposed offering of shares of Series A Preferred Stock, and no action taken by any purchaser of shares of Series A Preferred Stock pursuant thereto, shall be deemed to constitute such purchasers as a partnership, an association, a joint venture, or any other kind of entity, or create a presumption that the purchasers of shares of Series A Preferred Stock are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by any other agreement executed in connection with the proposed offering of shares of Series A Preferred Stock. The Investor acknowledges that no other purchaser of shares of Series A Preferred Stock in the proposed offering has acted as agent for the Investor in connection with making its investment hereunder and that no other purchaser of shares of Series A Preferred Stock will be acting as agent of the Investor in connection with monitoring its investment in the Preferred Shares or enforcing its rights under this Agreement.
|4.||Investor’s Conditions to Closing|
The Investor’s obligation to purchase the Preferred Shares at the Closing is, at the option of the Investor, subject to the fulfillment of the following conditions on or before the Closing:
4.1 Representations and Warranties True and Correct . The representations and warranties made by the Company in Section 2 hereof shall be true and correct as of the Closing, with the same effect as if made as of the Closing.
4.2 Covenants . All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing shall have been performed or complied with.
4.3 Certificate . Prior to the Closing, the Company shall have prepared and executed the Certificate in the form set forth in Exhibit B . The Certificate shall have been filed with and accepted by the Secretary of State of the State of Nevada and shall have become effective.
|5.||Company’s Conditions to each Closing|
The Company’s obligation to sell and issue any Preferred Shares at the Closing to each Investor is, at the option of the Company, subject to the fulfillment of the following conditions as of the Closing:
5.1 Representations and Warranties True and Correct. The representations and warranties made by the Investor in Section 3 hereof shall be true and correct when made, and shall be true and correct at the Closing.
5.2 Covenants . All covenants, agreements and conditions contained in this Agreement to be performed by the Investor on or prior to the Closing shall have been performed or complied with.
5.3 Certificate . The Secretary of State of the State of Nevada shall have accepted the Certificate for filing.
5.4 Purchase Price Paid . The Investor shall have delivered to the Company the purchase price for the Preferred Shares set forth in Exhibit A hereto.
6.1 Reserve for Conversion Shares . The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Preferred Shares and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Preferred Shares from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Preferred Shares or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or governmental authority that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Preferred Shares.
6.2 Further Assurances . The Company shall cure promptly any defects in the creation and issuance of the Preferred Shares and the Conversion Shares, and in the execution and delivery of the Agreements. The Company, at its expense, shall execute and deliver promptly to the Investor upon request all such other and further documents, agreements and instruments as may be reasonably necessary to permit the Company to comply with its covenants and agreements herein, and shall make any recordings, file any notices and obtain any consents as may be necessary or appropriate in connection therewith.
6.3 Regulation D Filings . The Company shall file on a timely basis all notices of sale required to be filed with the Securities and Exchange Commission pursuant to Regulation D under the Securities Act of 1933, as amended (the “ Securities Act ”), with respect to the transactions contemplated by this Agreement.
6.4 Piggyback Registrations .
6.4.1 Right to Include Conversion Shares . Each time that the Company proposes for any reason to register any of its Common Stock under the Securities Act, either for its own account or for the account of a stockholder or stockholders, other than Registration Statements on Forms S-4 or S-8 (or similar or successor forms) (a “ Proposed Registration ”), the Company shall promptly give written notice of such Proposed Registration to all of the A Investors (which notice shall be given in no event less than ten (10) days prior to the expected filing date of the Proposed Registration) and shall offer such A Investors the right to request inclusion of any of such A Investor’s Conversion Shares in the Proposed Registration. The rights to piggyback registration may be exercised on an unlimited number of occasions.
6.4.2 Piggyback Procedure . Each A Investor shall have twenty (20) days from the date of receipt of the Company’s notice referred to in Section 6.4.1 above to deliver to the Company a written request specifying the number of Conversion Shares such A Investor intends to sell and such A Investor’s intended method of disposition. Any A Investor shall have the right to withdraw such A Investor’s request for inclusion of such A Investor’s Conversion Shares in any Proposed Registration pursuant to this Section 6.4 by giving written notice to the Company of such withdrawal; provided, however , that the Company may ignore a notice of withdrawal made within less than one full business day prior to the date the Proposed Registration is scheduled to become effective. Subject to Section 6.4.4 below, the Company shall use its reasonable best efforts to include in such Proposed Registration all such Conversion Shares so requested to be included therein; provided , however , that the Company may at any time withdraw or cease proceeding with any such Proposed Registration if it shall at the same time withdraw or cease proceeding with the registration of all other shares of Common Stock originally proposed to be registered.
6.4.3 Selection of Underwriters . The managing underwriter for any Proposed Registration that involves an underwritten public offering shall be one or more reputable nationally recognized investment banks selected by the Company.
6.4.4 Priority for Piggyback Registration .
220.127.116.11 Notwithstanding any other provision of this Section 6.4, if the managing underwriter of an underwritten public offering determines and advises the Company and the A Investors in writing that the inclusion of all Conversion Shares proposed to be included by the A Investors in the underwritten public offering would materially and adversely interfere with the successful marketing of the Company’s securities in the Proposed Registration, then the A Investors shall not be permitted to include any Conversion Shares in excess of the amount, if any, of Conversion Shares which the managing underwriter of such underwritten public offering shall reasonably and in good faith agree in writing to include in such public offering in addition to the amount of securities to be registered for the Company. The Company will be obligated to include in such Proposed Registration, as to each A Investor, only a portion of the Conversion Shares such A Investor has requested be registered equal to the ratio which such A Investor’s requested Conversion Shares bears to the total number of Conversion Shares requested to be included in such Proposed Registration by all A Investors who have requested that their Conversion Shares be included in such Registration Statement, and no party, other than the Company and the A Investors, shall be permitted to include their Conversion Shares in any such Proposed Registration unless such shares are also limited on a pro rata basis equal to the ratio which such party’s requested Conversion Shares bear to the total number of Conversion Shares requested to be included in such Proposed Registration by all A Investors who have requested that their Conversion Shares be included in such Proposed Registration. The securities to be included in a Proposed Registration initiated by the Company shall be allocated: first, to the Company; second, pari passu to the A Investors, and third, to any others requesting registration of securities of the Company.
18.104.22.168 Notwithstanding any portion of the foregoing to the contrary, in no event shall the shares to be sold by the A Investors be reduced below twenty percent (20%) of the total amount of securities included in the Proposed Registration. No stockholder of the Company shall be granted piggyback registration rights which would reduce the number of shares to be included by the A Investors in such registration without the consent of the A Investors of at least a majority of the Conversion Shares.
22.214.171.124 If as a result of the provisions of this Section 6.4, any A Investor shall not be entitled to include more than 50% of its Conversion Shares in a registration that such A Investor has requested to be so included, such A Investor may withdraw such A Investor’s request to include Conversion Shares in such Proposed Registration.
6.4.5 Underwritten Offering . In the event that the Proposed Registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request under this Section 6.4 shall specify that the Conversion Shares be included in the underwriting on the same terms and conditions as the shares, if any, otherwise being sold through the underwriters under such registration.
6.4.6 Statutory Cutback . Notwithstanding the foregoing, if the Company determines and advises the A Investors in writing that the inclusion of all securities proposed to be included by the A Investors in any Proposed Registration would materially and adversely interfere with the potential effectiveness of such Proposed Registration, whether as a result of the interpretation of Rule 415 promulgated under the Securities Act, or otherwise, then the A Investors shall not be permitted to include any securities in excess of their pro rata amount (vis-à-vis the other A Investors and all other investors as a whole), if any, of securities which the Company shall reasonably and in good faith agree in writing to include in such offering.
7.1 Closing . The Investor hereto expressly acknowledges and agrees that immediately following an applicable Closing, the Investor shall have deemed the Investor’s conditions to closing identified in Section 4 hereof to have been satisfied or waived.
7.2 Governing Law . This Agreement shall be governed in all respects by the internal laws of the State of Nevada, without giving effect to principles of conflicts of law, as applied to agreements entered into among Nevada State residents to be performed entirely within Nevada. Each party hereto irrevocably and unconditionally (i) agrees that any action, suit or claim brought hereunder must be brought in the courts of the United States in the State of Nevada or the state courts of the State of Nevada which shall serve as the exclusive jurisdiction and venue for any and all disputes arising out of and/or relating to this Agreement; (ii) consents to the jurisdiction of any such court in any such suit, action or proceeding; and (iii) waives any objection which such party may have to the laying of venue of any such suit, action or proceeding in any such court.
7.3 Successors and Assigns . Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto (including to any transferee of any Preferred Shares or Conversion Shares). 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.
7.4 Amendment . Any provision of this Agreement may be amended, waived, modified, discharged or terminated only with the written consent of the Company and the holders of a majority of the Preferred Shares, voting together as a single class. Any amendment or waiver affected in accordance with this Section 7.4 shall be binding upon the Company and each holder of any securities subject to this Agreement (including securities into which such securities are convertible) and future holders of all such securities. Each A Investor may waive his, her or its rights or the Company’s obligations with respect to its Preferred Shares hereunder without obtaining the consent of any other natural person or Person.
7.5 Notices . All notices required or permitted hereunder shall be in writing and shall be deemed effectively given (a) upon personal delivery to the party to be notified, (b) five (5) days after deposit in the United States mail, by registered or certified mail, postage prepaid and properly addressed to the party to be notified as set forth in the Company records, or (c) when received if transmitted by telecopy (to be followed by U.S. mail), electronic or digital transmission method. In each case notice shall be sent to the addresses set forth on the Company’s records or at such other address as a party may designate by ten (10) days’ advance written notice to the other parties hereto.
7.6 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one and the same instrument.
7.7 Severability . In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
7.8 Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
7.9 Survival of Agreement . All covenants and agreements made in this Agreement shall survive the execution and delivery hereof and the issuance, sale and delivery of the Preferred Shares, and the issuance and delivery of the Conversion Shares. For the avoidance of doubt, the representations and warranties made in this Agreement shall not survive the execution and delivery hereof.
7.10 Intentionally Omitted
7.11 Attorneys' Fees . If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
7.12 Facsimile/PDF Signatures . This Agreement may be executed and delivered by facsimile or PDF and, upon such delivery, the facsimile or PDF will be deemed to have the same effect as if the original signature had been delivered to the other party. The failure to deliver the original signature copy and/or the nonreceipt of the original signature copy shall have no effect upon the binding and enforceable nature of this Agreement.
7.13 Entire Agreement . This Agreement, together with the Exhibits hereto, the certificates, documents, instruments and writings that are delivered pursuant hereto and each of the other Agreements, constitutes the entire agreement and understanding of the parties hereto in respect of its subject matters and supersedes all prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they relate in any way to the subject matter hereof or the transactions contemplated hereby.
[Signature Pages Follow]
Company Signature Page to Series A Convertible Preferred Stock Purchase Agreement
IN WITNESS WHEREOF , the parties have executed this Series A Convertible Preferred Stock Purchase Agreement on the day and year first set forth above.
/s/ Eric Stoppenhagen
Title: Chief Financial Officer
Investor Signature Page to Series A Convertible Preferred Stock Purchase Agreement
(Print Name of Investor)
( See attached )
Certificate of Designations, Preferences,
Rights and Limitations
of Series A Convertible Preferred Stock
NOTICE OF CONVERSION
The undersigned hereby elects to convert Series A Convertible Preferred Stock (the “ Shares ”) of DigiPath, Inc., a Nevada corporation (the “ Company ”), into shares of common stock (“ Common Stock ”) of the Company according to the conditions hereof, as of the date written below.
By the delivery of this Notice of Conversion, the undersigned represents and warrants to the Company that (check one):
________ its ownership of the Common Stock does not exceed the amounts specified under Section 6(d) of the Certificate of Designations for Class A Preferred Stock, as determined in accordance with Section 13(d) of the Exchange Act.
________ immediately prior to giving effect to this Notice of Conversion, it owns more than 4.99% of the outstanding shares of Common Stock, as determined in accordance with Section 3(c) of the Note.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock pursuant to any prospectus.
|Conversion calculations: Date to Effect Conversion:|
|Shares to be Converted:|
|Number of shares of Common Stock to be issued:|
|Address for Delivery of Common Stock Certificates:|
THIS AGREEMENT ("Agreement") is made and entered into on April 9, 2014, between DIGIPATH INC. , hereinafter referred to as “The Company” or "Employer", and Todd Denkin , hereinafter referred to as "Employee".
WHEREAS , the Employer desires to obtain the services of President on its own behalf and on behalf of all future Affiliated Companies (defined as any corporation or other business entity or entities that directly or indirectly controls, is controlled by, or is under common control with the Company); and
WHEREAS, the Employee desires to accept employment with Employer as the President (President), on the terms and conditions set forth herein.
THEREFORE , in consideration of the mutual promises, terms and conditions set forth herein, and at the performance of each, the parties hereto agree to be legally bound as follows:
|(i)||The Company shall pay Employee $13,000 per month.|
|(ii)||Bonus. Employee shall receive 4,000,000 shares of the Company’s common stock (“Shares”). The Shares shall vest quarterly over one year. The Employee shall not be able to sell these shares for a period of eighteen (18) months.|
|(iii)||Expenses. The Company shall reimburse Employee for all reasonable out-of-pocket expenses actually incurred by Employee and accounted for and evidenced in accordance with the standard policies, practices or procedures regarding expense reimbursement that the Company may establish from time to time. In addition to the foregoing, employer will reimburse employee for any and all necessary, customary, and usual expenses incurred by him while traveling for and on behalf of the employer pursuant to employer's directions.|
|5.||Employee's loyalty to employer's interests. Employee shall devote all of his time, attention, knowledge, and skill solely and exclusively to the business and interests of employer, and employer shall be entitled to all benefits, emoluments, profits, or other issues arising from or incident to any and all work, services, and advice of employee. Employee expressly agrees that during the term hereof he will not be interested, directly or indirectly, in any form, fashion, or manner, as partner, officer, director, stockholder, advisor, employee, or in any other form or capacity, in any other business similar to employer's business or any allied trade, except that nothing herein contained shall be deemed to prevent or limit the right of employee to invest any of his surplus funds in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything herein contained by deemed to prevent employee from investing or limit employee's right to invest his surplus funds in real estate.|
|6.||Confidential Information . Employee acknowledges that the information, observations and data obtained by or available to Employee during the course of employment with the Company concerning the business and affairs of the Company are and will be the property of the Company. Therefore, Employee agrees, during the Employment Period and following the termination of Employee's employment for any reason whatsoever, not to disclose or induce or assist in the use or disclosure, to any person or entity, or use for the account of any person or entity other than the Company, any such information, observations or data including, without limitation, any business secrets or methods, processes, professional techniques, marketing plans, strategies, and revenue information all of which are of great value to the Company. In the event Employee's employment with the Company is terminated for any reason whatsoever, Employee will promptly return and surrender to the Company any and all Confidential Information made available to Employee by the Company or otherwise in the possession of Employee in the course of employment with the Company.|
7. Option to terminate on permanent disability of employee
|(i)||Notwithstanding anything in this Contract to the contrary, employer is hereby given the option to terminate this Agreement in the event that during the term hereof employee shall become permanently disabled, as the term "permanently disabled" is hereinafter fixed and defined.|
|(ii)||Such option shall be exercised by employer giving notice to employee by registered mail, addressed to him in care of employer at the above stated address, or at such other address as employee shall designate in writing, of its intention to terminate this Agreement on the last day of the month during which such notice is mailed. On the giving of such notice this Agreement and the term hereof shall cease and come to an end on the last day of the month in which the notice is mailed, with the same force and effect as if such last day of the month were the date originally set forth as the termination date.|
|(iii)||For purposes of this Contract, employee shall be deemed to have become permanently disabled if, during any year of the term hereof, because of ill health, physical or mental disability, or for other causes beyond his control, he shall have been continuously unable or unwilling or have failed to perform his duties hereunder for thirty consecutive days, or if, during any year of the term hereof, he shall have been unable or unwilling or have failed to perform his duties for a total period of thirty days, whether consecutive or not.|
|8.||Discontinuance of business as termination of employment. Anything herein contained to the contrary notwithstanding, in the event that employer shall discontinue operations at the premises mentioned above, then this Agreement shall cease and terminate as of the last day of the month in which operations cease with the same force and effect as if such last day of the month were originally set forth as the termination date hereof.|
9. Employee's commitments binding on employer only on written consent. Employee shall not have the right to make any contracts or other commitments for or on behalf of employer within the written consent of Employer.
10. Contract terms to be exclusive . This written Agreement contains the sole and entire Agreement between the parties, and supersedes any and all other Contracts between them. The parties acknowledge and agree that neither of them has made any representation with respect to the subject matter of this Agreement or any representations inducing the execution and delivery hereof except such representations as are specifically set forth herein, and each party acknowledges that he or it has relied on his or its own judgment in entering into the Agreement. The parties further acknowledge that any statements or representations that may have heretofore been made by either of them to the other are void and of no effect and that neither of them has relied thereon in connection with his or its dealings with the other.
11. Waiver or modification ineffective unless in writing . No waiver or modification of this Agreement or of any covenant, condition, or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith. Furthermore, no evidence of any waiver or modification shall be offered or received in evidence in any proceeding, arbitration, or litigation between the parties arising out of or affecting this Contract, or the rights or obligations of any party hereunder, unless such waiver or modification is in writing, duly executed as aforesaid. The provisions of this paragraph may not be waived except as herein set forth.
12. Governing Law . This Agreement and performance hereunder and all suits and special proceedings hereunder shall be construed in accordance with the laws of Nevada, U.S.A.
13. Ability to Enter Into Agreement . Each party represents and warrants to the other party that this Agreement has been duly authorized, executed and delivered and that the performance of its obligations under this Agreement does not conflict with any order, law, rule or regulation or any agreement or understanding by which such party is bound.
14. Entire Agreement . This Agreement is supersedes all prior employment or other agreements, negotiations and understandings of any kind with respect to the subject matter of this Agreement and contains all of the terms and provisions of this Agreement between the parties hereto with respect to such subject matter. Any representation, promise or condition. Whether written or oral, not specifically incorporated herein, shall have no binding effect upon the parties.
IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the date first written above.
By: /s/ Eric Stoppenhagen
Name: Eric Stoppenhagen
Title: President & CEO
Name: Todd Denkin