UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): December 28, 2018 (December 20, 2018)

 

SMAAASH ENTERTAINMENT INC.

(Exact name of registrant as specified in its charter)

 

Delaware   001-38188   82-1231127
(State or other jurisdiction of
incorporation or organization)
  (Commission File Number)   (I.R.S. Employer
Identification Number)

 

1345 Avenue of the Americas, 15th Floor

New York, New York

  10105
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (212) 878-3684

 

 

(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 to the 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 under the Exchange Act (17 CFR 240.14a-12)

 

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))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Share Exchange Agreement

 

On December 21, 2018, Smaaash Entertainment Inc. (the “Company”) entered into a share exchange agreement (the “Share Exchange Agreement”) by and among the Company, Simplicity Esports LLC, a Florida limited liability company (“Simplicity”), each of the equity holders of Simplicity (“Simplicity Owners”) and Jed Kaplan, in the capacity as the representative of the Simplicity Owners (the “Representative”). Pursuant to the Share Exchange Agreement, among other things, the Simplicity Owners will transfer all the issued and outstanding equity interests of Simplicity to the Company in exchange for newly issued shares of common stock of the Company (the “Acquisition”).

 

Acquisition Consideration

 

The Simplicity Owners will receive an aggregate of 300,000 shares of common stock (“Initial Payment”) at the closing of the Acquisition (the “Closing”) and an additional aggregate of 700,000 shares of common stock on January 7, 2019 (“Second Payment,” and collectively with the First Payment, the “Closing Consideration”). The Simplicity Owners are also entitled to additional payments (“Contingent, “Consideration,’ collectively with the Closing Consideration, the “Consideration”) consisting of (i) an additional aggregate of 500,000 shares of common stock once Simplicity has at least two fully operational gaming centers in the United States, (ii) an additional aggregate of 750,000 shares of common stock if at any point within five years of the Closing, the Company’s market capitalization equals at least $20 million; and (iii) an additional aggregate of 750,000 shares of common stock if at any point within five years of the Closing, the Company’s market capitalization equals at least $50 million (each of the additional payments, the “Contingent Payment” and each of the payment conditions, the “Payment Condition”). In the event the Closing occurs but the Second Payment is not made, or any of Payment Condition is met but the corresponding Contingent Payment is not made, or the Company fails to obtain the stockholder approval of the Consideration by September 30, 2019, the Company will return to the Representative or his designees (i) the names “Simplicity”, “Simplicity Esports, LLC” and “Simplicity Esports,” (ii) all tradenames and trademarks owned by Simplicity as of immediately prior to the Closing; (iii) all social media accounts owned, controlled or utilized by Simplicity as of immediately prior to the Closing; and (iv) all title, right and interest of the Company and Simplicity in and to each of the foregoing.

 

At Closing, Simplicity shall have at least $50,000 (the “Minimum Closing Cash Amount”) available in cash in a bank account. In addition, there will be a post-closing adjustment based on the net working capital of Simplicity on the date of Closing. At Closing, the Company will also assume a lease agreement of Simplicity and provide a guarantee for the obligations of Simplicity thereunder.

 

Representations and Warranties

 

The Share Exchange Agreement contains customary representations and warranties by each of the Company, Simplicity, and the Simplicity Owners. Many of the representations and warranties are qualified by materiality or material adverse effect. The representations and warranties made by the parties survive the Closing through and until the 18 month anniversary of the closing date.

 

Covenants of the Parties

 

The Share Exchange Agreement contains certain customary covenants by each of the parties during the period between the signing of the Share Exchange Agreement and the earlier of the Closing or the termination of the Share Exchange Agreement (the “Interim Period”) in accordance with its terms. Each party has agreed to use its commercially reasonable efforts to consummate the transactions contemplated by the Share Exchange Agreement in the most expeditious manner practicable.

 

The parties have agreed that at the Closing, Jed Kaplan will be added to the board of directors of the Company and will be entitled to remain on the board for a period of two years following the Closing. All the directors, officers, managers and the like of Simplicity will resign and be replaced by designees of the Company except that Steve Grossman will remain as the President of Simplicity.

 

 

 

 

The Company has agreed, during the Interim Period, not to terminate or amend any of the terms and conditions of its agreements with Maxim Group LLC, the underwriter of the Company’s initial public offering, Smaaash Entertainment Private Limited, an Indian private company, K2 Principal Fund L.P. or Polar Asset Management Partners Inc. in each case without the written consent of Simplicity and the Representative, which consent Simplicity or the Representative may each give or withhold in their respective sole discretion. Each of Simplicity and the Representative may terminate the Share Exchange Agreement upon any termination or amendment of the aforementioned agreements without their respective written consent.

 

Each of the Simplicity Owners has agreed that, subject to certain limited exceptions, during the period commencing from the date of receipt of shares of the Company’s common stock and ending on the one year anniversary of the date of issuance of the applicable shares of the Company’s common stock, such Simplicity Owners will be subject to lock-up provisions.

 

At the Closing, a voting agreement will be delivered pursuant to which certain officers and directors of the Company that own shares of the Company’s common stock agree to vote such shares affirmatively to approve the issuance of the Consideration.

 

The Company will use its best efforts to obtain the stockholder approval of the issuance of the Consideration as soon as possible after the Company’s market capitalization is $25 million or more. At Closing, Simplicity will retain $10,000 in cash in its accounts (separate from the Minimum Closing Cash Amount), to be used by the Company to pay for the costs of obtaining stockholder approval of the Consideration.

 

Closing Conditions

 

Consummation of the Share Exchange Agreement and the Acquisition is subject to the satisfaction of certain conditions, including (i) the representations and warranties of the Company being true on and as of the date of the Share Exchange Agreement and the closing date; (ii) performance of all the Company’s obligations and compliance with all agreements and covenants of the Company under the Share Exchange Agreement in all material aspects; (iii) there having been no material adverse effect to the Company and (iv) delivery of an officer’s certificate and secretary’s certificate, a certificate of good standing for the Company, and copies of the Company executed voting agreements and employment agreements.

 

Unless waived by the Company, the obligations of the Company to consummate the transactions contemplated by the Share Exchange Agreement, in addition to the conditions described above, are subject to the satisfaction of certain conditions, including (i) the representations and warranties of Simplicity and Simplicity Owners being true on and as of the date of the Share Exchange Agreement and the closing date; (ii) performance of all the obligations and compliance with all agreements and covenants of Simplicity and Simplicity Owners under the Share Exchange Agreement in all material aspects; (iii) there having been no material adverse effect to Simplicity; (iv) delivery of an officer’s certificate and secretary’s certificate, a certificate of good standing for Simplicity, and copies of the voting agreements and employment agreements executed by the counterparties other than the Company; and (v) the receipt from each Simplicity Owner of a form of assignment of the equity interests of Simplicity to the Company and other documents and executed instruments in respect of the contemplated transfer.

 

Termination

 

The Share Exchange Agreement may be terminated (i) by mutual written consent of the Company, Simplicity and Simplicity Owners; (ii) by written notice by either the Company or Simplicity if any of the closing conditions has not been satisfied or waived by December 31, 2018 or if any government authority has issued an non-appealable order or taken any other action permanently prohibiting the transactions contemplated by the Share Exchange Agreement; (iii) for a breach by the other party of its representations, warranties or covenants such that the related Closing condition would not be met or for a material adverse effect on the other party which is uncured and continuing. If the Share Exchange Agreement is terminated, all further obligations of the parties under the Share Exchange Agreement will terminate and will be of no further force and effect (except that certain obligations related to public announcements, confidentiality, effect of termination, and certain general provisions will continue in effect), and no party will have any further liability to any other party thereto except for liability for any willful breach of the Share Exchange Agreement prior to such termination.

 

 

 

 

 Amendment to the Share Exchange Agreement

 

On December 28, 2018, the Company, Simplicity, Simplicity Owners and the Representative entered into an amendment to the Share Exchange Agreement, which amended the lock-up period for the shares of the Company’s common stock held by each of the Simplicity Owners from one year to six months.

 

The summary of the Share Exchange Agreement and the amendment to the Share Exchange Agreement is qualified in its entirety by reference to the text of the agreements, copies of which are included as Exhibits 10.1 and 10.2 to this report and are incorporated herein by reference.

 

Securities Exchange Agreement

 

On December 20, 2018, the Company entered into a securities exchange agreement (“Exchange Agreement”) with Maxim Group LLC (the “Holder”). Pursuant to the terms of the Exchange Agreement, the Holder agreed to surrender and exchange an outstanding demand secured promissory note with a principal amount of $1,800,000 (including accrued interest) (the “Original Note”). In exchange, the Company issued to the Holder a Series A-1 Exchange Convertible Note in the principal amount of $500,000 (the “Series A-1 Note”) and a Series A-2 Exchange Convertible Note in the principal amount of $1,000,000 (the “Series A-2 Note,” and collectively with Series A-1 Note, the “Exchange Notes”).

 

Exchange Notes

 

The Series A-1 Note bears interest at 2.67% per annum, payable quarterly and has a maturity date of the earlier of the closing date of the Acquisition or June 20, 2020 (the “Maturity Date”). The Company may pay the interest in cash or at its sole discretion, in shares of its common stock or a combination of cash and common stock. However, the Company may only pay the interest in shares of its common stock if (i) all the equity conditions specified in the note (“Equity Conditions”) have been met (unless waived by the Holder in writing) during the 20 trading days immediately prior to the interest payment date (“Interest Notice Period”), (ii) the Company has provided proper notice pursuant to the terms of the note and (iii) the Company has delivered to the Holder’s account certain number of shares of its common stock to be applied against such interest payment prior to (but no more than five trading days before) the Interest Notice Period.

 

The Series A-1 Note is convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $1.93 per share, subject to adjustment for any stock dividends and splits, rights offerings, distributions, combinations or similar transactions. Upon the closing of the Acquisition, the conversion price will be automatically adjusted to equal the arithmetic average of the volume weighted average price (“VWAP”) of the Company’s common stock in the five trading days prior to the closing date of the Acquisition. The Holder may convert the Series A-1 Note at any time, in whole or in part, provided that upon receipt of a notice of conversion from the Holder, the Company has the right to repay all or any portion of the Series A-1 Note included in the notice of conversion.

 

Additionally, the Series A-1 Note will automatically convert into shares of the Company’s common stock on the earlier of the Maturity Date or the closing date of the Acquisition provided that (i) no event of default then exists, and (ii) solely if such automatic conversion date is also the Maturity Date, each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the 20 trading day period ending on the trading day immediately prior to the automatic conversation date.

 

At any time prior to the Maturity Date, the Company may also elect to redeem some or all of the outstanding principal amount for cash in an amount (the “Optional Redemption Amount”) equal to the sum of (a) 100% of the then outstanding principal amount of the note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the note (the “Optional Redemption”). The Company may only effect an Optional Redemption if each of the Equity Conditions have been met (unless waived in writing by the Holder) on each trading day during the period commencing on the date when the notice of the Optional Redemption is delivered to the date of the Optional Redemption and through and including the date payment of the Optional Redemption Amount is actually made in full.

 

Except as otherwise provided in the Series A-1 Note, including, without limitation, an Option Redemption, the Company may not prepay any portion of the principal amount of the note without the prior written consent of the Holder.

 

The Company is not permitted to convert any portion of the Series A-1 Note if doing so results in the Holder beneficially owning more than 4.99% of the outstanding common stock of the Company after giving effect to such conversion, provided that on 61 days’ prior written notice from the Holder to the Company, that percentage may increase to 9.99%. However, if there is an automatic conversion, and the conversion would result in the Company issuing a number of shares in excess of the beneficial ownership limitation, then any such shares in excess of the beneficial ownership limitation will be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the beneficial ownership limitation, at which time or times the Holder will be issued such shares to the same extent as if there had been no such limitation. 

 

The Series A-1 Note contains restrictive covenants which, among other things, restrict the Company’s ability to repay or repurchase any indebtedness, make distributions on or repurchase its common stock or enter into transactions with its affiliates.

 

The Series A-2 Note has terms substantially similar to those of the Series A-1 Note except that the Series A-2 Note has a maturity date of June 20, 2020 and an initial conversion price of $1.93 which will be automatically adjusted to the lower of (i) the conversion price then in effect and (ii) the greater of the arithmetic average of the VWAP of the Company’s common stock in the five trading days prior to the notice of conversion and $0.50.

 

In the event that the Acquisition has not closed on or before January 31, 2019, the Exchange Notes will be exchanged for a Demand Secured Promissory Note with an aggregate outstanding principal amount of $1,800,000 in the same form as the Original Note (and with such accrued and unpaid interest as if the exchange never occurred) and the Exchange Notes will automatically, and without any further action of the Holder, be of no further force and effect.

 

 

 

  

Registration Rights Agreement

 

In connection with the exchange of the notes, the Company entered into a registration rights agreement (“Registration Rights Agreement”) with the Holder. Under the Registration Rights Agreement, the Company is obligated to file a registration statement on Form S-3 (except if the Company is then ineligible to register such shares for resale on Form S-3, in which case such registration will be on such other form available to the Company) (the “Registration Statement”) with the Securities and Exchange Commission (“SEC”) registering the resale of all of the shares of common stock issuable upon conversion or otherwise pursuant to the terms of the Exchange Notes (the “Registrable Securities”) under the Securities Act of 1933, as amended (the “Securities Act”), within 60 days following the date of the Registration Rights Agreement. In addition, the Company is obligated to have the Registration Statement declared effective by the SEC by the date that is the120 th calendar day after the date of the Registration Rights Agreement (or, in the event of a “full review” by the Commission, the 150 th calendar

day following the date of the Registration Rights Agreement). In the event that (i) the Registration Statement is not filed or declared effective within the foregoing time frames, or if thereafter, (ii) the Company fails to file an acceleration request for the Registration Statement or a pre-effective amendment or otherwise respond in writing to the SEC’s comments within the timeframes specified in the Registration Rights Agreement, or (iii) the Registration Statement is not effective for any reason or the prospectus contained therein is not available for use by the holders, the Company will pay to each holder an amount in cash equal to 1% of such holder’s outstanding principal amount of the Exchange Notes on the date of such failure and thereafter on every monthly anniversary thereof, subject to a maximum aggregate amount of 5% of the outstanding principal amount of the Exchange Notes until such failure is cured or no longer prevents the holders from freely disposing of their Registrable Securities.

 

Lock-Up Agreement

 

The Holder and the Company also entered into a lock-up agreement (“Lock-Up Agreement”). Under the Lock-Up Agreement, the Holder has agreed not to, during the period commencing from the date of the Lock-Up Agreement until 180 days following the closing date of the Acquisition, offer, sell, contract to sell, hypothecate, pledge, or otherwise dispose of or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition of the Conversion Shares, provided that, the Holder is not prohibited from selling any other shares of the Company’s common stock other than the Conversion Shares.

 

The summary of the Exchange Agreement, Series A-1 Note, Series A-2 Note, Registration Rights Agreement and Lock-Up Agreement is qualified in its entirety by reference to the text of such agreements, copies of which are included as Exhibits 10.3, 10.4, 10.5, 10.6 and 10.7, respectively, to this report and are incorporated herein by reference.

 

Item 3.02 Unregistered Sales of Equity Securities.

 

The disclosures set forth in Item 1.01 above are hereby incorporated by reference into this Item 3.02. The Exchange Notes were offered and sold in reliance upon the exemption from registration pursuant to Section 3(a)(9) under the Securities Act.

 

 

 

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit No. Description
10.1 Share Exchange Agreement, dated December 21, 2018, by and among Smaaash Entertainment Inc., Simplicity Esports LLC, Jed Kaplan and each of the equity holders of Simplicity Esports LLC
10.2 Amendment No. 1 to Share Exchange Agreement, dated December 28, 2018, by and among Smaaash Entertainment Inc., Simplicity Esports LLC, Jed Kaplan and each of the equity holders of Simplicity Esports LLC
10.3 Securities Exchange Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC
10.4 Series A-1 Exchange Convertible Note
10.5 Series A-2 Exchange Convertible Note
10.6 Registration Rights Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC
10.7 Lock-Up Agreement, dated December 20, 2018, by and between Smaaash Entertainment Inc. and Maxim Group LLC

 

 

 

 

SIGNATURE

 

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.

 

Dated: December 28, 2018

 

  SMAAASH ENTERTAINMENT INC.
     
  By: /s/ F. Jacob Cherian
    Name: F. Jacob Cherian
    Title: Chief Executive Officer

 

 

 

Exhibit 10.1

 

EXECUTION VERSION

 

 

 

SHARE EXCHANGE AGREEMENT

 

by and among

 

SMAAASH ENTERTAINMENT INC.,
as Purchaser,

 

JED KAPLAN,
as the Owners’ Representative,

 

SIMPLICITY ESPORTS, LLC,
as the Company,

 

and

 

THE EQUITYHOLDERS OF THE COMPANY,

as Company Owners

 

Dated as of December 21, 2018

 

 

 

 

 

 

TABLE OF CONTENTS:

 

ARTICLE I. THE SHARE EXCHANGE 1
   
1.1. Purchase and Sale of Company Interests 1
1.2 Consideration 1
1.3 Failure to Pay 2
1.4 Post-Closing Cash Payment 2
1.5. Employment Agreements 3
1.6. Company Owner Consents 3
1.7. Further Actions 4
1.8. Surrender of Company Securities and Disbursement of Consideration 4
   
ARTICLE II. CLOSING 4
   
2.1. Closing 4
2.2. Esports Center 4
   
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 5
   
3.1. Organization and Qualification 5
3.2. Authorization; Corporate Documentation 5
3.3. Capitalization 5
3.4. Non-Contravention 6
3.5. Indebtedness 6
3.6 Absence of Liabilities 6
3.7 . . Title to and Sufficiency of Assets 6
3.8. Real Property 6
3.9. Personal Property 6
3.10. Intellectual Property 6
3.11. Compliance with Laws 8
3.12. Permits 9
3.13 Litigation 9
3.14. Contracts 9
3.15. Tax Matters 11
3.16. Employees and Labor Matters 11
3.17. Benefit Plans 12
3.18. Insurance 12
3.19. Transactions with Related Persons 13
3.20. Bank Accounts 13
3.21. No Brokers 13
3.22. Full Disclosure 13
3.23. Reliance 13
3.24. No Other Representations and Warranties 13
   
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF COMPANY OWNERS 14
   
4.1. Organization and Authorization 14
4.2. Title to Company Interest 14
4.3. Non-Contravention 14
4.4. Litigation 14
4.5. Investment Representations 15
4.6. No Brokers 15
4.7 No Other Representations and Warranties 15
   
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 16
   
5.1. Organization and Qualification 16

 

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5.2. Authorization 16
5.3. Non-Contravention 16
5.4. Capitalization 16
5.5. SEC Filings; Financial Statements 17
5.6. Compliance with Laws 17
5.7. No Brokers 17
5.8. Litigation 17
5.9. Absence of Certain Changes or Events 18
5.10. Full Disclosure 19
5.11. No Other Representations and Warranties 19
   
ARTICLE VI. COVENANTS 19
   
6.1. Conduct of Business of the Company 19
6.2. Conduct of Business by the Purchaser 21
6.3. Purchase Board of Directors 21
6.4. Further Assurances 21
6.5. Confidentiality 21
6.6. Publicity 22
6.7. Litigation Support 22
6.8. Lock-Up 22
6.9. Access to Information 23
6.10. Reasonable Efforts 24
6.11. Agreement Regarding Intellectual Property 24
6.12. Release and Covenant Not to Sue 25
6.13. Financial Statements 25
6.14. Voting Agreement 25
6.15. Return of Name 25
6.16. Purchaser Shareholder Approval 25
6.17. Trust Accounts 25
   
ARTICLE VII. INDEMNIFICATION 26
   
7.1. Survival 26
7.2. Indemnification 26
7.3. Payment 27
7.4. Limitations and General Indemnification Provisions 27
7.5. Indemnification Procedures 27
7.6. Exclusive Remedy 29
7.7. Time Limit 29
   
ARTICLE VIII. CLOSING CONDITIONS 29
   
8.1. Conditions of Each Party’s Obligations 29
8.2. Conditions to Obligations of the Company Owners 30
8.3. Conditions to Obligations of the Purchaser 31
8.4. Closing Deliveries 31
8.5. Frustration of Conditions 32
   
ARTICLE IX. TERMINATION AND EXPENSES 32
   
9.1. Termination 32
9.2. Effect of Termination 33
   
ARTICLE X. GENERAL PROVISIONS 33
   
10.1. Notices 33
10.2. Fees and Expenses 34

 

2

 

 

10.3. Severability 34
10.4. Assignment 34
10.5. No Third-Party Beneficiaries 35
10.6. Amendment; Waiver 35
10.7. Entire Agreement 35
10.8. Remedies 35
10.9. Dispute Resolution 35
10.10. Governing Law; Jurisdiction 36
10.11. Waiver of Jury Trial 36
10.12. Interpretation 36
10.13. Specific Performance; Attorney’s Fees 37
10.14. Counterparts 37
10.15. Owners’ Representative 37

 

EXHIBITS:

 

A           Definitions

B           List of Company Owners and Pro-Rata Share

 

3

 

 

SHARE EXCHANGE AGREEMENT

 

This SHARE EXCHANGE AGREEMENT (this “ Agreement ”), is made and entered into as of December 21, 2018, by and among (i) SMAAASH ENTERTAINMENT INC., a Delaware corporation (“ Purchaser ”), (ii) SIMPLICITY ESPORTS, LLC, a Florida limited liability company (the “ Company ”), (iii) each of the equity holders of the Company as named on Exhibit B hereto (the “ Company Owners ”), and (iv) Jed Kaplan in the capacity as the representative for the Company Owners in accordance with the terms and conditions of this Agreement (the “ Owners’ Representative ”).

 

RECITALS

 

WHEREAS , the Company Owners own all of the issued and outstanding equity securities of the Company;

 

WHEREAS , Purchaser desires to purchase from the Company Owners all of the issued and outstanding equity interests of the Company in exchange for newly issued shares of Purchaser Common Stock, subject to the terms and conditions set forth herein;

 

WHEREAS , the board of directors of the Purchaser has (i) determined that this Agreement and the transactions contemplated hereby are fair, advisable and in the best interests of its shareholders and (ii) approved this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth herein; and

 

WHEREAS , certain capitalized terms used herein are defined in Exhibit A attached hereto;

 

NOW, THEREFORE , in consideration of the premises set forth above and the respective representations, warranties, covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:

 

ARTICLE I
THE SHARE EXCHANGE

 

1.1.            Purchase and Sale of Purchased Interests . At the Closing and subject to and upon the terms and conditions of this Agreement, the Company Owners shall sell, transfer, convey, assign and deliver to Purchaser, and Purchaser shall purchase, acquire and accept from the Company Owners, all of the issued and outstanding equity interests of the Company (collectively, the “ Purchased Interests ”), free and clear of all Liens (other than those imposed by applicable securities Laws and those incurred by Purchaser).

 

1.2.            Consideration . As consideration for the Purchased Interests, Purchaser shall deliver newly issued shares of Purchaser Common Stock to the Company Owners as follows:

 

(a)            At the Closing, Purchaser shall deliver an aggregate of 300,000 shares of Purchaser Common Stock to the Company Owners (the “ Initial Payment ”), and on January 7, 2019 the Purchaser shall deliver an additional aggregate of 700,000 shares of Purchaser Common Stock to the Company Owners (the “ Second Payment ” and, together with the Initial Payment, the “ Closing Consideration ”);

 

(b)            Once the Company has at least two (2) fully operational gaming centers in the United States (the “ First Payment Condition ”), then the Purchaser shall deliver an additional 500,000 shares of Purchaser Common Stock to the Company Owners (the “ First Contingent Payment ”), which the Purchaser shall only be required to deliver subject to, and as soon as practical after, receipt of the Purchaser Shareholder Approval, if needed;

 

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(c)            If at any point within five years of the Closing the Purchaser Market Capitalization equals at least $20 million (the “ Second Payment Condition ”), the Company Owners shall be entitled to an additional 750,000 shares of Purchaser Common Stock, which the Purchaser shall only be required to deliver subject to, and as soon as practical after, receipt of the Purchaser Shareholder Approval, if needed (the “ Second Contingent Payment ”);

 

(d)            If at any point within five years of the Closing the Purchaser Market Capitalization equals at least $50 million (the “ Third Payment Condition ”), the Company Owners shall be entitled to an additional 750,000 shares of Purchaser Common Stock, which the Purchaser shall only be required to deliver subject to, and as soon as practical after, receipt of the Purchaser Shareholder Approval, if needed (the “ Third Contingent Payment ”); and

 

(e)            The Closing Consideration, First Contingent Payment, Second Contingent Payment and Third Contingent Payment are collectively referred to as the “ Consideration ”. Each Company Owner shall receive its share of the Consideration as set forth on Exhibit B attached hereto. The Parties acknowledge and agree that the proportion of the overall Consideration as to be received by each Company Owner will change as, when and if the Initial Payment, the Second Payment, the First Contingent Payment, Second Contingent Payment and Third Contingent Payment are paid, and the proportionate receipt of each Company Owner at any point in time shall be determined based on when such determination is being made and depending on which portion(s) of the Consideration have been paid at such time (at any point in time, such share being such Company Owner’s “ Pro Rata Share ”).

 

1.3.            Failure to Pay . In the event that the Closing occurs but thereafter (i) the Second Payment is not made, or (ii) the First Payment Condition is satisfied but the First Contingent Payment is not paid for any reason, including, without limitation due to the failure to obtain the Purchaser Shareholder Approval, or (iii) the Second Payment Condition is satisfied but the Second Contingent Payment is not paid for any reason, including, without limitation due to the failure to obtain the Purchaser Shareholder Approval, or (iv) the Third Payment Condition is satisfied but the Third Contingent Payment is not paid for any reason, including, without limitation due to the failure to obtain the Purchaser Shareholder Approval (the events in clauses (i) through (iv) inclusive being a “ Return Event ”), then, in the event of the occurrence of any such Return Event, the Purchaser shall return to the Owners’ Representative or his designees for no additional consideration and at the cost of the Purchaser (1) the names “Simplicity”, “Simplicity Esports, LLC” and “Simplicity Esports” and, (2) all tradenames and trademarks owned by the Company as of immediately prior to the Closing; and (3) all social media accounts owned, controlled or utilized by the Company as of immediately prior to the Closing; together with all title, right and interest of the Purchaser and the Company in and to each of the foregoing; and the Purchaser and the Company shall thereafter cease all use of the names “Simplicity”, “Simplicity Esports, LLC” and “Simplicity Esports” and all use of all of such returned assets or intellectual property.

 

1.4.            Post-Closing Cash Payment .

 

(a)              Prior to the Closing, the Company shall prepare and deliver to the Purchaser a written statement signed by the Chief Financial Officer of the Company, which sets forth the estimated amount of the Company’s Net Working Capital as of the Closing Date (the “ Estimated Closing Net Working Capital ”).

 

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(b)              Within 15 days following the Closing Date, the Purchaser shall determine the actual Net Working Capital as of the Closing, which shall be subject to the reasonable approval of the Owners’ Representative (the “ Actual Closing Net Working Capital ”). In the event that the Actual Closing Net Working Capital is in excess of the Estimated Closing Net Working Capital, then the Purchaser shall pay the amount of the Actual Closing Net Working Capital to the Company Owners based on their Pro Rata Share as shown on Exhibit B in the column thereon after payment of the Initial Payment as follows: (i) within five (5) days of determining the Actual Closing Net Working Capital, the Minimum Closing Cash Amount (defined below), and (ii) within a commercially reasonable time frame necessary to convert Company assets to additional cash, the remainder of the Actual Closing Net Working Capital (less the Minimum Closing Cash Amount already paid). In the event that the Actual Closing Net Working Capital is less than the Estimated Closing Net Working Capital, then the Purchaser shall pay the amount of the Actual Closing Net Working Capital to the Company Owners based on their Pro Rata Share, as shown on Exhibit B in the column thereon after payment of the Initial Payment, of such amount.

 

(c)              At Closing, the Company shall have at least $50,000 (the “ Minimum Closing Cash Amount ”) available in cash in a Bank Account. The Parties acknowledge and agree that the Company shall distribute all available cash in excess of the Minimum Closing Cash Amount to the Company Owners prior to the Closing.

 

(d)              Net Working Capital ” means the amount (positive or negative) equal to (i) Current Assets (including the Minimum Closing Cash Amount) minus (ii) Current Liabilities. “ Current Assets ” means any current assets of the Company as of the close of business on the Closing Date of the type required to be set forth on a balance sheet prepared in accordance with GAAP, consistently applied, including, without limitation, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash. “ Current Liabilities ” means any current Liabilities and obligations of the Company as of the close of business on the Closing Date of the type required to be set forth on a balance sheet prepared in accordance with GAAP, consistently applied including, without limitation, (i) any Liabilities and obligations of the Company that are required to be accrued pursuant to the terms of this Agreement, and (ii) Liabilities contingent upon the consummation of, or arising in connection with, the transactions contemplated by this Agreement and incurred on or prior to the anticipated Closing, (and any estimates thereof).

 

1.5.            Employment Agreements . At Closing, (i) the Purchaser shall enter into an employment agreement with Jed Kaplan, in form and substance reasonable acceptable to the Purchaser and Jed Kaplan, for him to serve as the Co-Chief Executive Officer of the Purchaser (the “ Kaplan Employment Agreement ”) and (ii) the Purchaser shall enter into an employment agreement with Steven Grossman, in form and substance reasonable acceptable to the Purchaser, Owners’ Representative and Steven Grossman, for him to serve as the Chief Executive Officer of the Company (the “ Grossman Employment Agreement ” and, together with the Kaplan Employment Agreement, the “ Employment Agreements ”).

 

1.6.            Company Owner Consents . Each Company Owner hereby consents to the sale of the Purchased Interests and the other transactions contemplated by this Agreement and the Ancillary Documents. Each Company Owner acknowledges and agrees that the consents set forth herein are intended and shall constitute such consent of the Company Owners as may be required pursuant to the applicable provisions of the Company’s Governing Documents, any other agreement in respect of the Company to which such Company Owner is party and all applicable Law. Each Company Owner hereby further waives any appraisal or dissenters’ rights that they might otherwise have under the Company’s Governing Documents or applicable Law.

 

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1.7.            Further Actions . If, at any time after the Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Purchaser full right, title and possession to all issued and outstanding equity interests of the Company, the officers and directors of the Purchaser are fully authorized to take, and will take, all such lawful and necessary action, so long as such action is not inconsistent with this Agreement.

 

1.8.            Surrender of Company Securities and Disbursement of Consideration .

 

(a)              The Purchaser hereby appoints its transfer agent to act as the exchange agent (the “ Exchange Agent ”) for the purpose of exchanging Purchaser Common Stock for equity interests of the Company. At the Closing, the Purchaser shall deposit, or cause to be deposited, with the Exchange Agent the Purchaser Common Stock constituting the Initial Payment and direct such shares to be disbursed to the Company Owners.

 

(b)            Each Company Owner shall be entitled to receive its share of the Consideration in respect of its equity interest in the Company as set forth on Exhibit B attached hereto with respect to each portion of the Consideration then being paid, as soon as reasonably practicable after delivery to the Exchange Agent of a form of assignment of the Purchased Interests transferring such Purchased Interests to the Purchaser as contemplated herein and such other documents as may be reasonably requested by the Exchange Agent. Until so surrendered, each Purchased Interest shall represent after the Closing for all purposes only the right to receive such portion of the Consideration as to which it is entitled.

 

ARTICLE II
CLOSING

 

2.1.            Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) will take place at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, New York, NY 10105, on the second (2 nd ) Business Day after all the conditions to the Closing as set forth in ARTICLE VIII have been satisfied, or waived by the Party for whose benefit such condition(s) exist, or on such other date as agreed to by the Purchaser and the Company (the “ Closing Date ”). The Closing may take place by conference call and facsimile (or other electronic transmission of signature pages). The Parties agree that to the extent permitted by applicable Law and GAAP, for tax and accounting purposes, the Closing will be deemed effective as of 11:59 pm (New York City time) on the Closing Date.

 

2.2.            Esports Center. The Parties acknowledge and agree that the Company is currently developing a facility located at 9070 Kimberly Bld. Unit 26, Boca Raton, Florida 33434, which is subject to a lease agreement with the landlord at such location, and which is personally guaranteed by the Owners’ Representative. At the Closing, subject to the consent of the Noteholder and the agreement of the landlord, the Purchaser shall guarantee the obligations of the Company under the lease agreement, and the personal guaranty by the Owners’ Representative shall be released with no further liability to the Owners’ Representative. In addition, the amount of the deposit and the first month’s rent related thereto equal to $9,081.28 shall be replaced by the Company at the Closing and such amount shall be disbursed to the Company Owners proportionately based on their Pro Rata Share as shown on Exhibit B in the column thereon after payment of the Initial Payment.

 

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Purchaser, other than as set forth in the Disclosure Schedules and referencing the particular section of this ARTICLE III to which the disclosure relates, as of the date hereof and as of the Closing Date, as follows:

 

3.1.            Organization and Qualification . The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Florida. The Company has full power and authority to own the assets owned by it and conduct its business as and where it is being conducted by it, and is duly licensed or qualified to do business and in good standing as a foreign entity in all jurisdictions in which its assets or the operation of its business makes such licensing or qualification necessary, except for such failures to be licensed or qualified or in good standing that individually or in the aggregate that has not and would not reasonably be expected to have a Material Adverse Effect on the Company. The Company does not have and has never had any Subsidiaries, and does not own or have any rights to acquire, directly or indirectly, any capital stock or other equity interests of any Person. Other than the name UNDERWORLD ESports, LLC, since the date of its organization, the Company has not been known by or used any corporate, fictitious or other name in the conduct of its business or in connection with the use or operation of its assets.

 

3.2.            Authorization; Corporate Documentation . The Company has full power and authority to enter into this Agreement and the Ancillary Documents to which it is or is required to be a Party and to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company, including requisite manager approval and equity holder approval of the Company. Each of this Agreement and each Ancillary Document to which the Company is or is required to be a party has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by the Enforceability Exceptions. The copies of the Governing Documents of the Company, which have been delivered to the Purchaser, are true, complete and correct copies of the Governing Documents of the Company, as amended through and in effect on the date hereof. The minute books and records of the proceedings of the Company, copies of which have been delivered to Purchaser, are true, correct and complete in all material respects.

 

3.3.            Capitalization. The equity interests of the Company set forth on Exhibit B constitute all of the equity interests of the Company issued and outstanding, as of the date hereof and as of the Closing Date. All of the issued and outstanding equity interests of the Company (i) have been duly and validly issued, (ii) are fully paid and non-assessable and (iii) were not issued in violation of any preemptive rights or rights of first refusal or first offer. There are no issued or outstanding options, warrants or other rights to subscribe for or purchase any equity interests of the Company or securities convertible into or exchangeable for, or that otherwise confer on the holder any right to acquire any equity securities of the Company, or preemptive rights or rights of first refusal or first offer with respect to the equity securities of the Company, nor are there any Contracts, commitments, understandings, arrangements or restrictions to which the Company or any equity holder is a party or bound relating to any equity securities of the Company, whether or not outstanding. Other than the limited liability company operating agreement of the Company, there are no voting trusts, proxies, shareholder agreements or any other agreements or understandings with respect to the voting of the equity securities of the Company. All of the equity securities of the Company have been granted, offered, sold and issued in compliance with all applicable corporate and securities Laws.

 

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3.4.            Non-Contravention . Neither the execution, delivery and performance of this Agreement or any Ancillary Documents by the Company, nor the consummation of the transactions contemplated hereby or thereby, will (a) violate or conflict with, any provision of the Governing Documents of the Company, (b) violate or conflict with any Law or Order to which the Company, its assets or equity interests are bound or subject, (c) with or without giving notice or the lapse of time or both, breach or conflict with, constitute or create a default under, or give rise to any right of termination, cancellation or acceleration of any obligation or result in a loss of a material benefit under, or give rise to any obligation of the Company to make any payment under, or to the increased, additional, accelerated or guaranteed rights or entitlements of any Person under, any of the terms, conditions or provisions of any Material Contract, (d) result in the imposition of a Lien on any equity interests or any assets of the Company or (e) to the Knowledge of the Company, require any filing with, or Permit, consent or approval of, or the giving of any notice to, any Governmental Authority or other Person.

 

3.5.            Indebtedness . The Company does not have any Indebtedness as of the Closing.

 

3.6.            Absence of Liabilities . Except as set forth on Schedule 3.6 , the Company is not subject to any Liabilities.

 

3.7.            Title to and Sufficiency of Assets . The Company has good and marketable title to all of its assets, free and clear of all Liens, other than Permitted Liens. The assets (including Contractual rights and Intellectual Property rights) of the Company constitute all of the assets, rights and properties that are used in the operation of the Company’s business as it is now conducted or that are used or held by the Company for use in the operation of its business, and taken together, are adequate and sufficient for the operation of the Company’s business as currently conducted. Immediately following the Closing, all of the assets of the Company will be owned, leased or available for use by the Company on terms and conditions materially similar to those under which, immediately prior to the Closing, the Company owns, leases, uses or holds available for use such assets.

 

3.8.            Real Property . The Company has provided the Purchaser with a true and complete copy of all current leases, lease guarantees, agreements and documents, including all amendments, terminations and modifications thereof or waivers thereto, relating to all premises currently leased or subleased by the Company (collectively, the “ Company Real Property Leases ”), and in the case of any oral Company Real Property Lease, a written summary of the material terms of such Company Real Property Lease. The Company Real Property Leases are valid, binding and enforceable in accordance with their terms, subject to the Enforceability Exceptions, and are in full force and effect. Schedule 3.8 hereto sets forth a complete list of all Company Real Property Leases. To the Knowledge of the Company, no event has occurred which (whether with or without notice, lapse of time or both or the happening or occurrence of any other event) would constitute a default on the part of the Company or any other party under any of the Company Real Property Leases, and the Company has not received written or oral notice of any such condition. The Company does not own or has ever owned any real property or any interest in real property.

 

3.9.            Personal Property . The Personal Property which is currently used by the Company in the operation of its business is owned or leased by the Company and is, in the aggregate, suitable for its intended use in the business of the Company.

 

3.10.          Intellectual Property .

 

(a)            Schedule 3.10(a) sets forth a true and complete list of (i) all registrations of Intellectual Property (and applications therefor) currently used in the conduct of the business of the Company as presently conducted, specifying as to each item, as applicable: (A) the nature of the item, including the title, (B) the owner of the item, (C) the jurisdictions in which the item is issued or registered or in which an application for issuance or registration has been filed and the status of each such application and (D) the issuance, registration or application numbers and dates; and (ii) all unregistered Intellectual Property used in the conduct of the business of the Company as presently conducted (clauses (i) and (ii) the “ Owned IP ”). All registered Owned IP has been duly registered with, filed in, issued by or applied for with, as the case may be, the United States Patent and Trademark Office or such other appropriate filing offices, and all such registrations, filings, issuances, applications and other actions remain valid, in full force and effect, and are current, not abandoned, and not expired.

 

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(b)            Schedule 3.10(b) sets forth a true and complete list of all Software developed in whole or in part by or on behalf of the Company, including such developed Software and databases that are operated or used by the Company on its websites or used by the Company or otherwise material to the Company’s business (collectively, “ Company Software ”). Except for “click wrapped”, “shrink wrapped” or “off-the-shelf” software that is generally available to the public for use for a license of $2,000 or less (“ Click Wrapped Software ”), the Company Software is the only Software that is used or held for use by or otherwise material to the business of the Company.

 

(c)            The Owned IP and Company Software includes all of the material Intellectual Property used in the business of the Company. The Company does not license any Intellectual Property which is material to the business of the Company. To the Knowledge of the Company, the Company’s ownership and use in the Ordinary Course of Business of the Owned IP and the Company Software do not infringe upon or misappropriate the valid Intellectual Property rights, privacy rights or right of publicity of any third party. The Company is the owner of the entire and unencumbered right, title and interest in and to each item of the Owned IP and the Company Software, and the Company is entitled to use, and is using in its business, the Owned IP and the Company Software in the Ordinary Course of Business. Each of the Owned IP and the Company Software is subsisting, valid and enforceable, subject to the Enforceability Exceptions, and has not been adjudged invalid or unenforceable in whole or in part.

 

(d)            No Actions have been asserted against the Company and are not disposed of, or are pending or, to the Knowledge of the Company, threatened against the Company: (i) based upon or challenging or seeking to deny, enjoin or restrict, in whole or in part, the use by the Company of any Owned IP and the Company Software; (ii) alleging that the Company’s products or services provided by or processes used by the Company infringe upon or misappropriate any Intellectual Property right or Software of any third party; (iii) alleging that any Intellectual Property licensed to the Company infringes upon any Intellectual Property right or Software of any third party or is being licensed or sublicensed to the Company in conflict with the terms of any license or other agreement; or (iv) challenging the Company’s ownership, or the validity or enforceability, of the Owned IP and the Company Software. To the Knowledge of the Company, no Person is engaged in any activity that infringes upon the Owned IP or the Company Software. Except for licenses granted to customers in the Ordinary Course of Business under the Company’s standard click-through terms of use licenses, the Company has not granted any license or other right currently outstanding to any third party with respect to the Owned IP or the Company Software.

 

(e)            The Company has the right to use all Software development tools, processing tools, library functions, compilers and other third party Software, source code, object code and/or documentation that is material to the Company’s business or that is required to operate or modify the Company Software.

 

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(f)             The Company has taken commercially reasonable steps to maintain the confidentiality of its Trade Secrets and other confidential Intellectual Property and, to the Knowledge of the Company, (i) there has been no misappropriation of any Trade Secrets or other confidential Intellectual Property of the Company by any current or former employee, independent contractor or agent of the Company or by any other Person; (ii) no current or former employee, independent contractor or agent of the Company has misappropriated any trade secrets of any other Person in the course of his or her performance as an employee, independent contractor or agent of the Company or has any claim to any of the Intellectual Property of the Company; and (iii) no current or former employee, independent contractor or agent of the Company is in default or breach of any term of any employment agreement, non-disclosure agreement, assignment of invention agreement, work-for-hire agreement, non-compete obligation or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of Intellectual Property.

 

(g)            To the Knowledge of the Company, the Company’s collection, storage, use, processing and dissemination of personal computer information and personally identifiable information in connection with its business has been conducted in material compliance with all applicable Laws relating to privacy, data security and data protection that are binding on the Company and all applicable privacy policies adopted by or on behalf of the Company.

 

3.11.     Compliance with Laws .

 

(a)            The Company is in material compliance with, and has complied, in all material respects with all Laws, including consumer protection Laws, and Orders applicable to the Company, its assets, employees, business, or equity securities, except to the extent that such non-compliance, individually and in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on the Company. None of the operation, activity, conduct and transactions of the Company or the ownership, operation, use or possession of its assets or the employment of its employees materially violates, or with or without the giving of notice or passage of time, or both, will materially violate, conflict with or result in a material default, right to accelerate or loss of rights under, any terms or provisions of any Law or Order to which the Company is a party or by which the Company or its assets, business, employees or equity securities may be bound or affected, except to the extent that such violations, conflicts and defaults, individually and in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on the Company. The Company has not received any written or, to the Knowledge of the Company, oral notice of any actual or alleged violation of or non-compliance with applicable Laws by the Company.

 

(b)            To the Knowledge of the Company, neither the Company, nor any of its directors, officers or any other Representative acting on behalf of the Company, is currently identified on the specially designated nationals or other blocked person list or otherwise currently subject to any U.S. sanctions administered by OFAC. Neither the Company, nor, to the Knowledge of the Company, any of its officers, directors, employees or any other Representative acting on its behalf, has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity, (ii) made any unlawful payment or offered anything of value to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns, (iii) made any other unlawful payment or (iv) violated any applicable money laundering or anti-terrorism law or regulation, nor have any of them otherwise taken any action which would reasonably cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable Law of similar effect.

 

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3.12.          Permits . There are no Permits required to be owned or possessed by the Company to own its assets or to conduct its business as now being conducted and as presently proposed to be conducted.

 

3.13.          Litigation . To the Knowledge of the Company, except as described on Schedule 3.13 , there is no (a) Action of any nature pending or threatened, or (b) Order now pending or previously rendered by a Governmental Authority, in either case of clauses (a) or (b), by or against the Company, any of its managers, officers, or equity holders or the Company’s business, assets or equity securities which would reasonably be expected to have a Material Adverse Effect on the Company. To the Knowledge of the Company, none of the Company’s current or former officers, senior management or directors have been charged with, indicted for, arrested for, or convicted of any felony or any crime involving fraud. The Company has no Action pending against any other Person.

 

3.14.         Contracts .

 

(a)          Schedule 3.14(a) contains a complete, current and correct list of all of the Contracts to which the Company is a party and which is material to the operations of the Company or under which the Company otherwise has material obligations (each a “ Material Contract ”), including:

 

(i)            any Contract or group of related Contracts which involve expenditures or receipts by the Company in excess of $2,500 and which, in each case, cannot be cancelled by the Company without penalty or without more than ninety (90) calendar days’ notice;

 

(ii)             any Contract with any of its officers, directors, employees or Affiliates (other than at-will employment arrangements with employees entered into the Ordinary Course of Business), including all non-competition, severance, and indemnification agreements;

 

(iii)            any partnership, joint venture, profit-sharing or similar agreement entered into with any Person;

 

(iv)            all Contracts relating to any merger, consolidation or other business combination with any other Person or the acquisition or disposition of any other entity or its business, its equity securities or its material assets or the sale of its business, its equity securities or its material assets outside of the Ordinary Course of Business;

 

(v)            any loan agreement, promissory note, security agreement guarantee or other document relating to Indebtedness, borrowing of money or extension of credit by or to the Company;

 

(vi)            any Contract with a term longer than one year that cannot be terminated without payment of a penalty and upon notice of sixty (60) days or less; and

 

(vii)           any Contract that is material to the Company and entered into outside the Ordinary Course of Business.

 

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(b)          True and correct copies of such Material Contracts (including any amendments, modifications or supplements thereto) have been provided to the Purchaser.

 

(c)          Except as set forth on Schedule 3.14(c) , the Company is not a party to or bound by any Contract containing any covenant (i) limiting in any respect the right of the Company to engage in any line of business, to make use of any of its Intellectual Property or compete with any Person in any line of business or in any geographic region, (ii) imposing non-solicitation restrictions on the Company, (iii) granting to the other party any exclusivity or similar provisions or rights, including any covenant by the Company that includes an organizational conflict of interest prohibition, restriction, representation, warranty or notice provision or any other restriction on future contracting, (iv) providing “most favored customers” or other preferential pricing terms for the services of the Company or its Affiliates, or (v) otherwise limiting or restricting the right of the Company to sell or distribute any Intellectual Property of the Company or to purchase or otherwise obtain any software or Intellectual Property license.

 

(d)          All of the Contracts to which the Company is a party, by which any of its properties or assets are bound, or under which the Company otherwise has material obligations are in full force and effect, and are valid, binding, and enforceable in accordance with their terms, subject to performance by the other party or parties to such Contract, except as the enforceability thereof may be limited by the Enforceability Exceptions. There exists no breach, default or violation on the part of the Company or, to the Knowledge of the Company, on the part of any other party to any such Contract nor has the Company received written or oral notice of any breach, default or violation. The Company has not received notice of an intention by any party to any such Contract that provides for a continuing obligation by any party thereto on the date hereof to terminate such Contract or amend the terms thereof, other than modifications in the Ordinary Course of Business that do not adversely affect the Company. The Company has not waived any rights under any such Contract. To the Knowledge of the Company, no event has occurred which either entitles, or would, with notice or lapse of time or both, entitle any party to any such Contract to declare breach, default or violation under any such Contract or to accelerate, or which does accelerate, the maturity of any Indebtedness of the Company under any such Contract. To the Knowledge of the Company, there is no reason to believe that any such Contract with a customer of the Company will not remain in effect after the Closing through the remainder of its term or continue to generate substantially the same or more revenue after the Closing through the remainder of its term as it currently generates.

 

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3.15.          Tax Matters . Except as set forth on Schedule 3.15 : (i) the Company has timely filed all Tax Returns required to have been filed by it; (ii) all such Tax Returns are accurate and complete in all material respects; (iii) the Company has paid all Taxes owed by it which were due and payable (whether or not shown on any Tax Return); (iv) the charges, accruals and reserves with respect to Taxes included within the financial statements of the Company are accurate; (v) the Company has complied with all applicable Laws relating to Tax; (vi) the Company is not currently the beneficiary of any extension of time within which to file any Tax Return; (vii) to the Knowledge of the Company, there is no current Action against the Company in writing by a Governmental Authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction; (viii) to the Knowledge of the Company, there are no pending or ongoing audits or assessments of the Company’s Tax Returns by a Governmental Authority; (ix) the Company has not requested or received any ruling from, or signed any binding agreement with, any Governmental Authority, that would apply to any Tax periods ending after the Closing Date; (x) to the Knowledge of the Company, there are no Liens on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax; (xi) no unpaid Tax deficiency has been asserted against or with respect to the Company by any Governmental Authority which Tax remains unpaid; (xii) the Company has collected or withheld all Taxes currently required to be collected or withheld by it, and all such Taxes have been paid to the appropriate Governmental Authorities or set aside in appropriate accounts for future payment when due; (xiii) the Company has not granted or is subject to, any waiver of the period of limitations for the assessment of Tax for any currently open taxable period; (xiv) the Company is not a party to any Tax allocation, sharing or indemnity agreement or otherwise has any potential or actual material Liability for the Taxes of another Person, whether by applicable Tax Law, as a transferee or successor or by contract, indemnity or otherwise; (xv) neither the Company nor any of its former, current or future equity holders is required to include in income any amount for an adjustment pursuant to Section 481 of the Code or the Regulations thereunder; (xvi) there is no Contract or employee benefit plan covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Company by reason of Section 280G or Section 162(m) of the Code, and no arrangement exists pursuant to which the Company or its Affiliate will be required to “gross up” or otherwise compensate any Person because of the imposition of any Tax on a payment to such Person; (xvii) the Company has not been a beneficiary of or participated in any “reportable transaction” within the meaning of Regulations Section 1.6011-4(b)(1) that was, is, or to the Knowledge of the Company will ever be, required to be disclosed under Regulations Section 1.6011-4; (xviii) no Tax Return filed by or on behalf of the Company has contained a disclosure statement under Section 6662 of the Code (or any similar provision of Law), and no Tax Return has been filed by or on behalf of the Company with respect to which the preparer of such Tax Return advised consideration of inclusion of such a disclosure, which disclosure was not made; (xix) the Company does not have a “permanent establishment” in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country, or has otherwise taken steps or conducted business operations that have materially exposed, or will materially expose, it to the taxing jurisdiction of a foreign country; (xx) the Company is in compliance with the terms and conditions of any applicable Tax exemptions, Tax agreements or Tax orders of any Taxing Authority to which it may be subject or which it may have claimed, and the transactions contemplated by this Agreement will not have any material and adverse effect on such compliance; (xxi) other than this Agreement, no written power of attorney which is currently in force has been granted by or with respect to the Company with respect to any matter relating to Taxes; and (xxii) there has not been any change in Tax accounting method by the Company and the Company has not received a ruling from, or signed an agreement with, any Taxing Authority that would reasonably be expected to have a material impact on Taxes of the Company or the equity holders of the Company following the Closing.

 

3.16.          Employees and Labor Matters .

 

(a)            Schedule 3.16(a) sets forth a complete and accurate list of all employees of the Company as of the date hereof showing for each as of that date (i) the employee’s name, job title or description, location, salary level (including any bonus, commission, deferred compensation or other remuneration payable (other than any such arrangements under which payments are at the discretion of the Company)) and (ii) any bonus, commission or other remuneration other than salary paid during the Company’ fiscal year ending December 31, 2017 or during the 2018 fiscal year prior to the date hereof. No employee is a party to a written employment agreement or contract with the Company and each is employed “at will.” The Company has paid in full to all employees all wages, salaries, commission, bonuses and other compensation due, including overtime compensation, and there are no severance payments which are or could become payable by the Company to any employee under the terms of any written or oral agreement, or commitment or any Law, custom, trade or practice.

  

(b)            Schedule 3.16(b) contains a list of all independent contractors (including consultants) currently engaged by the Company, along with the position, date of retention and rate of remuneration, most recent increase (or decrease) in remuneration and amount thereof, for each such Person. All of such independent contractors are a party to a written agreement or contract with the Company. Each such independent contractor has entered into customary covenants regarding confidentiality, non-competition and assignment of inventions and copyrights in such Person’s agreement with the Company, true and correct copies of which have been provided to the Purchaser. For the purposes of applicable Law, all independent contractors who are currently, or in the past have been, engaged by the Company are bona fide independent contractors and not employees of the Company. Each independent contractor is terminable on fewer than thirty (30) days’ notice, without any obligation of the Company to pay severance or a termination fee.

 

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(c)            The Company is in material compliance with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, other than as would not reasonably be expected to have a Material Adverse Effect on the Company. There is no unfair labor practice complaint pending or, to the Knowledge of the Company, threatened, against the Company.

 

3.17.          Benefit Plans .

 

(a)            The Company does not currently have in place, and has never had in place, any Benefit Plans, and there are no funded benefit obligations for which contributions have not been made or properly accrued and there are no unfunded benefit obligations that have not been accounted for by reserves, or otherwise properly footnoted in accordance with GAAP on the Company Financials. The Company is not nor has in the past been a member of a “controlled group” for purposes of Section 414(b), (c), (m) or (o) of the Code, nor does the Company have any Liability with respect to any collectively bargained-for plans, whether or not subject to the provisions of ERISA.

 

(b)            The consummation of the transactions contemplated by this Agreement and the Ancillary Documents will not: (i) entitle any individual to severance pay, unemployment compensation or other benefits or compensation; (ii) accelerate the time of payment or vesting, or increase the amount of any compensation due, or in respect of, any individual; or (iii) result in or satisfy a condition to the payment of compensation that would, in combination with any other payment, result in an “excess parachute payment” within the meaning of Section 280G of the Code. The Company has not incurred any Liability for any Tax imposed under Chapter 43 of the Code or civil liability under Section 502(i) or (l) of ERISA.

 

(c)            Except to the extent required by Section 4980B of the Code or similar state Law, the Company does not provide health or welfare benefits to any former or retired employee or is obligated to provide such benefits to any active employee following such employee’s retirement or other termination of employment or service.

 

3.18.          Insurance . Schedule 3.18 lists all insurance policies held by the Company relating to the Company or its business, assets, properties, managers, officers or employees, copies of which have been provided to the Purchaser. Each such insurance policy (i) is legal, valid, binding, enforceable and in full force and effect as of the date hereof, subject to the Enforceability Exceptions, and (ii) will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms immediately following the Closing, subject to the Enforceability Exceptions,. The Company is not in default with respect to its obligations under any insurance policy, nor has the Company ever been denied insurance coverage for any reason. The Company has no self-insurance or co-insurance programs. The Company has not made any claim against an insurance policy as to which the insurer is denying coverage. The Company has reported to its insurers all Actions and pending circumstances that would reasonably be expected to result in an Action. To the Knowledge of the Company, no event has occurred, and no condition or circumstance exists, that would reasonably be expected to (with or without notice or lapse of time) give rise to or serve as a basis for the denial of any such insurance claim.

 

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3.19.          Transactions with Related Persons . Except as set forth on Schedule 3.19 , Schedule 3.14 or Schedule 3.16 , no officer, manager, employee, trustee or beneficiary of the Company or any Affiliate, nor any immediate family member of any of the foregoing (whether directly or indirectly through an Affiliate of such Person) (each of the foregoing, a “ Related Person ”) is presently, or in the past has been, a party to any transaction with the Company, including any Contract or other arrangement (a) providing for the furnishing of services by (other than as officers, managers or employees of the Company), (b) providing for the rental of real or personal property from, or (c) otherwise requiring payments to (other than for services or expenses as managers, officers or employees of the Company in the Ordinary Course of Business) any Related Person or any Person in which any Related Person has an interest as an owner, officer, manager, director, trustee or partner or in which any Related Person has any direct or indirect interest. The Company does not have any outstanding Contract or other arrangement or commitment with any Related Person, and no Related Person owns any real or personal property, or right, tangible or intangible (including Intellectual Property) which is used in any Company’s business. The Company’s assets do not include any receivable or other obligation from a Related Person, and the Liabilities of the Company do not include any payable or other obligation or commitment to any Related Person.

 

3.20.         Bank Accounts . Schedule 3.20 lists the names and locations of all banks and other financial institutions with which the Company maintains an account (or at which an account is maintained to which the Company has access as to which deposits are made on behalf of the Company) (each, a “ Bank Account ”), in each case listing the type of Bank Account, the Bank Account number therefor, and the names of all Persons authorized to draw thereupon or have access thereto and lists the locations of all safe deposit boxes used by the Company. All cash in such Bank Accounts is held on demand deposit and is not subject to any restriction or limitation as to withdrawal.

 

3.21.         No Brokers . Neither the Company, nor any of its Representatives on its behalf, has employed any broker, finder or investment banker or incurred any liability for any brokerage fees, commissions, finders’ fees or similar fees in connection with the transactions contemplated by this Agreement.

 

3.22.         Full Disclosure. This Agreement does not, and any Ancillary Document will not, (i) contain any representation, warranty or information by Company that is false or misleading with respect to any material fact, or (ii) omit to state any material fact necessary in order to make the representations, warranties and information contained and to be contained herein and therein (in the light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading.

 

3.23.          Reliance . The Company acknowledges that, except for the representations and warranties of the Purchaser contained in ARTICLE V neither the Purchaser nor any other Person has made, and the Company has not relied on, any other express or implied representation or warranty by or on behalf of, or with respect to, the Purchaser or regarding the financial projections or other forward-looking statements of the Purchaser, and the Company will not make any claim with respect thereto.

 

3.24.          No Other Representations and Warranties. Except for the representations and warranties contained in this Agreement and the Ancillary Documents, the Company makes no express or implied representations or warranties, and the Company hereby disclaims any other representations and warranties, whether made orally or in writing, by or on behalf of the Company by any Person.

 

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY OWNERS

 

Each of the Company Owners, severally and not jointly and solely with respect to the Purchased Interests held by such Company Owner, represents and warrants to the Purchaser, other than as set forth in the Disclosure Schedules and referencing the particular section of this ARTICLE IV to which the disclosure relates, as of the date hereof and as of the Closing Date; as follows:

 

4.1.            Organization and Authorization . Such Company Owner, if not an individual person, is an entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation and has full power and authority to own the assets owned by it and conduct its business as and where it is being conducted by it. Such Company Owner has full power and authority to enter into this Agreement and the Ancillary Documents to which it is or is required to be a party and to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of Such Company Owner. Each of this Agreement and each Ancillary Document to which such Company Owner is or is required to be a party has been duly executed and delivered by each such Company Owner and constitutes a legal, valid and binding obligation of such Company Owner, enforceable against such Company Owner in accordance with its terms, except as the enforceability thereof may be limited by the Enforceability Exceptions.

 

4.2.            Title to Company Interests . Such Company Owner owns good, valid and marketable title to, and is the beneficial owner of, all of the issued and outstanding equity interests of the Company set forth opposite his, her or its name on Exhibit B , free and clear of any and all Liens. Such Company Owner is not a “foreign person” for purposes of Section 1445 of the Code.

 

4.3.          Non-Contravention . Neither the execution, delivery and performance of this Agreement or any Ancillary Documents by such Company Owner, nor the consummation of the transactions contemplated hereby or thereby, will (a) violate or conflict with, any provision of the Governing Documents of such Company Owner if it is not a natural person, (b) violate or conflict with any Law or Order to which such Company Owner or its assets are bound or subject, (c) with or without giving notice or the lapse of time or both, breach or conflict with, constitute or create a default under, or give rise to any right of termination, cancellation or acceleration of any obligation or result in a loss of a material benefit under, or give rise to any obligation of such Company Owner to make any payment under, or to the increased, additional, accelerated or guaranteed rights or entitlements of any Person under, any of the terms, conditions or provisions of any Contract, agreement, or other commitment to which such Company Owner is a party or by which such Company Owner or its assets may be bound, (d) result in the imposition of a Lien on any of the Purchased Interests owned by such Company Owner or (e) require any filing with, or Permit, consent or approval of, or the giving of any notice to, any Governmental Authority or other Person.

 

4.4.          Litigation . There is no Action pending or, to the Knowledge of such Company Owner, threatened, nor any Order of any Governmental Authority is outstanding, against or involving such Company Owner or any of its officers, managers, stockholders, properties, assets or businesses, whether at law or in equity, before or by any Governmental Authority, which would reasonably be expected to adversely affect the ability of such Company Owner to consummate the transactions contemplated by, and discharge its obligations under, this Agreement and the Ancillary Documents to which such Company Owner is a party.

 

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4.5.            Investment Representations . Such Company Owner is acquiring its portion of the Consideration for itself for investment purposes only, and not with a view towards any resale or distribution of such Purchaser Common Stock. Such Company Owner has carefully read and understands all of the Purchaser’s SEC Reports and all materials provided by or on behalf of Purchaser or its Representatives to such Company Owner or such Company Owner’s Representatives pertaining to an investment in Purchaser and has consulted, as such Company Owner has deemed advisable, with its own attorneys, accountants or investment advisors with respect to the investment contemplated hereby and its suitability for such Company Owner. Such Company Owner acknowledges that the shares of Purchaser Common Stock are subject to dilution for events not under the control of such Company Owner. Such Company Owner does not have any Contract with any Person to sell, transfer, or grant participations to such Person, or to any third Person, with respect to the Purchaser Common Stock. Such Company Owner has completed its independent inquiry and has relied fully upon the advice of its own legal counsel, accountant, financial and other Representatives in determining the legal, tax, financial and other consequences of this Agreement and the transactions contemplated hereby and the suitability of this Agreement and the transactions contemplated hereby for such Company Owner and its particular circumstances, and, except as set forth herein, has not relied upon any representations or advice by Purchaser or its Representatives. Such Company Owner acknowledges and agrees that, except as set forth in ARTICLE V, no representations or warranties have been made by Purchaser or any of its Representatives, and that such Company Owner has not been guaranteed or represented to by any Person, (i) any specific amount or the event of the distribution of any cash, property or other interest in Purchaser or (ii) the profitability or value of the Purchaser Common Stock in any manner whatsoever. Such Company Owner: (a) has been represented by independent counsel (or has had the opportunity to consult with independent counsel and has declined to do so); (b) has had the full right and opportunity to consult with such Company Owner’s attorneys and other advisors and has availed itself of this right and opportunity; (c) has carefully read and fully understands each of this Agreement and the Ancillary Documents in its entirety and has had it fully explained to it or him by such counsel; (d) is fully aware of the contents hereof and the meaning, intent and legal effect thereof; and (e) is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence. Such Company Owner: (x) is an “accredited investor” as defined by Rule 501 under the Securities Act and has such knowledge and experience in financial and business matters that such Company Owner is capable of evaluating the merits and risks of an investment in the Purchaser Common Stock, of making an informed investment decision with respect thereto, and has the ability and capacity to protect its interests; (y) understands that none of the shares of Purchaser Common Stock underlying the Consideration will be registered under the Securities Act on the ground that the issuance thereof is exempt under Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving any public offering and that, in the view of the SEC, the statutory basis for the exception claimed would not be present if any of the representations and warranties of the Company Owners contained in this Agreement are untrue; and (z) understands that the Purchaser has no obligation to register any such shares of Purchaser Common Stock or assist the Company Owner in obtaining an exemption from registration. Such Company Owner will not undertake any purchases of the Purchaser’s securities in contravention of applicable Laws.

 

4.6.            No Brokers . No Company Owner, and none of their respective Representatives on their respective behalf, has employed any broker, finder or investment banker or incurred any liability for any brokerage fees, commissions, finders’ fees or similar fees in connection with the transactions contemplated by this Agreement.

 

4.7.            No Other Representations and Warranties. Except for the representations and warranties contained in this Agreement and the Ancillary Documents, such Company Owner makes no express or implied representations or warranties, and such Company Owner hereby disclaims any other representations and warranties, whether made orally or in writing, by or on behalf of such Company Owner by any Person.

 

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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The Purchaser represents and warrants to the Company and to the Company Owners, other than as set forth in the Disclosure Schedules and referencing the particular section of this ARTICLE V to which the disclosure relates, as of the date hereof and as of the Closing Date; as follows:

 

5.1.            Organization and Qualification . Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Purchaser is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification or license is required, except where the failure to be so qualified or be so licensed would not have a Material Adverse Effect on Purchaser (a “ Purchaser Material Adverse Effect ”).

 

5.2.            Authorization . Purchaser has full corporate power and authority to enter into this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Documents to which Purchaser a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Purchaser and no other corporate proceedings on the part of Purchaser are necessary to authorize this Agreement, or to consummate the transactions so contemplated, except for the Purchaser Shareholder Approval with respect to the payment of the First Contingent Payment, Second Contingent Payment and Third Contingent Payment. This Agreement has been duly executed and delivered by the Purchaser. This Agreement and each Ancillary Document to which the Purchaser is a party constitutes a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as the enforceability thereof may be limited by the Enforceability Exceptions.

 

5.3.            Non-Contravention . Neither the execution and delivery of this Agreement or any Ancillary Document by the Purchaser, nor the consummation of the transactions contemplated hereby or thereby, will violate or conflict (with or without notice or the passage of time or both) or constitute a breach of, or default under (a) any provision of the Governing Documents of the Purchaser, (b) any Law or Order to which Purchaser or any of its business or assets are bound or subject or (c) any Contract or Permit to which Purchaser is a party or by which Purchaser or any of its properties may be bound or affected, other than such violations and conflicts which would not, individually or in the aggregate, reasonably be expected to have a Purchaser Material Adverse Effect. Neither the execution, delivery nor performance of this Agreement by Purchaser requires any consent, approval, license or other action by or in respect of, or registration, declaration or filing with any Governmental Authority.

 

5.4.            Capitalization . The Purchaser is authorized to issue (i) 20,000,000 shares of Purchaser Common Stock, 5,119,390 of which shares are issued and outstanding, and (ii) 1,000,000 shares of preferred stock, none of which are issued and outstanding. Purchaser has warrants issued and outstanding to acquire 5,461,500 shares of Purchaser Common Stock (the “ Purchaser Warrants ”). Pursuant to the Securities Exchange Agreement Purchaser has agreed to issue the Series A-1 Exchange Convertible Note for principal amount of $500,000 (the “ Series A-1 Note ”) and the Series A-2 Exchange Convertible Note for principal amount of $1,000,000 (the “ Series A-2 Note ,” and together with the Series A-1 Note t he “ Notes ”) to Noteholder. Subject to the terms and conditions of the Notes, the principal amount plus accrued and unpaid interest due under each of the Notes is convertible into shares of Purchaser Common Stock (i) at any time upon at the option of the Noteholder and (ii) automatically at Closing. Shares of Purchaser Common Stock may also be issued as interest payments on the Notes. Purchaser has reserved from its duly authorized capital stock the Consideration issuable pursuant to this Agreement. When issued by Purchaser to the Company Owners in accordance with the terms of this Agreement, the Consideration: (a) will be issued free and clear of all Liens except (i) those imposed by applicable securities Laws, and (ii) the rights of the Purchaser Indemnified Parties under this Agreement (including under ARTICLE VII); (b) will be validly and duly issued and fully paid and non-assessable; and (c) other than the rights of the Noteholders to receive shares of Purchaser common stock upon issuable upon conversion of the Notes, will not be subject to any preemptive or similar rights of a shareholder of Purchaser to subscribe for or purchase additional securities of Purchaser as a result of such issuance.

 

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5.5.            SEC Filings; Financial Statements .

 

(a)            The Purchaser has filed with, or otherwise transmitted to, the SEC all forms, reports, schedules, statements, certifications and other documents required by it to be filed with or otherwise transmitted to (as applicable) the SEC (such documents, the “ SEC Reports ”), and such SEC Reports are available on the SEC’s website through EDGAR. Except to the extent amended or superseded by a subsequent filing with the SEC, as of their respective dates (and if so amended or superseded, then on the date of such subsequent filing), none of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. There are no outstanding or unresolved comments in any comment letters of the staff of the SEC received by Purchaser relating to the SEC Reports. Purchaser has heretofore made available to the Company, through EDGAR, true, correct and complete copies of all SEC Reports. None of the SEC Reports is, to the Knowledge of Purchaser, the subject of ongoing SEC review.

 

(b)            The financial statements (including in all cases the notes thereto, if any) of Purchaser included in the SEC Reports (i) in all material respects, were prepared consistent with the books and records of Purchaser, (ii) in all material respects, present fairly the financial position of Purchaser as of the respective dates thereof and the results of operations and cash flows of Purchaser for the periods thereof, (iii) have been prepared in accordance with GAAP; provided that any unaudited, interim period financial statements need not include footnote disclosures and other presentation items or year-end adjustments that are required by GAAP to be included in year-end financial statements, and (iv) comply in all material respects with the applicable accounting requirements of the SEC, the Securities Act and the Exchange Act, and the rules and regulations promulgated thereunder.

 

5.6.            Compliance with Laws. Purchaser is in compliance with, and has complied, in all material respects with all Laws and Orders applicable to it, its assets, employees or business, except to the extent that such non-compliance, individually and in the aggregate, has not had and would not reasonably be expected to have a Purchaser Material Adverse Effect. None of the operation, activity, conduct and transactions of Purchaser or the ownership, operation, use or possession of its assets or the employment of its employees materially violates, or with or without the giving of notice or passage of time, or both, will materially violate, conflict with or result in a material default, right to accelerate or loss of rights under, any terms or provisions of any Law or Order to which Purchaser is a party or by which Purchaser or its assets, business or employees may be bound or affected, except to the extent that such violations, conflicts and defaults, individually and in the aggregate, have not had and would not reasonably be expected to have a Purchaser Material Adverse Effect. Purchaser has not received any written or, to the Knowledge of Purchaser, oral notice of any actual or alleged violation of or non-compliance with applicable Laws in any material respect by Purchaser, except to the extent that such violations and non-compliance, individually and in the aggregate, has not had and would not reasonably be expected to have a Purchaser Material Adverse Effect.

 

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5.7.            No Brokers. Neither Purchaser, nor any Representative of Purchaser on its behalf, has employed any broker, finder or investment banker or incurred any liability for any brokerage fees, commissions, finders’ fees or similar fees in connection with the transactions contemplated by this Agreement.

 

5.8.            Litigation. Other than as disclosed in the SEC Reports, there is no Action pending or, to the Knowledge of Purchaser, threatened, nor any Order of any Governmental Authority is outstanding, against or involving the Purchaser or any of its officers, directors, shareholders, properties, assets or businesses, whether at law or in equity, before or by any Governmental Authority, which would reasonably be expected to have a Purchaser Material Adverse Effect.

 

5.9.            Absence of Certain Changes or Events . Since the date of this Agreement until the Closing Date:

 

(a)            there has not been any material and adverse change in the business, operations, properties, assets or condition of the Purchaser;

 

(b)            the Purchaser has not (i) amended its Governing Documents except as required by this Agreement; (ii) except as set forth on Schedule 5.9(b) , declared or made, or agreed to declare or make any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are outside of the Ordinary Course of Business or material considering the business of the Purchaser; (iv) made any material change in its method of management, operation, or accounting; (v) other than the issue of the Notes pursuant to the Securities Exchange Agreement, entered into any transactions or agreements other than in the Ordinary Course of Business; (vi) made any accrual or arrangement for or payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers or directors or any of its salaried employees whose monthly compensation exceeds $5,000; or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement, made to, for or with its officers, directors, or employees;

 

(c)            the Purchaser has not (i) other than rights of the Noteholder to receive shares of Purchaser Common Stock upon conversion or redemption of the Notes and as interest payments on the Notes, granted or agreed to grant any options, warrants, or other rights for its stock, bonds, or other corporate securities calling for the issuance thereof; (ii) other than the principal amount of the Notes, borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) except liabilities incurred in the Ordinary Course of Business; (iii) other than the exchange of the Demand Secured Promissory Note for the Notes pursuant to the Securities Exchange Agreement, paid or agreed to pay any material obligations or liabilities (absolute or contingent) other than current liabilities reflected in or shown on the most recent Purchaser balance sheet and current liabilities incurred since that date in the Ordinary Course of Business and professional and other fees and expenses in connection with the preparation of this Agreement and the consummation of the transaction contemplated hereby; (iv) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights (except assets, properties, or rights not used or useful in its business which, in the aggregate have a value of less than $10,000), or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value less than $10,000); (v) made or permitted any amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of the Purchaser; or (vi) other than the shares of Purchaser Common Stock issued pursuant to the Notes, issued, delivered or agreed to issue or deliver, any stock, bonds or other corporate securities including debentures (whether authorized and unissued or held as treasury stock), except in connection with this Agreement; and

 

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(d)            to its Knowledge, the Purchaser has not become subject to any Law or regulation which materially and adversely affects, or in the future, may adversely affect, the business, operations, properties, assets or condition of the Purchaser.

 

5.10.         Full Disclosure. This Agreement does not, and any Ancillary Document will not, (i) contain any representation, warranty or information by Purchaser that is false or misleading with respect to any material fact, or (ii) omit to state any material fact necessary in order to make the representations, warranties and information contained and to be contained herein and therein (in the light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading.

 

5.11.         No Other Representations and Warranties. Except for the representations and warranties contained in this Agreement and the Ancillary Documents, the Purchaser makes no express or implied representations or warranties, and the Purchaser hereby disclaims any other representations and warranties, whether made orally or in writing, by or on behalf of the Purchaser by any Person.

 

ARTICLE VI
COVENANTS

 

6.1.            Conduct of Business of the Company .

 

(a)          Unless the Purchaser shall otherwise consent in writing (such consent not to be unreasonably withheld, conditioned or delayed), during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement in accordance with Section 9.1 or the Closing (the “ Interim Period ”), except as expressly contemplated by this Agreement, the Company shall (i) conduct its businesses, in all material respects, in the Ordinary Course of Business, (ii) comply with all Laws applicable to the Company and its businesses, assets and employees, and (iii) take all reasonable measures necessary or appropriate to preserve intact, in all material respects, its business operations and to keep available the services of its managers, officers, employees and consultants, and to preserve the possession, control and condition of its material assets, all as consistent with its Ordinary Course of Business.

 

(b)          Without limiting the generality of Section 6.1(a) and except as contemplated by the terms of this Agreement, during the Interim Period, without the prior written consent of the Purchaser (such consent not to be unreasonably withheld, conditioned or delayed), the Company shall not:

 

(i)             amend, waive or otherwise change, in any respect, its Governing Documents;

 

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(ii)             authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any of its equity securities or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any of its equity securities, or other securities, including any securities convertible into or exchangeable for any of its equity securities and any other equity-based awards, or engage in any hedging transaction with a third Person with respect to such securities;

 

(iii)            split, combine, recapitalize or reclassify any of its equity interests or issue any other securities in respect thereof or pay or set aside any dividend or other distribution (whether in cash, equity or property or any combination thereof) in respect of its equity interests, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any of its securities;

 

(iv)            incur, create, assume, prepay or otherwise become liable for any Indebtedness (directly, contingently or otherwise), make a loan or advance to or investment in any third party, or guarantee or endorse any Indebtedness, Liability or obligation of any Person;

 

(v)             increase the wages, salaries or compensation of its employees, or make or commit to make any bonus payment (whether in cash, property or securities) to any employee, or increase other benefits of employees generally;

 

(vi)            make or rescind any election relating to Taxes, settle any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, file any amended Tax Return or claim for refund, or make any material change in its accounting or Tax policies or procedures, in each case except as required by applicable Law or in compliance with GAAP;

 

(vii)           transfer or license to any Person or otherwise extend, amend or modify, permit to lapse or fail to preserve any of the Owned IP, or disclose to any Person who has not entered into a confidentiality agreement any Trade Secrets;

 

(viii)          terminate, waive or assign any right under any Material Contract or enter into any Material Contract;

 

(ix)            establish any Subsidiary or enter into any new line of business;

 

(x)             make any change in accounting methods, principles or practices, except to the extent required to comply with GAAP and after consulting with the Company’s outside auditors;

 

(xi)            waive, release, assign, settle or compromise any claim, action or proceeding (including any suit, action, claim, proceeding or investigation relating to this Agreement or the transactions contemplated hereby), or otherwise pay, discharge or satisfy any Actions, Liabilities or obligations, unless such amount has been reserved in the financial statements of the Company;

 

(xii)           acquire, including by merger, consolidation, acquisition of stock or assets, or any other form of business combination, any corporation, partnership, limited liability company, other business organization or any division thereof, or any material amount of assets outside the Ordinary Course of Business;

 

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(xiii)          make capital expenditures outside the Ordinary Course of Business;

 

(xiv)          adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;

 

(xv)           voluntarily incur any Liability or obligation (whether absolute, accrued, contingent or otherwise) other than pursuant to the terms of a material Contract or in the Ordinary Course of Business;

 

(xvi)          sell, lease, license, transfer, exchange or swap, mortgage or otherwise pledge or encumber (including securitizations), or otherwise dispose of any material portion of its properties, assets or rights;

 

(xvii)        enter into any agreement, understanding or arrangement with respect to the voting of equity securities of the Company;

 

(xviii)       enter into, amend, waive or terminate (other than terminations in accordance with their terms) any transaction with any Related Person; or

 

(xix)          authorize or agree to do any of the foregoing actions.

 

6.2.            Conduct of Business by the Purchaser. During the Interim Period, Purchaser shall not (i) amend its Governing Documents; (ii) split, combine or reclassify its outstanding shares of capital stock; or (iii) declare, set aside or pay any dividend payable in cash, stock or property in respect of any capital stock. During the Interim Period, Purchaser shall not terminate, amend, waive, modify or otherwise agree to change any of the terms and conditions of the agreements or understandings between the Purchaser and each of Maxim Group LLC, the underwriter for the Company’s initial public offering, Smaaash Entertainment Private Limited, a private limited company incorporated under the laws of India, K2 Principal Fund L.P. or Polar Asset Management Partners Inc., or any of any such party’s affiliates or related parties, from the terms and conditions of such of agreements or understandings as provided to the Company prior to the execution of this Agreement, in each case without the prior written consent of the Company and the Owners’ Representative, which consent the Company and the Owners’ Representative may each give or withhold in their respective sole discretion. Upon any such termination, amendment, waiver or modification as set forth in the immediately preceding sentence without the prior written consent of the Company and the Owners’ Representative, the Company and the Owners’ Representative shall each have the right to terminate this Agreement.

 

6.3.            Post-Closing Board of Directors and Executive Officers . As of the Closing, in connection with the completion of the purchase and sale of the Purchased Interests, (a) Jed Kaplan shall be added to the board of directors of Purchaser and he shall be entitled to remain on the board of directors of Purchaser (and be nominated by the management of Purchaser to serve on the board) for a period of 2 years following the Closing, and (b) all of the directors, officers, managers or the like of the Company shall resign and be replaced by individuals designated by the Purchaser.

 

6.4.            Further Assurances. In the event that at any time after the Closing any further action is reasonably necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as the other Parties reasonably may request to effect the same, at the sole cost and expense of the requesting Party (unless otherwise specified herein or unless such requesting Party is entitled to indemnification therefor under ARTICLE VII in which case, the costs and expense will be borne by the Parties as set forth in ARTICLE VII ).

 

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6.5.            Confidentiality. Each Party will, and will cause its Representatives to treat and hold in strict confidence any Confidential Information of the other Parties hereto received by the first Party, and will not use for any purpose (except in furtherance of the consummation of the transactions contemplated herein), nor directly or indirectly disclose, distribute, publish, disseminate or otherwise make available to any third party, any of the Confidential Information of another Party without such other Party’s prior written consent. In the event that a Party or its Representative becomes legally compelled to disclose any Confidential Information of another Party, such first Party shall provide the second Party with prompt written notice of such requirement so that the second Party may seek a protective order or other remedy or that the second Party may waive compliance with this Section 6.5 . In the event that such protective order or other remedy is not obtained, or the second Party waives compliance with this Section 6.5 , the first Party shall furnish or disclose only that portion of such Confidential Information which is legally required to be provided as advised in writing by outside counsel, shall exercise its commercially reasonable efforts to obtain assurances that confidential treatment will be accorded such Confidential Information; and shall promptly furnish to the second Party any and all copies (in whatever form or medium) of all such Confidential Information and shall cooperate with the second Party, at the second Party’s cost, with any requests by the second Party to obtain confidential treatment for any such disclosed Confidential Information.

 

6.6.            Publicity . No Party shall, and each shall cause their respective Representatives not to, disclose, make or issue, any statement or announcement concerning this Agreement or the Ancillary Documents or the transactions contemplated hereby or thereby (including the terms, conditions, status or other facts with respect thereto) to any third parties (other than its Representatives who need to know such information in connection with carrying out or facilitating the transactions contemplated hereby) without the prior written consent of each of the Purchaser and the Company (such consent not to be unreasonably withheld, delayed or conditioned), except (i) in the case of the Company or the Company Owners, as required by applicable Law after conferring with the other Parties concerning the timing and content of such required disclosure, and (ii) in the case of Purchaser, as may be required of Purchaser or its Affiliates by applicable Law (including any SEC position) or securities listing or trading requirement.

 

6.7.            Litigation Support. Following the Closing, in the event that and for so long as any Party is actively contesting or defending against any third party or Governmental Authority Action in connection with any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction that existing on or prior to the Closing Date involving the Company, each of the other Parties will (i) reasonably cooperate with the contesting or defending Party and its counsel in the contest or defense, (ii) make available its personnel at reasonable times and upon reasonable notice and (iii) provide (A) such testimony and (B) access to its non-privileged books and records as may be reasonably requested in connection with the contest or defense, at the sole cost and expense of the contesting or defending Party (unless such contesting or defending Party is entitled to indemnification therefor under ARTICLE VII in which case, the costs and expense will be borne by the Parties as set forth in ARTICLE VII ).

 

6.8.            Lock-Up .

 

(a)            Except for shares of Purchaser Common Stock transferred as an indemnification payment in accordance with Article VII, each Company Owner hereby agrees not to, without the prior written consent of Purchaser, during the period commencing from the date of receipt of shares of Purchaser Common Stock and ending on the one (1) year anniversary of the date of issuance of the applicable shares of Purchaser Common Stock: (i) lend, offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly (collectively, “ Transfer ”), any such shares of Purchaser Common Stock; (ii) enter into any swap or other arrangement that Transfers to another, in whole or in part, any of the economic consequences of ownership of any such shares of Purchaser Common Stock; or (iii) publicly disclose the intention to do any of the foregoing; whether any such transaction described in clauses (i), (ii) or (iii) above is to be settled by delivery of shares of Purchaser Common Stock or other securities, in cash or otherwise (any of the foregoing described in clauses (i), (ii), or (iii), a “ Prohibited Transfer ”). Notwithstanding the foregoing, the Transfer restrictions in this Section 6.8 shall cease upon the consummation of a liquidation, merger, share exchange or other similar transaction following the Closing that results in all of Purchaser’s shareholders having the right to exchange their equity holdings in Purchaser for cash, securities or other property.

 

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(b)            Notwithstanding Section 6.8(a) , no Company Owner may Transfer any shares of Purchaser Common Stock, and any Transfer of shares of Purchaser Common Stock in such case will be a Prohibited Transfer, (i) in the event that the aggregate amount of any indemnification claims made by the Purchaser Indemnified Parties against the Company Owners in accordance with ARTICLE VII for which such Company may be liable remain unresolved at such time (both pending claims and those that have been finally resolved, but not yet paid) exceeds the aggregate value of all the shares of Purchaser Common Stock held by the applicable Company Owner(s) at such time (valued at the Purchaser Common Stock Price) and (ii) in the event the transfer of shares of Purchaser Common Stock by a Company Owner would violate applicable holding period or other requirements of the Securities Act or the Exchange Act, as the case may be, or any SEC rules and regulations or other applicable Laws.

 

(c)            Each Company Owner further agrees to execute such agreements as may be reasonably requested by Purchaser, in form and substance reasonably satisfactory to such Company Owner, that are consistent with the foregoing or that are necessary to give further effect thereto. If any Prohibited Transfer is made or attempted contrary to the provisions of this Section 6.8, such purported Prohibited Transfer shall be null and void ab initio, and Purchaser shall refuse to recognize any such purported transferee of the shares of Purchaser Common Stock as one of its equity holders for any purpose. In order to enforce this Section 6.8 , Purchaser may impose stop-transfer instructions with respect to the shares of Purchaser Common Stock until the end of the restriction period described in Section 6.8(a).

 

6.9.            Access to Information .  During the Interim Period, each of Purchaser and Company shall afford the other and its accountants, counsel and other Representatives reasonable access during normal business hours to the properties, books, records and personnel of Purchaser and the Company, as applicable, to obtain all information concerning the business of such company, including, without limitation, the status of its product development efforts, properties, results of operations and personnel, as Purchaser and the Company may reasonably request.   No information or knowledge obtained by Purchaser and the Company during the course of any investigation conducted pursuant to this Section 6.9 shall affect or be deemed to modify in any respect any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the transactions contemplated herein.

 

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6.10.          Reasonable Efforts. Upon the terms and subject to the conditions set forth in this Agreement, each of the Parties shall use its commercially reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the sale of the Purchased Interests and the other transactions contemplated by this Agreement, including, without limitation: (i) the taking of all reasonable actions necessary to cause the conditions precedent set forth in this Agreement to be satisfied, (ii) the obtaining of all necessary actions or non-actions, waivers, consents, approvals, orders and authorizations from Governmental Authority, and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Authorities, if any), and the taking of all reasonable steps as may be necessary to avoid any suit, claim, action, investigation or proceeding by any Governmental Authority, (iii) the obtaining of all necessary consents, approvals or waivers from third parties which may be required or desirable as a result of, or in connection with, the transactions contemplated by this Agreement, (iv) the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including, without limitation, seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (v) the execution or delivery of any additional certificates, instruments and other documents necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement.  In connection with and without limiting the foregoing, each of Purchaser and the Company and its respective Board of Directors shall, if any state takeover statute or similar statute or regulation is or becomes applicable to this Agreement or any of the transactions contemplated by this Agreement, use all commercially reasonable efforts to ensure that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, none of the Purchaser on the one hand, or the Company and the Company Owners collectively on the other hand, shall (i) be required to expend more than $10,000 in order to comply with the requirements of any Governmental Authority or regulatory agency or (ii) be required to dispose of any material portion of its assets or operations, in either case in order to comply with the terms of this Section 6.10

 

6.11.          Agreement Regarding Intellectual Property . Each Company Owner has already disclosed or will disclose to the Purchaser as of the Closing any and all Intellectual Property developed by such Company Owner on behalf of the Company or relating to the business of the Company, including Intellectual Property used in the Company’s business, and Intellectual Property intended for future use in the Company’s business, and each does hereby forever and irrevocably assign, convey, transfer and grant to the Company, without further consideration, and in perpetuity, any and all right, title and interest that such Company Owner may have in and to such Intellectual Property, including any and all rights to file applications to register any such Intellectual Property anywhere in the world, any and all rights to claim any rights of priority bestowed by any domestic or foreign laws in connection with such Intellectual Property, and to sue and recover damages or any other available relief based on any claims or causes of action for past or future infringement(s) of such Intellectual Property rights. Each Company Owner represents that it has not made any assignment of, or granted any rights in any such Intellectual Property to any Person other than the Company, and has not disclosed such Intellectual Property to any third party. Upon Purchaser’s request at any time, including any time after the Closing, such Company Owner will execute and deliver to the Purchaser or the Company such other documents as Purchaser or the Company deems necessary or desirable to vest in the Company the sole ownership of and exclusive worldwide perpetual rights in and to, all of such Intellectual Property. Each Company Owner will deliver to the Company all copies or embodiments of such Intellectual Property in any media in such Company Owner’s possession at or prior to the Closing.

 

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6.12.        Release and Covenant Not to Sue .

 

(a)            Effective as of the Closing, each Company Owner hereby releases and discharges the Company and the Purchaser from and against any and all Actions, obligations, agreements, debts and Liabilities whatsoever, whether known or unknown, both at law and in equity, which such Company Owner now has, has ever had or may hereafter have against the Company arising on or prior to the Closing Date or on account of or arising out of any matter occurring on or prior to the Closing Date, including any rights to indemnification or reimbursement from the Company, whether pursuant to its Governing Documents, Contract or otherwise, and whether or not relating to claims pending on, or asserted after, the Closing Date including any distribution of the Consideration as set forth herein not being as may otherwise be required by the Governing Documents of the Company (including, without limitation, the limited liability company operating agreement of the Company); provided that such release shall not exclude Purchaser from claims relating to its obligations under this Agreement (the “ Released Claims ”). From and after the Closing, each Company Owner hereby irrevocably covenants to refrain from, directly or indirectly, asserting any Action, or commencing or causing to be commenced, any Action of any kind against the Company, the Purchaser or their respective Affiliates, based upon any Released Claim.

 

(b)              To the extent that the entering into of this Agreement and the consummation of the transactions contemplated herein would require an amendment or waiver of the Governing Documents of the Company (including, without limitation, the limited liability company operating agreement of the Company) in order to consummate the transactions contemplated herein in accordance with the terms and conditions herein, each of the Company Owners acknowledges and agrees that the Governing Documents of the Company (including, without limitation, the limited liability company operating agreement of the Company) shall be deemed so amended, or the Company Owners waive any requirements for compliance therewith, as required in order to effect this Agreement and the transactions contemplated herein in accordance with the terms and conditions herein.

 

6.13.          Financial Statements . Within sixty (60) days of the Closing, the Company shall (at Purchaser’s expense not to exceed $2,000) complete, and provide to the Purchaser copies of, (i) the balance sheet and income statement for the Company for the fiscal year ending December 31, 2017 and (ii) the interim unaudited balance sheet and income statement for the nine-month period ending September 30, 2018. It is agreed that the Purchaser will be responsible for obtaining the audit of such financial statements and that the Owners’ Representative shall assist the auditors as necessary.

 

6.14.          Voting Agreement . After execution of this Agreement, the Purchaser and the Owners’ Representative shall cooperate to finalize the terms and conditions of the Voting Agreement, which Voting Agreement shall be delivered at the Closing, pursuant to which the officers and directors of Purchaser that own shares of Purchaser Common Stock shall agree to vote such shares affirmatively in the Purchaser Shareholder Approval (the “ Voting Agreement ”).

 

6.15.          Return of Name . In the event the Purchaser does not receive the Purchaser Shareholder Approval by September 30, 2019 (unless the Purchaser Shareholder Approval is no longer required to be obtained in connection with the Purchaser’s delivery of the First Contingent Payment, Second Contingent Payment and Third Contingent Payment pursuant to Section 1.2(a) , Section 1.2(c) and Section 1.2(d) , respectively ) , then the Purchaser and the Parties shall promptly take whatever actions reasonably necessary (including changing the Company’s name), so that the name “Simplicity” and any trademarks and copyright and similar rights shall be transferred to the Owners’ Representative and the Purchaser and its Affiliates shall thereafter cease to use the name “Simplicity” in any operations.

 

6.16.          Purchaser Shareholder Approval . The Purchaser shall use its best efforts to obtain the Purchaser Shareholder Approval as soon as possible after the date that the Purchaser Market Capitalization is equal to or in excess of $25,000,000, whether by submitting the approval of the Consideration to the shareholders of Purchaser at meeting of the shareholders of Purchaser or by obtaining a written consent of shareholders of Purchaser to approve the Consideration. As of the Closing, the Company shall retain $10,000 in cash in its accounts, which shall be used by the Purchaser to pay for the costs of obtaining the Purchaser Shareholder Approval. The Parties acknowledge and agree that the $10,000 in cash as to be retained by the Company pursuant to this Section 6.16 shall not constitute a part of the Minimum Closing Cash Amount, and such amount shall be excluded from all calculations hereunder, including any calculation of Net Working Capital at Closing.

 

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6.17.          Trust Accounts . For and in consideration of the Purchaser agreeing to enter into this Agreement, the Company and each Company Owner hereby agrees that it does not have any right, title, interest or claim of any kind (“ Claim ”) in or to any monies in the trust account(s) established for the benefit of certain sellers of Purchaser Common Stock with respect to (i) that certain stock purchase agreement between Purchaser and Polar Asset Management Partners Inc. dated November 2, 2018 and (ii) that certain stock purchase agreement between Purchaser and K2 Principal Fund L.P. dated November 5, 2018 (the “ Trust Accounts ”), and the Company and each Company Owner hereby waives any Claim in or to any monies in the Trust Accounts it may have in the future as a result of, or arising out of, any breach by Purchaser of this Agreement and will not seek recourse against any such Trust Accounts for any such breach of this Agreement by the Purchaser.

 

ARTICLE VII
INDEMNIFICATION

 

7.1.            Survival . All representations and warranties of the Purchaser, the Company and the Company Owners contained in this Agreement (including all schedules and exhibits hereto and all certificates, documents, instruments and undertakings furnished pursuant to this Agreement) shall survive the Closing through and until and including the eighteen (18) month anniversary of the Closing Date (the “ Expiration Date ”). If a Claim Notice for a claim of a breach of any representation or warranty has been given before the applicable date when such representation or warranty no longer survives in accordance with this Section 7.1 , then the relevant representations and warranties shall survive as to such claim, until the claim has been finally resolved. All covenants, obligations and agreements of the Purchaser, the Company and the Company Owners contained in this Agreement (including all schedules and exhibits hereto and all certificates, documents, instruments and undertakings furnished by the Company pursuant to this Agreement), including any indemnification obligations, shall survive the Closing and continue until fully performed in accordance with their terms.

 

7.2.            Indemnification .

 

(a)              Subject to the terms and conditions of this ARTICLE VII , from and after the Closing, each Company Owner will, severally and not jointly, indemnify, defend and hold harmless the Purchaser, its Affiliates and their respective officers, directors, managers, employees, successors and permitted assigns (each, with respect to any claim made pursuant to this Agreement, a “ Purchaser Indemnified Party ”) from and against any and all losses, Actions, Orders, Liabilities, damages, Taxes, interest, penalties, Liens, amounts paid in settlement, costs and expenses (including reasonable expenses of investigation and court costs and reasonable attorneys’ fees and expenses) (any of the foregoing, a “ Loss ”) paid, suffered or incurred by, or imposed upon, any Indemnified Party to the extent arising out of or resulting from (whether or not involving a Third Party Claim): (i) the breach of any representation or warranty made by the Company set forth in this Agreement or in any certificate delivered by the Company pursuant to this Agreement; or (ii) the breach of any covenant or agreement on the part of the Company set forth in this Agreement or in any certificate delivered by the Company pursuant to this Agreement.

 

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(b)              Subject to the terms and conditions of this ARTICLE VII, from and after the Closing, each Company Owner, will, severally and not jointly, indemnify, defend and hold harmless the Purchaser Indemnified Parties from and against any and all Losses paid, suffered or incurred by, or imposed upon, any Indemnified Party to the extent arising out of or resulting from (whether or not involving a Third Party Claim): (i) the breach of any representation or warranty made by such Company Owner set forth in this Agreement or in any certificate delivered by such Company Owner or the Owners’ Representative on behalf of such Company Owner, in either case pursuant to this Agreement; or (ii) the breach of any covenant or agreement on the part of such Company Owner set forth in this Agreement or in any certificate delivered by such Company Owner or the Owners’ Representative on behalf of such Company Owner, in either case pursuant to this Agreement.

 

(c)              Subject to the terms and conditions of this ARTICLE VII , from and after the Closing, the Purchaser and its successors and assigns (each, with respect to any claim made pursuant to this Agreement, a “ Purchaser Indemnifying Party ” and together with a Company Owner, an “ Indemnifying Party ”) will jointly and severally indemnify, defend and hold harmless the Company, the Company Owners, and their respective Affiliates and officers, directors, managers, employees, successors and permitted assigns (each, with respect to any claim made pursuant to this Agreement, a “ Company Indemnified Party ” and together with the Purchaser Indemnified Party, an “ Indemnified Party ”) from and against any and all Losses paid, suffered or incurred by, or imposed upon, any Indemnified Party to the extent arising in whole or in part out of or resulting directly or indirectly from (whether or not involving a Third Party Claim): (i) the breach of any representation or warranty made by the Purchaser set forth in this Agreement or in any certificate delivered by the Purchaser pursuant to this Agreement; or (ii) the breach of any covenant or agreement on the part of the Purchaser set forth in this Agreement or in any certificate delivered by the Purchaser.

 

7.3.            Payment . Any indemnification claims by a Purchaser Indemnified Party shall be paid within five (5) Business Days after the indemnification claim is finally determined in accordance with this ARTICLE VII , solely via the applicable Company Owner(s) obligated to pay such claim(s) returning to the Purchaser a number of shares of Purchaser Common Stock equal to the dollar amount of the indemnification claim(s) to be so paid divided by the Purchaser Common Stock Price on the date of payment. Any indemnification claims by a Company Indemnified Party shall be paid by the Purchaser within five (5) Business Days after the indemnification claim is finally determined in accordance with this ARTICLE VII , in cash or, at the option of Purchaser, by issuing to the Company Indemnified Party a number of shares of Purchaser Common Stock equal to the dollar amount of the indemnification claim(s) to be so paid divided by the Purchaser Common Stock Price on the date of payment.

 

7.4.            Limitations and General Indemnification Provisions .

 

(a)              No Company Owner shall be required to indemnify the Purchaser Indemnified Parties, collectively, in any amount in excess of the number of shares of Purchaser Common Stock actually received by the applicable Company Owner. The Purchaser shall not be required to indemnify the Company Indemnified Parties, collectively, in a dollar amount in excess of the number of shares of Purchaser Common Stock actually issued by the Purchaser hereunder as Consideration pursuant to Section 1.2 multiplied by the Purchaser Common Stock Price as of the Closing Date.

 

(b)              The amount of any Losses suffered or incurred by any Indemnified Party shall be reduced by the amount of any insurance proceeds paid to the Indemnified Party or any Affiliate thereof as a reimbursement with respect to such Losses (and no right of subrogation shall accrue to any insurer hereunder, except to the extent that such waiver of subrogation would prejudice any applicable insurance coverage), net of the costs of collection and the increases in insurance premiums resulting from such Loss or insurance payment.

 

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(c)              In any claim for indemnification under this Agreement, no Person shall be required to indemnify any Person for special damages, unless such special damages are actually awarded and paid to a third party.

 

(d)              Notwithstanding anything else contained herein, no Party shall seek, nor shall any Party be liable for, consequential, exemplary damages, or punitive damages (unless actually ordered to be paid by a court of competent jurisdiction and actually paid to a third party), under any tort, contract, equity, or other legal theory, with respect to any breach (or alleged breach) of this Agreement or any provision hereof or any matter otherwise relating hereto or arising in connection herewith.

 

7.5.            Indemnification Procedures .

 

(a)              The Owners’ Representative shall have the sole right to act on behalf of the Company Owners with respect to any indemnification claims made pursuant to this ARTICLE VII , including defending and settling any claims hereunder and receiving any notices on behalf of the Indemnifying Parties.

 

(b)             In order to make a claim for indemnification hereunder, the Indemnified Party must provide written notice (a “ Claim Notice ”) of such claim to the applicable Indemnifying Parties and to the other Parties within ten (10) days of the Indemnified Party becoming aware of the basis for such claim, which Claim Notice shall include (i) a reasonable description of the facts and circumstances which relate to the subject matter of such indemnification claim to the extent then known and (ii) the amount of Losses suffered by the Indemnified Party in connection with the claim to the extent known or reasonably estimable (provided, that the Indemnified Party may thereafter in good faith adjust the amount of Losses with respect to the claim by providing a revised Claim Notice to the Indemnifying Parties and to the other Parties); provided , that the copy of any Claim Notice provided to any Party other than the Indemnifying Parties or the Owners’ Representative shall be redacted for any confidential or proprietary information of the Indemnifying Party or the Indemnified Party described in clause (i).

 

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(c)              In the case of any claim for indemnification under this ARTICLE VII arising from a claim of a third party (including any Governmental Authority) (a “ Third Party Claim ”), the Indemnified Party must give a Claim Notice with respect to such Third Party Claim to the Owners’ Representative or the Purchaser, as the case may be, promptly (but in no event later than ten (10) days) after the Indemnified Party’s receipt of notice of such Third Party Claim; provided , that the failure to give such notice will not relieve the Indemnifying Party of its indemnification obligations except to the extent that the defense of such Third Party Claim is materially and irrevocably prejudiced by the failure to give such notice. The Indemnifying Party will have the right to defend and to direct the defense against any such Third Party Claim, at its expense and with counsel selected by the Indemnifying Party, unless (i) the Indemnifying Party fails to acknowledge fully to the Indemnified Party the obligations of the Indemnifying Party to the Indemnified Party within twenty (20) days after receiving notice of such Third Party Claim or contests, in whole or in part, its indemnification obligations therefor or (ii) at any time while such Third Party Claim is pending, (A) there is a conflict of interest between the Indemnifying Party and the Indemnified Party in the conduct of such defense, or (B) such claim is criminal in nature, could reasonably be expected to lead to criminal proceedings, or seeks an injunction or other equitable relief against the Indemnified Party. If the Indemnifying Party elects, and is entitled, to compromise or defend such Third Party Claim, it will within twenty (20) days (or sooner, if the nature of the Third Party Claim so requires) notify the Indemnified Party of its intent to do so, and the Indemnified Party will, at the request and expense of Indemnifying Party, cooperate in the defense of such Third Party Claim. If the Indemnifying Party elects not to, or at any time is not entitled under this Section 7.5 to, compromise or defend such Third Party Claim, fails to notify the Indemnified Party of its election as herein provided or refuses to acknowledge or contests its obligation to indemnify under this Agreement, the Indemnified Party may pay, compromise or defend such Third Party Claim. Notwithstanding anything to the contrary contained herein, the Indemnifying Party will have no indemnification obligations with respect to any such Third Party Claim which is settled by the Indemnified Party without the prior written consent of the Indemnifying Party (which consent will not be unreasonably withheld, delayed or conditioned); provided , however , that notwithstanding the foregoing, the Indemnified Party will not be required to refrain from paying any Third Party Claim which has matured by a final, non-appealable Order, nor will it be required to refrain from paying any Third Party Claim where the delay in paying such claim would result in the foreclosure of a Lien upon any of the property or assets then held by the Indemnified Party or where any delay in payment would cause the Indemnified Party material economic loss. The Indemnifying Party’s right to direct the defense will include the right to compromise or enter into an agreement settling any Third Party Claim; provided , that no such compromise or settlement will obligate the Indemnified Party to agree to any settlement that requires the taking or restriction of any action (including the payment of money and competition restrictions) by the Indemnified Party other than the execution of a release for such Third Party Claim and/or agreeing to be subject to customary confidentiality obligations in connection therewith, except with the prior written consent of the Indemnified Party (such consent to be withheld, conditioned or delayed only for a good faith reason). Notwithstanding the Indemnifying Party’s right to compromise or settle in accordance with the immediately preceding sentence, the Indemnifying Party may not settle or compromise any Third Party Claim over the objection of the Indemnified Party; provided , however , that consent by the Indemnified Party to settlement or compromise will not be unreasonably withheld, delayed or conditioned. The Indemnified Party will have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party’s right to direct the defense.

 

(d)              With respect to any direct indemnification claim that is not a Third Party Claim, the Indemnifying Party will have a period of ten (10) days after receipt of the Claim Notice to respond thereto. If the Indemnifying Party does not respond within such ten (10) days, the Indemnifying Party will be deemed to have accepted responsibility for the Losses set forth in such Claim Notice subject to the limitations on indemnification set forth in this ARTICLE VII and will have no further right to contest the validity of such Claim Notice. If the Owners’ Representative on behalf of the Indemnifying Party responds within such ten (10) days after the receipt of the Claim Notice and rejects such claim in whole or in part, the Indemnified Party will be free to pursue such remedies as may be available under this Agreement (subject to Section 10.9) , any Ancillary Documents or applicable Law.

 

7.6.            Exclusive Remedy . From and after the Closing, except with respect to claims seeking injunctions or specific performance, or claims under the terms of the Letters of Transmittal or other Ancillary Documents, indemnification pursuant to this ARTICLE VII shall be the sole and exclusive remedy for the Parties with respect to matters arising under this Agreement of any kind or nature, including for any misrepresentation or breach of any warranty, covenant, or other provision contained in this Agreement or in any certificate or instrument delivered pursuant to this Agreement or otherwise relating to the subject matter of this Agreement, including the negotiation and discussion thereof.

 

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7.7.            Time Limit. The obligations of the Parties with respect to indemnification pursuant to this ARTICLE VII shall expire on the Expiration Date, except with respect to (i) an indemnification claim asserted in accordance with the provisions of this ARTICLE VII which remains unresolved, for which the obligation to indemnify shall continue until such claim is resolved; and (ii) resolved claims for which payment has not yet been paid to the indemnified Party.

 

ARTICLE VIII
CLOSING CONDITIONS

 

8.1.            Conditions to Each Party’s Obligations . The obligations of each Party to consummate the transactions described herein shall be subject to the satisfaction or written waiver (where permissible) by the Company, the Purchaser and the Owners’ Representative of the following conditions:

 

(a)              Any stock exchange or regulatory review (including any review by the SEC or by Nasdaq) required to be completed prior to consummation of the transactions contemplated by this Agreement has been completed, and the Company and the Purchaser, as the case may be, shall have received any stock exchange or regulatory approvals required to be received prior to consummation of the transactions contemplated by this Agreement as of the Closing.

 

(b)              All consents required to be obtained from or made with any Governmental Authority in order to consummate the transactions contemplated by this Agreement, shall have been obtained or made.

 

(c)              The consents required to be obtained from or made with any third Person (other than a Governmental Authority) in order to consummate the transactions contemplated by this Agreement that are set forth in Schedule 8.1(d) shall have each been obtained or made.

 

(d)              No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary or permanent) or Order that is then in effect and which has the effect of making the transactions or agreements contemplated by this Agreement illegal or which otherwise prevents or prohibits consummation of the transactions contemplated by this Agreement.

 

(e)              There shall not be any pending Action brought by a third-party non-Affiliate to enjoin or otherwise restrict the consummation of the Closing.

 

(f)              The actions set forth in Section 2.2 shall have been completed.

 

8.2.            Conditions to Obligations of the Company and the Company Owners . In addition to the conditions specified in Section 8.1 , the obligations of the Company and the Company Owners to consummate the transactions contemplated by this Agreement are subject to the satisfaction or written waiver (by the Company and the Owners’ Representative on behalf of the Company Owners) of the following conditions:

 

(a)              All of the representations and warranties of the Purchaser set forth in this Agreement and in any certificate delivered by the Purchaser pursuant hereto shall be true and correct in all material respects on and as of the date of this Agreement and on and as of the Closing Date as if made on the Closing Date, or, if qualified as to materiality shall be true and correct in all respects as of the date of this Agreement and on and as of the Closing Date, provided, however, that those representations and warranties that address matters only as of a particular date shall be true and correct in all material respects as of such date, or, if qualified as to materiality shall be true and correct in all respects as of such date.

 

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(b)              The Purchaser shall have performed in all material respects all of the Purchaser’s obligations and complied in all material respects with all of the Purchaser’s agreements and covenants under this Agreement to be performed or complied with by it on or prior to the Closing Date, including, without limitation, the delivery of the items as set forth in Section 8.2(d) .

 

(c)              No Purchaser Material Adverse Effect shall have occurred since the date of this Agreement.

 

(d)              Closing Deliveries . At the Closing, the Purchaser shall deliver to the Owners’ Representative:

 

(i)             a certificate, dated the Closing Date, signed by an executive officer of the Purchaser in such capacity, certifying as to the satisfaction of the conditions specified in Sections 8.2(a) , Section 8.2(b) and Section 8.2(c) ;

 

(ii)             a certificate from its secretary certifying as to (A) copies of the Purchaser’s Governing Documents as in effect as of the Closing Date, (B) the resolutions of the Purchaser’s board of directors authorizing the execution, delivery and performance of this Agreement and each of the Ancillary Documents to which it is a party or by which it is bound, and the consummation of the transactions contemplated hereby and thereby, and (C) the incumbency of officers authorized to execute this Agreement or any Ancillary Document to which the Purchaser is or is required to be a party or otherwise bound;

 

(iii)            a good standing certificate for the Purchaser certified as of a date no later than ten (10) days prior to the Closing Date from the Secretary of State of the State of Delaware;

 

(iv)            a copy of the Voting Agreement duly executed by an authorized officer of Purchaser; and

 

(v)            copies of the Employment Agreements, each duly executed by an authorized officer of Purchaser.

 

8.3.            Conditions to Obligations of the Purchaser . In addition to the conditions specified in Section 8.1 , the obligations of the Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction or written waiver (by the Purchaser) of the following conditions:

 

(a)              All of the representations and warranties of the Company and the Company Owners set forth in this Agreement and in any certificate delivered by the Company or the Owners’ Representative pursuant hereto shall be true and correct in all material respects on and as of the date of this Agreement and on and as of the Closing Date as if made on the Closing Date, or, if qualified as to materiality shall be true and correct in all respects as of the date of this Agreement and on and as of the Closing Date, provided, however, that those representations and warranties that address matters only as of a particular date shall be true and correct in all material respects as of such date, or, if qualified as to materiality shall be true and correct in all respects as of such date.

 

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(b)              The Company and the Company Owners shall have performed in all material respects all of their respective obligations and complied in all material respects with all of their respective agreements and covenants under this Agreement to be performed or complied with by them on or prior to the Closing Date, including, without limitation, the delivery of the items as set forth in Section 8.3(d).

 

(c)              No Material Adverse Effect shall have occurred with respect to the Company since the date of this Agreement.

 

(d)              Closing Deliveries . At the Closing, the Owners’ Representative shall deliver to the Purchaser:

 

(i)             a certificate, dated as the Closing Date, signed by an executive officer of the Company in such capacity, certifying as to the satisfaction of the conditions specified in Sections 8.3(a) , 8.3(b) and 8.3(c) ;

 

(ii)             a certificate from the Company’s secretary certifying as to (A) copies of the Company’s Governing Documents as in effect as of the Closing Date, and (B) the incumbency of officers authorized to execute this Agreement or any Ancillary Document to which the Company is or is required to be a party or otherwise bound;

 

(iii)            a good standing certificate (or similar documents applicable for such jurisdictions) for the Company certified as of a date no later than ten (10) days prior to the Closing Date from the Secretary of State of the State of Florida;

 

(iv)            a copy of the Voting Agreement duly executed by the counterparties thereto other than Purchaser; and

 

(v)            copies of the Employment Agreements, each duly executed by the counterparties thereto other than Purchaser.

 

(e)              The Exchange Agent shall have received from each Company Owner: (A) a form of assignment of the Purchased Interests transferring such Purchased Interests to the Purchaser as contemplated herein; and (B) such other documents and executed instruments of transfer in respect of the equity interests of the Company as may be reasonably requested by the Exchange Agent and in form reasonably acceptable for transfer on the books of the Company.

 

8.4.            Frustration of Conditions . Notwithstanding anything contained herein to the contrary, no Party may rely on the failure of any condition set forth in this ARTICLE VIII to be satisfied if such failure was caused by the failure of such Party or its Affiliates to comply with or perform any of its covenants or obligations set forth in this Agreement.

 

ARTICLE IX
TERMINATION AND EXPENSES

 

9.1.            Termination . This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing as follows:

 

(a)          by mutual written consent of the Purchaser, the Company and the Owners’ Representative;

 

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(b)          by written notice by the Purchaser or the Company if any of the conditions to the Closing set forth in ARTICLE VIII have not been satisfied or waived by December 31, 2018 (the “ Outside Date ”); provided , however , the right to terminate this Agreement under this Section 9.1(b) shall not be available to a Party if the breach or violation by such Party or its Affiliates of any representation, warranty, covenant or obligation under this Agreement was the cause of, or resulted in, the failure of the Closing to occur on or before the Outside Date;

 

(c)          by written notice by either the Purchaser or the Company if a Governmental Authority of competent jurisdiction shall have issued an Order or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such Order or other action has become final and non-appealable; provided , however , that the right to terminate this Agreement pursuant to this Section 9.1(c) shall not be available to a Party if the failure by such Party or its Affiliates to comply with any provision of this Agreement has been a substantial cause of, or substantially resulted in, such action by such Governmental Authority;

 

(d)          by written notice by the Company, if (i) there has been a material breach by the Purchaser of any of its representations, warranties, covenants or agreements contained in this Agreement, or if any representation or warranty of the Purchaser shall have become materially untrue or materially inaccurate, in any case, which would result in a failure of a condition set forth in Section 8.2(a) or Section 8.2(b) to be satisfied (treating the Closing Date for such purposes as the date of this Agreement or, if later, the date of such breach), and (ii) the breach or inaccuracy is incapable of being cured or is not cured within the earlier of (A) five (5) days after written notice of such breach or inaccuracy is provided by the Company or (B) the Outside Date;

 

(e)          by written notice by the Purchaser, if (i) there has been a breach by the Company or Company Owner of any of its representations, warranties, covenants or agreements contained in this Agreement, or if any representation or warranty of such Parties shall have become untrue or inaccurate, in any case, which would result in a failure of a condition set forth in Section 8.3(a) or Section 8.3(b) to be satisfied (treating the Closing Date for such purposes as the date of this Agreement or, if later, the date of such breach), and (ii) the breach or inaccuracy is incapable of being cured or is not cured within the earlier of (A) five (5) days after written notice of such breach or inaccuracy is provided by the Purchaser or (B) the Outside Date;

 

(f)          by written notice by the Purchaser if there shall have been a Material Adverse Effect on the Company following the date of this Agreement which is uncured and continuing;

 

(g)          by written notice by the Company if there shall have been a Purchaser Material Adverse Effect following the date of this Agreement which is uncured and continuing; or

 

(h)          by the Company or the Owners’ Representative pursuant to Section 6.2.

 

9.2.           Effect of Termination . This Agreement may only be terminated in the circumstances described in Section 9.1 and pursuant to a written notice delivered by the applicable Party to the other applicable Parties, which sets forth the basis for such termination, including the provision of Section 9.1 under which such termination is made. In the event of the valid termination of this Agreement pursuant to Section 9.1 , this Agreement shall forthwith become of no further force or effect, provided however, that: (i) Section 6.5 , Section 6.6 , ARTICLE VII , ARTICLE X and this Section 9.2 , and any such additional Sections as required to give effect to the same, shall survive the termination of this Agreement, and (ii) nothing herein shall relieve any Party from Liability for any willful breach of any representation, warranty, covenant or obligation herein or in any Ancillary Document prior to termination of this Agreement.

 

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ARTICLE X
GENERAL PROVISIONS

 

10.1.          Notices . Any notice, request, instruction or other document to be given hereunder by a Party shall be in writing and shall be deemed to have been given, (i) when received if given in person or by courier or a courier service, (ii) on the date of transmission if sent by facsimile or email (with affirmative confirmation of receipt, and provided, that the Party providing notice shall within two (2) Business Days provide notice by another method under this Section 10.1 ) or (iii) three (3) Business Days after being deposited in the U.S. mail, certified or registered mail, postage prepaid:

 

 

If to the Owners’ Representative or, prior to the Closing, the Company, to:

 

Simplicity Esports, LLC

Attn: Steven Grossman

7000 W. Palmetto Park Road, Suite 306

Boca Raton, FL 33433

Email: sgrossman@simplicityesports.com

 

 

with a copy (which will not constitute notice) to:

 


Attn: Anthony L.G., PLLC

Attn: Laura Anthony
Facsimile No.: 561-514-0832
Email: Lanthony@anthonypllc.com

 

 

If to Purchaser or, after the Closing, the Company, to:

 

Smaaash Entertainment Inc.

1345 Avenue of the Americas, 15th Floor
New York, New York 10105
Attention: F. Jacob Cherian
Facsimile No.:

Email: fjc@i-amcapital.com

 

 

with a copy (which will not constitute notice) to:

 

Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas, 11th Floor
New York, New York 10105
Attention: Barry Grossman, Esq.
Facsimile No.: (212) 370-7889

Email: bigrossman@egsllp.com

 

 

or, to such other individual or address as a Party may designate for itself by notice given as herein provided.

 

10.2.          Fees and Expenses . All Expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expenses. As used in this Agreement, “ Expenses ” shall include all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, financial advisors, financing sources, experts and consultants to a Party hereto or any of its Affiliates) incurred by a Party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution or performance of this Agreement or any Ancillary Document related hereto and all other matters related to the consummation of this Agreement.

 

10.3.          Severability . In case any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions will not in any way be affected or impaired. Any illegal or unenforceable term will be deemed to be void and of no force and effect only to the minimum extent necessary to bring such term within the provisions of applicable Law and such term, as so modified, and the balance of this Agreement will then be fully enforceable. The Parties will substitute for any invalid, illegal or unenforceable provision a suitable and equitable provision that carries out, so far as may be valid, legal and enforceable, the intent and purpose of such invalid, illegal or unenforceable provision.

 

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10.4.          Assignment . This Agreement may not be assigned by any Party without the prior written consent of the other Parties, and any attempted assignment in violation of this Section 10.4 will be null and void ab initio; provided , however , that after the Closing, Purchaser and the Company may assign its rights and benefits hereunder (i) to any Affiliate of Purchaser or the Company, as applicable (provided, that Purchaser or the Company, as applicable, shall remain primarily responsible for its obligations hereunder), (ii) to any Person acquiring all or substantially all of the assets of Purchaser and its Subsidiaries taken as a whole or all or substantially all of the assets of the Company and its Subsidiaries taken as a whole or a majority of the outstanding equity securities of Purchaser or the Company (whether by stock purchase, merger, consolidation or otherwise); provided , that the assignee expressly assumes the obligations of Purchaser or the Company, as applicable, hereunder or (iii) as security to any Person providing debt financing to Purchaser or its Affiliates for the transactions contemplated hereby. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of each Party.

 

10.5.          No Third-Party Beneficiaries. Except for the indemnification rights of the Indemnified Parties set forth herein, this Agreement is for the sole benefit of the Parties and their successors and permitted assigns and nothing herein expressed or implied shall give or be construed to give to any Person, other than the Parties and such successors and permitted assigns, any legal or equitable rights hereunder.

 

10.6.          Amendment; Waiver . This Agreement may not be amended or modified except by an instrument in writing signed by each of the Parties. Notwithstanding anything to the contrary contained herein: (a) the failure of any Party at any time to require performance by the other of any provision of this Agreement will not affect such Party’s right thereafter to enforce the same; (b) no waiver by any Party of any default by any other Party will be valid unless in writing and acknowledged by an authorized representative of the non-defaulting Party, and no such waiver will be taken or held to be a waiver by such Party of any other preceding or subsequent default; and (c) no extension of time granted by any Party for the performance of any obligation or act by any other Party will be deemed to be an extension of time for the performance of any other obligation or act hereunder.

 

10.7.          Entire Agreement . This Agreement (including the Exhibits and Schedules hereto, which are hereby incorporated herein by reference and deemed part of this Agreement), together with the Ancillary Documents constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof.

 

10.8.          Remedies . Except as specifically set forth in this Agreement, any Party having any rights under any provision of this Agreement will have all rights and remedies set forth in this Agreement and all rights and remedies which such Party may have been granted at any time under any other contract or agreement and all of the rights which such Party may have under any applicable Law. Except as specifically set forth in this Agreement, any such Party will be entitled to (a) enforce such rights specifically, without posting a bond or other security or proving damages or that monetary damages would be inadequate, (b) to recover damages by reason of a breach of any provision of this Agreement and (c) to exercise all other rights granted by applicable Law. The exercise of any remedy by a Party will not preclude the exercise of any other remedy by such Party.

 

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10.9.          Dispute Resolution . Any and all disputes, controversies and claims (other than applications for a temporary restraining order, preliminary injunction, permanent injunction or other equitable relief or application for enforcement of a resolution under this Section 10.9 ) arising out of, related to, or in connection with this Agreement or the transactions contemplated hereby (a “ Dispute ”) shall be governed by this Section 10.9 . A Party must, in the first instance, provide written notice of any Disputes to the other Parties subject to such Dispute, which notice must provide a reasonably detailed description of the matters subject to the Dispute. The Parties involved in such Dispute shall seek to resolve the Dispute on an amicable basis within ten (10) Business Days of the notice of such Dispute being received by such other Parties subject to such Dispute; the “ Resolution Period ”); provided, that if any Dispute would reasonably be expected to have become moot or otherwise irrelevant if not decided within sixty (60) days after the occurrence of such Dispute, then there shall be no Resolution Period with respect to such Dispute. Any Dispute that is not resolved during the Resolution Period may immediately be referred to and finally resolved by arbitration pursuant to the then-existing Expedited Procedures of the Commercial Arbitration Rules (the “ AAA Procedures ”) of the American Arbitration Association (the “ AAA ”). Any Party involved in such Dispute may submit the Dispute to the AAA to commence the proceedings after the Resolution Period. To the extent that the AAA Procedures and this Agreement are in conflict, the terms of this Agreement shall control. The arbitration shall be conducted by one arbitrator nominated by the AAA promptly (but in any event within five (5) Business Days) after the submission of the Dispute to the AAA and reasonably acceptable to each Party subject to the Dispute, which arbitrator shall be a commercial lawyer with substantial experience arbitrating disputes under acquisition agreements. The arbitrator shall accept his or her appointment and begin the arbitration process promptly (but in any event within five (5) Business Days) after his or her nomination and acceptance by the Parties subject to the Dispute. The proceedings shall be streamlined and efficient. The arbitrator shall decide the Dispute in accordance with the substantive law of the State of Delaware. Time is of the essence. Each Party shall submit a proposal for resolution of the Dispute to the arbitrator within twenty (20) days after confirmation of the appointment of the arbitrator. The arbitrator shall have the power to order any Party to do, or to refrain from doing, anything consistent with this Agreement, the Ancillary Documents and applicable Law, including to perform its contractual obligation(s); provided , that the arbitrator shall be limited to ordering pursuant to the foregoing power (and, for the avoidance of doubt, shall order) the relevant Party (or Parties, as applicable) to comply with only one or the other of the proposals. The arbitrator’s award shall be in writing and shall include a reasonable explanation of the arbitrator’s reason(s) for selecting one or the other proposal. The seat of arbitration shall be in New York County, State of New York, and the language of the arbitration shall be English.

 

10.10.        Governing Law; Jurisdiction . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without giving effect to its choice of law principles). Subject to Section 10.9 , for purposes of any Action arising out of or in connection with this Agreement or any transaction contemplated hereby, each Party (a) irrevocably submits to the exclusive jurisdiction and venue of any state or federal court located within New York County, State of New York (or in any court in which appeal from such courts may be taken), (b) agrees that service of any process, summons, notice or document by U.S. registered mail to such Party’s respective address set forth in Section 10.1 shall be effective service of process for any Action with respect to any matters to which it has submitted to jurisdiction in this Section 10.10 , (c) waives and covenants not to assert or plead, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of such court, that the Action is brought in an inconvenient forum, that the venue of the Action is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and hereby agrees not to challenge such jurisdiction or venue by reason of any offsets or counterclaims in any such Action, and (d) waives any bond, surety or other security that might be required of any other Party with respect thereto. Each Party agrees that a final judgment in any such Action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law or in equity.

 

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10.11.        Waiver of Jury Trial . The Parties hereby knowingly, voluntarily and intentionally waive the right any may have to a trial by jury in respect to any litigation based hereon, or arising out of, under, or in connection with this Agreement and any agreement contemplated to be executed in connection herewith, or any course of conduct, course of dealing, statements (whether verbal or written) or actions of any party in connection with such agreements, in each case whether now existing or hereafter arising and whether sounding in tort or contract or otherwise. Each party acknowledges that it has been informed by the other Parties that this Section 10.11 constitutes a material inducement upon which they are relying and will rely in entering into this Agreement. Any party may file an original counterpart or a copy of this Section 10.11 with any court as written evidence of the consent of each such party to the waiver of its right to trial by jury.

 

10.12.        Interpretation . The table of contents and the headings and subheadings of this Agreement are for reference and convenience purposes only and in no way modify, interpret or construe the meaning of specific provisions of the Agreement. In this Agreement, unless the context otherwise requires: (i) whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity; (iii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding or succeeding such term and shall be deemed in each case to be followed by the words “without limitation”; (iv) the words “herein,” “hereto,” and “hereby” and other words of similar import in this Agreement shall be deemed in each case to refer to this Agreement as a whole and not to any particular Section or other subdivision of this Agreement; (v) the word “if” and other words of similar import when used herein shall be deemed in each case to be followed by the phrase “and only if”; (vi) the term “or” means “and/or”; (vii) reference to “dollars” or “$” shall mean United States Dollars; (viii) reference to any statute includes any rules and regulations promulgated thereunder; (ix) any agreement, instrument, insurance policy, Law or Order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, insurance policy, Law or Order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein; and (x) except as otherwise indicated, all references in this Agreement to the words “Section,” “Schedule” and “Exhibit” are intended to refer to Sections, Schedules and Exhibits to this Agreement. This Agreement has been negotiated at arm’s-length by parties of equal bargaining strength, each represented by counsel or having had but declined the opportunity to be represented by counsel and having participated in the drafting of this Agreement. This Agreement creates no fiduciary or other special relationship between the Parties, and no such relationship otherwise exists. No presumption in favor of or against any Party in the construction or interpretation of this Agreement or any provision hereof shall be made based upon which Person might have drafted this Agreement or such provision.

 

10.13.        Specific Performance; Attorneys’ Fees . Each Party acknowledges that the rights of each Party to consummate the transactions contemplated hereby are unique, recognizes and affirms that in the event of a breach of this Agreement by any Party, money damages may be inadequate and the non-breaching Parties may have not adequate remedy at law, and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by an applicable Party in accordance with their specific terms or were otherwise breached. Accordingly, each Party shall be entitled to seek an injunction or restraining order to prevent breaches of this Agreement and to seek to enforce specifically the terms and provisions hereof, without the requirement to post any bond or other security or to prove that money damages would be inadequate, this being in addition to any other right or remedy to which such Party may be entitled under this Agreement, at law or in equity. In the event that any Party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the prevailing Party shall be reimbursed by the losing Party for all costs, including reasonable attorneys’ fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.

 

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10.14.        Counterparts . This Agreement may be executed in one or more counterparts, and by the different Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. A photocopy, faxed, scanned and/or emailed copy of this Agreement or any Ancillary Document or any signature page to this Agreement or any Ancillary Document, shall have the same validity and enforceability as an originally signed copy.

 

10.15.        Owners’ Representative .

 

(a)            By the execution and delivery of this Agreement, the Company and each Company Owner on behalf of itself and its successors and assigns, hereby irrevocably constitutes and appoints Jed Kaplan, in his capacity as the Owners’ Representative, as the true and lawful agent and attorney-in-fact of such Person with full powers of substitution to act in the name, place and stead of thereof with respect to the performance on behalf of such Person under the terms and provisions of this Agreement and the Ancillary Documents to which the Owners’ Representative is a party, as the same may be from time to time amended, and to do or refrain from doing all such further acts and things, and to execute all such documents on behalf of such Person, if any, as the Owners’ Representative will deem necessary or appropriate in connection with any of the transactions contemplated under this Agreement or any of the Ancillary Documents to which the Owners’ Representative is a party, including: (i) bringing, managing, controlling, defending and settling on behalf of an Indemnified Party or Indemnifying Party any indemnification claims by or against any of them under ARTICLE VII , including controlling, defending, managing, settling and participating in any Third Party Claim in accordance with Section 7.5 ; (ii) terminating, amending or waiving on behalf of such Person any provision of this Agreement or any Ancillary Documents to which the Owners’ Representative is a party (provided, that any such action, if material to the rights and obligations of the Company Owners in the reasonable judgment of the Owners’ Representative, will be taken in the same manner with respect to all Company Owners unless otherwise agreed by each Company Owner who is subject to any disparate treatment of a potentially adverse nature); (iii) signing on behalf of such Person any releases or other documents with respect to any dispute or remedy arising under this Agreement or any Ancillary Documents to which the Owners’ Representative is a party; (iv) employing and obtaining the advice of legal counsel, accountants and other professional advisors as the Owners’ Representative, in its sole discretion, deems necessary or advisable in the performance of its duties as the Owners’ Representative and to rely on their advice and counsel; (v) incurring and paying expenses, including fees of brokers, attorneys and accountants incurred pursuant to the transactions contemplated hereby, and any other fees and expenses allocable or in any way relating to such transaction or any indemnification claim, whether incurred prior or subsequent to Closing; (vi) determining to provide, and providing, any consents or approvals that may be given by the Company or the Company Owners pursuant to the transactions contemplated herein; and (vii) otherwise enforcing the rights and obligations of any such Persons under this Agreement and the Ancillary Documents to which the Owners’ Representative is a party, including giving and receiving all notices and communications hereunder or thereunder on behalf of such Person. All decisions and actions by the Owners’ Representative, including any agreement between the Owners’ Representative and the Purchaser or any Indemnified Party relating to the defense or settlement of any claims for which an Indemnifying Party may be required to indemnify an Indemnified Party pursuant to ARTICLE VII shall be binding upon the Company, each Company Owner and their respective successors and assigns, and the Company, each Company Owner and their respective successors and assigns shall not have the right to object, dissent, protest or otherwise contest the same. The provisions of this Section 10.15 are irrevocable and coupled with an interest. The Owners’ Representative hereby accepts its appointment and authorization as the Owners’ Representative under this Agreement

 

38

 

 

(b)            Any other Person, including the Purchaser, the Company and the Indemnified Parties and the Indemnifying Parties, may conclusively and absolutely rely, without inquiry, upon any actions of the Owners’ Representative as the acts of Company and the Company Owners hereunder or any Ancillary Document to which the Owners’ Representative is a party. The Purchaser, the Company and each Indemnified Party and Indemnifying Party shall be entitled to rely conclusively on the instructions and decisions of the Owners’ Representative as to (i) the settlement of any claims for indemnification by an Indemnified Party pursuant to ARTICLE VII (ii) any payment instructions provided by the Owners’ Representative or (iii) any other actions required or permitted to be taken by the Owners’ Representative hereunder, and neither the Company, any Company Owner nor any Indemnifying Party shall have any cause of action against the Purchaser, the Company or any other Indemnified Party for any action taken by any of them in reliance upon the instructions or decisions of the Owners’ Representative. The Purchaser, the Company and the other Indemnified Parties shall not have any liability to the Company or any Company Owner or Indemnifying Party for any allocation or distribution among the Company Owners by the Owners’ Representative of payments made to or at the direction of the Owners’ Representative. All notices or other communications required to be made or delivered to the Company or a Company Owner under this Agreement or any Ancillary Document to which the Owners’ Representative is a party shall be made to the Owners’ Representative for the benefit of such Company Owner, and any notices so made shall discharge in full all notice requirements of the other Parties or thereto to such Company Owner with respect thereto. All notices or other communications required to be made or delivered by the Company or a Company Owner shall be made by the Owners’ Representative (except for a notice under Section 10.15(d) of the replacement of the Owners’ Representative).

 

(c)            The Owners’ Representative will act for the Company and the Company Owners on all of the matters set forth in this Agreement in the manner the Owners’ Representative believes to be in the best interest of the Company and the Company Owners, but the Owners’ Representative will not be responsible to the Company or the Company Owners for any Losses that Company or the Company Owners or Indemnifying Party may suffer by reason of the performance by the Owners’ Representative of the Owners’ Representative’s duties under this Agreement, other than Losses arising from the bad faith, gross negligence or willful misconduct by the Owners’ Representative in the performance of its duties under this Agreement. The Company agrees to indemnify, defend and hold the Owners’ Representative harmless from and against any and all Losses reasonably incurred or suffered as a result of the performance of the Owners’ Representative’s duties under this Agreement, except for any such liability arising out of the bad faith, gross negligence or willful misconduct of the Owners’ Representative. The Owners’ Representative will not be entitled to any fee, commission or other compensation for the performance of its services hereunder, but will be entitled to the payment from the Company of all its expenses incurred as the Owners’ Representative.

 

39

 

 

(d)            If the Owners’ Representative shall die, become disabled, dissolve, resign or otherwise be unable or unwilling to fulfill its responsibilities as representative and agent of Company Owners, then the Company Owners shall, within ten (10) days after such death, disability, dissolution, resignation or other event, appoint a successor Owners’ Representative (by vote or written consent of the Company Owners holding in the aggregate Pro Rata Share as determined as of such date in excess of fifty percent (50%)), and promptly thereafter (but in any event within two (2) Business Days after such appointment) notify the Purchaser in writing of the identity of such successor. Any such successor so appointed shall become the “Owners’ Representative” for purposes of this Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

40

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed and delivered as of the date first written above.

 

  Purchaser:
     
  SMAAASH ENTERTAINMENT INC.
     
  By: /s/ F. Jacob Cherian
    Name: F. Jacob Cherian
    Title: Chief Executive Officer

 

  The Company:
     
  SIMPLICITY ESPORTS, LLC
     
  By: /s/ Jed Kaplan
    Name: Jed Kaplan
    Title: Managing Partner

  

  Owners’ Representative:
   
  /s/ Jed Kaplan
  Name: Jed Kaplan

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Company Owners:
     
  JED KAPLAN Roth IRA
     
  By: /s/ Jed Kaplan
  Name: Jed Kaplan
  Title: Owner

 

[Signature Page to Share Exchange Agreement]

 

 

 

 

  JED KAPLAN Sep IRA
     
  By: /s/ Jed Kaplan
  Name: Jed Kaplan
  Title: Owner

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Jamie Kaplan Sep IRA
     
  By: /s/ Jamie Kaplan
  Name: Jamie Kaplan
  Title: Owner

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Timothy P Schenden Sep IRA
     
  By: /s/ Timothy P Schenden
  Name: Timothy Schenden
  Title: Owner

 

[Signature Page to Share Exchange Agreement]

 

 

 

 

  John Marchese IRA
     
  By: /s/ John Marchese
  Name: John Marchese
  Title: Owner

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Steven Grossman IRA
     
  By: /s/ Steven Grossman
  Name: Steven Grossman
  Title: Owner

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Michael P Zahalsky PSP
     
  By: /s/ Michael Zahalsky
  Name: Michael Zahalsky
  Title: Partner

 

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Zahalsky Investment Holdings LLLP
     
  By: /s/ Michael Zahalsky
  Name: Michael Zahalsky
  Title: Partner

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Mad Money Entertainment _______
     
  By: /s/ Michael Cohen
  Name: Michael Cohen
  Title: President

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Cant Fish, LLC
     
  By: /s/ Ryan Fisher
  Name: Ryan Fisher
  Title: Owner

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Iris Cantor Trust
     
  By: /s/ Iris Cantor
  Name: Iris Cantor
  Title: Manager

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  One Plus Four LLC
     
  By: /s/ Iris Cantor
  Name: Iris Cantor
  Title: Trustee

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Bryan Rosenblatt
     
  By: /s/ Bryan Rosenblatt
  Name: Bryan Rosenblatt

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  John Desiderio Trust
     
  By: /s/ John T. Desiderio
  Name: John T. Desiderio
  Title: Trustee

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Scythe LLC
     
  By: /s/ Steven J. Demetriou
  Name: Steven J. Demetriou
  Title: Chairman

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Bill Yates
     
  By: /s/ Bill Yates
  Name: Bill Yates

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Steven Grossman
     
  By: /s/ Steven Grossman
  Name: Steven Grossman

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  Jed Kaplan
     
  By: /s/ Jed Kaplan
  Name: Jed Kaplan

  

[Signature Page to Share Exchange Agreement]

 

 

 

 

  James L Orleans IRA
     
  By: /s/ James L Orleans
  Name: James L Orleans
  Title:  

 

[Signature Page to Share Exchange Agreement]

 

 

 

 

Exhibit A

 

1.          Certain Defined Terms . As used in the Agreement, the following terms shall have the following meanings:

 

Action ” means any notice of noncompliance or violation, or any claim, demand, charge, action, suit, litigation, audit, settlement, complaint, stipulation, assessment or arbitration, or any request (including any request for information), inquiry, hearing, proceeding or investigation, by or before any Governmental Authority.

 

Affiliate ” has the meaning set forth in Rule 12b-2 of the regulations under the Exchange Act.

 

Ancillary Documents ” means the Employment Agreements, the Voting Agreement, and the other agreements, certificates and instruments to be executed or delivered by any of the Parties in connection with or pursuant to this Agreement.

 

Benefit Plan ” means any pension, benefit, retirement, compensation, profit-sharing, deferred compensation, incentive, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by the Company for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of the Company or any spouse or dependent of such individual, or under which the Company has or may have any Liability.

 

Business Day ” means any day that is not a Saturday, Sunday or any other day on which banks are required or authorized by Law to be closed in New York City, New York.

 

Code ” means the Internal Revenue Code of 1986 and any successor statute thereto, as amended. Reference to a specific section of the Code shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section.

 

Company Owners ” means, collectively, the holders of equity of the Company as set forth on Exhibit B attached hereto.

 

Confidential Information ” means any information concerning the business and affairs of the applicable Person or its Affiliates, including know-how, trade secrets, customer lists, details of customer or consultant contracts, pricing policies, operational methods and marketing plans or strategies, and any information disclosed relating to such Person by third parties to the extent that they have an obligation of confidentiality in connection therewith, provided, however, that “Confidential Information” will not include any information which, at the time of disclosure, is generally available publicly and was not disclosed in breach of this Agreement by a Party or its Representatives to whom the Confidential Information was provided.

 

Contract ” means any contract, agreement, binding arrangement, commitment or understanding, bond, note, indenture, mortgage, debt instrument, license (or any other contract, agreement or binding arrangement concerning Intellectual Property), franchise, lease or other instrument or obligation of any kind, written or oral (including any amendments or other modifications thereto).

 

A- 1

 

 

Copyrights ” means all works of authorship, mask works and all copyrights therein, including all renewals and extensions, copyright registrations and applications for registration and renewal, and non-registered copyrights.

 

DGCL ” means the Delaware General Corporations Law.

 

Disclosure Schedules ” means the disclosure schedules to this Agreement dated as of the date hereof and forming a part of this Agreement.

 

Enforceability Exceptions ” means bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

 

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

GAAP ” means United States generally accepted accounting principles applied on a consistent basis.

 

Governing Documents ” means, with respect to any entity, its certificate of incorporation, certificate of formation or similar charter document and its bylaws, operating agreement or similar governing document.

 

Governmental Authority ” means any federal, state, local, foreign or other governmental, quasi-governmental or administrative body, instrumentality, department or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body, and includes any Person acting on behalf of a Governmental Authority.

 

Indebtedness ” means, without duplication, (a) the outstanding principal of, and accrued and unpaid interest on, all bank or other third party indebtedness for borrowed money of the Company, including indebtedness under any bank credit agreement and any other related agreements and all obligations of the Company evidenced by notes, debentures, bonds or other similar instruments for the payment of which the Company is responsible or liable, (b) all obligations of the Company for the reimbursement of any obligor on any line or letter of credit, banker’s acceptance, guarantee or similar credit transaction, in each case, that has been drawn or claimed against, (c) all obligations of the Company issued or assumed for deferred purchase price payments, (d) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by the Company, whether periodically or upon the happening of a contingency, (e) all obligations of the Company secured by a Lien on any asset of the Company, whether or not such obligation is assumed by the Company, (f) any premiums, prepayment fees or other penalties, fees, costs or expenses associated with payment of any Indebtedness, and (g) all obligation described in clauses (a) through (f) above of any other Person which is directly or indirectly guaranteed by the Company or which the Company has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which it has otherwise assured a creditor against loss. In no event shall Indebtedness include trade payables.

 

[Signature Page to Share Exchange Agreement]

 

 

 

 

Intellectual Property ” means all of the following, including any applications to register any of the following, as they exist in any jurisdiction throughout the world: (a) Patents; (b) Trademarks; (c) Copyrights; (d) Trade Secrets; (e) all domain name and domain name registrations, web sites and web pages and related rights, registrations, items and documentation related thereto; (f) Software; (g) rights of publicity and privacy, and moral rights; and (h) all licenses, sublicenses, permissions, and other agreements related to the preceding property.

 

IRS ” means the U.S. Internal Revenue Service or any successor entity.

 

Knowledge ” means: (i) with respect to the Company, the actual knowledge of Jed Kaplan or Steven Grossman, after reasonable due inquiry; (ii) with respect to any Company Owner shall mean the actual present knowledge of a particular matter by such Company Owner; and (iii) with respect to the Purchaser, the actual present knowledge of a particular matter by any of the executive officers or directors of the Purchaser, after reasonable due inquiry.

 

Law ” means any federal, state, local, municipal, foreign or other law, statute, legislation, principle of common law, ordinance, code, edict, decree, proclamation, treaty, convention, rule, regulation, directive, requirement, writ, injunction, settlement, Permit or Order that is or has been issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any Governmental Authority.

 

Liabilities ” means any and all debts, liabilities and obligations of any nature whatsoever, whether accrued or fixed, absolute or contingent, mature or unmatured, or determined or determinable, including those arising under any Law, Action, Order or Contract.

 

Lien ” means any interest (including any security interest), pledge, mortgage, lien, encumbrance, charge, claim or other right of third parties, including any spousal interests (community or otherwise), whether created by law or in equity, including any such restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership.

 

Material Adverse Effect ” means any event, fact, condition, change, circumstance, occurrence or effect, which, either individually or in the aggregate with all other events, facts, conditions, changes, circumstances, occurrences or effects, (a) has had, or would reasonably be expected to have, a material adverse effect on the business, customer relationships, properties, prospects, assets, Liabilities, condition (financial or otherwise), operations, regulatory environment, licenses or other franchises or results of operations of the subject Party, or materially diminish the value of the subject Party’s equity interests, if any, or (b) does or would reasonably be expected to materially impair or delay the ability of the subject Party to perform its obligations under this Agreement and the Ancillary Documents or to consummate the transactions contemplated hereby and thereby; provided , however , that with respect to any Party, a Material Adverse Effect will not include any adverse effect or change resulting from any change, circumstance or effect relating to (A) the economy in general, (B) securities markets, regulatory or political conditions in the United States (including terrorism or the escalation of any war, whether declared or undeclared or other hostilities), (C) changes in applicable Laws or GAAP or the application or interpretation thereof, (D) the industries in which such Party primarily operates and not specifically relating to such Party or (E) a natural disaster (provided, that in the cases of clauses (A) through (E), such Party is not disproportionately affected by such event as compared to other similar companies and businesses in similar industries and geographic regions as such Party).

 

[Signature Page to Share Exchange Agreement]

 

 

 

 

Noteholder ” means Maxim Group LLC.

 

OFAC ” means the Office of Foreign Assets Control of the U.S. Treasury Department.

 

Order ” means any order, writ, rule, judgment, injunction, decree, stipulation, determination or award that is or has been made, entered, rendered or otherwise put into effect by, with or under the authority of any Governmental Authority.

 

Ordinary Course of Business ” means, with respect to a Person, an action taken by such Person if (a) such action is recurring in nature, is consistent with the past practices of the Person and is taken in the ordinary course of the normal day-to-day operations of the Person; (b) such action is not required to be authorized by the equity holders of such Person, the board of directors (or equivalent) of such Person or any committee of the board of directors (or equivalent) of such Person and does not require any other special authorization of any nature; and (c) such action is taken in accordance with sound and prudent business practice.

 

Party ” means any of Purchaser, the Company, each Company Owner and the Owners’ Representative.

 

Patents ” means all patents, patent applications and the inventions, designs and improvements described and claimed therein, patentable inventions, and other patent rights (including any divisionals, continuations, continuations-in-part, substitutions, or reissues thereof, whether or not patents are issued on any such applications and whether or not any such applications are amended, modified, withdrawn, or refiled).

 

Permit ” means any federal, state, local, foreign or other third-party permit, grant, easement, consent, approval, authorization, exemption, license, franchise, concession, ratification, permission, clearance, confirmation, endorsement, waiver, certification, designation, rating, registration or qualification that is or has been issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or other Person.

 

Permitted Liens ” means any (a) statutory Liens of landlords, carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by Law in the Ordinary Course of Business for sums not yet due and payable; (b) Liens for current taxes not yet due and payable; (c) any items or matters as set forth in the Disclosure Schedules; (d) easements, rights of way, zoning ordinances and other similar encumbrances affecting real property which are not, individually or in the aggregate, material to the business of the Company; and (e) liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the Ordinary Course of Business which are not, individually or in the aggregate, material to the business of the Company.

 

Person ” shall include any individual, trust, firm, corporation, limited liability company, partnership, Governmental Authority or other entity or association, whether acting in an individual, fiduciary or any other capacity.

 

Personal Property ” means all of the machinery, equipment, tools, vehicles, furniture, leasehold improvements, office equipment, plant, spare parts, and other tangible personal property which are owned, used or leased by the Company and used or useful, or intended for use, in the conduct or operations of the Company’s business.

 

[Signature Page to Share Exchange Agreement]

 

 

 

 

Purchaser Common Stock ” means shares of common stock, par value $0.0001 per share, of the Purchaser.

 

Purchaser Common Stock Price ” means an amount equal to the closing sales price per share on the exchange or stock market such securities trade on as of the date such determination is made; provided, that in the event that any equity securities are issued or issuable by Purchaser (or its successor) after the Closing with respect to shares of Purchaser Common Stock (whether by way of any equity dividend, equity split or reverse equity split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporation reorganization, but excluding shares of Purchaser Common Stock issued in connection with any exercise of the Purchaser Warrants), the Purchaser Common Stock Price thereafter will be equitably adjusted for any such events as reasonably determined in good faith by Purchaser.

 

Purchaser Market Capitalization ” means a dollar amount equal to the number of shares of Purchaser Common Stock then issued and outstanding, multiplied by the weighted average closing sale price of a share of Purchaser Common Stock over the prior 15 trading days on the primary trading market on which the Purchaser Common Stock trades as of the measurement dates.

 

Purchaser Shareholder Approval ” means the approval of the issuance of the Consideration by the requisite vote of shareholders of Purchaser, if needed in accordance with the DGCL, Nasdaq Stock Market Rules, Purchaser’s Governing Documents, and SEC proxy rules.

 

Representative ” means, as to any Person, such Person’s Affiliates and its and their managers, directors, officers, employees, agents and advisors (including financial advisors, counsel and accountants).

 

SEC ” means, the United States Securities and Exchange Commission.

 

Securities Act ” means, the Securities Act of 1933, as amended, and the rules and regulations thereunder.

 

Securities Exchange Agreement means the Securities Exchange Agreement made as of December 20, 2018, by and among Purchaser and the Noteholder.

 

Software ” means all computer software, including all source code, object code, and documentation related thereto and all software modules, assemblers, applets, compilers, flow charts or diagrams, tools and databases.

 

Subsidiary ” means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons will be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons will be allocated a majority of partnership, association or other business entity gains or losses or will be or control the managing director, managing member, general partner or other managing Person of such partnership, association or other business entity.

 

[Signature Page to Share Exchange Agreement]

 

 

 

 

Tax ” means any federal, state, local or foreign income, gross receipts, license, payroll, parking, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, natural resources, customs duties, capital stock, franchise, profits, withholding, social security (or similar), payroll, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated tax, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, including such item for which Liability arises from the application of Treasury Regulation 1.1502-6, as a transferee or successor-in-interest, by contract or otherwise, and any Liability assumed or arising as a result of being, having been, or ceasing to be a member of any Affiliated Group (as defined in Section 1504(a) of the Code) (or being included or required to be included in any Tax Return relating thereto) or as a result of any Tax indemnity, Tax sharing, Tax allocation or similar Contract.

 

Tax Return ” means any return, report, information return, schedule, certificate, statement or other document (including any related or supporting information) filed or required to be filed with a Taxing Authority in connection with any Tax, or, where none is required to be filed with a Taxing Authority, the statement or other document issued by a Taxing Authority in connection with any Tax.

 

Taxing Authority ” means any Governmental Authority responsible for the imposition or collection of any Tax.

 

Trademarks ” means all trademarks, service marks, trade dress, trade names, brand names, Internet domain names, designs, logos, or corporate/company names (including, in each case, the goodwill associated therewith), whether registered or unregistered, and all registrations and applications for registration and renewal thereof.

 

Trade Secrets ” means any trade secrets, confidential business information, concepts, ideas, designs, research or development information, processes, procedures, techniques, technical information, specifications, operating and maintenance manuals, engineering drawings, methods, know-how, data, mask works, discoveries, inventions, modifications, extensions, improvements, and other proprietary rights (whether or not patentable or subject to copyright, trademark, or trade secret protection).

 

2.          Other Defined Terms . The following capitalized terms, as used in the Agreement, have the respective meanings given to them in the Section as set forth below adjacent to such terms:

 

Term   Section
AAA   10.9
AAA Procedures   10.9
Actual Closing Net Working Capital   1.4(b) Error! Reference source not found.
Agreement   Preamble
Bank Account   3.20
Term   Section
Claim   7.5(b) 6.17
Claim Notice   7.5(b)
Click Wrapped Software   3.10(b)
Closing   2.1
Closing Consideration   1.2(a)
Closing Date   2.1
Company   Preamble


[Signature Page to Share Exchange Agreement]

 

 

 

Term   Section
Company Indemnified Party   7.2(c)
Company Real Property Leases   3.1
Company Owners   Preamble
Company Software   3.10(b)
Consideration   1.2(a)
Current Assets   1.4(d)
Current Liabilities   1.4(d)1.2(a)
Dispute   10.9
Employment Agreements   1.5
Exchange Agent   1.8
Estimated Closing Net Working Capital   1.4(a)
Expenses   10.2
Expiration Date   7.1
First Contingent Payment   1.2(b)
First Payment Condition   1.2(b)
Grossman Employment Agreement   1.5
Indemnified Party   7.2(c)
Indemnifying Party   7.2(c)
     
Initial Payment   1.2(a)
     
Interim Period   6.1(a)
Kaplan Employment Agreement   1.5
Term   Section
     
Loss   7.2(a)
Material Contract   3.14(a)
     
Minimum Closing Cash Amount   1.4(c)
Net Working Capital   1.4(d)
Outside Date   9.1(b)
Owned IP   3.10(a)
Owners’ Representative   Preamble
Pro Rata Share   1.2(a)
Purchaser   Preamble
Purchaser Indemnified Party   7.2(a)
Purchaser Indemnifying Party   7.2(c)
     
Purchaser Material Adverse Effect   5.1
Related Person   3.19
Resolution Period   10.9
Second Contingent Payment   1.2(c)
Second Payment   1.2(a)
Second Payment Condition   1.2(c)
Second Payment   1.2(a)
Series A-1 Note   1.2(a)
Series A-2 Note   1.2(a)
Third Contingent Payment   1.2(d)
Third Payment Condition   1.2(d)
Third Party Claim   7.5(c)
Trust Accounts   6.17


[Signature Page to Share Exchange Agreement]

 

 

 

Exhibit B

 

Company Owners and Pro-Rata Share

 

(Attached)

 

D- 1

 

Exhibit 10.2

 

Amendment No. 1 To Share Exchange Agreement

Dated December 28, 2018

 

This Amendment No. 1 to Share Exchange Agreement (this “Amendment”) is entered into as of the date first set forth above, by and between among (i) SMAAASH ENTERTAINMENT INC., a Delaware corporation (“Purchaser”), (ii) SIMPLICITY ESPORTS, LLC, a Florida limited liability company (the “Company”), (iii) each of the equity holders of the Company as named on Exhibit B to the Original Agreement, as defined below, (the “Company Owners”), and (iv) Jed Kaplan in the capacity as the representative for the Company Owners in accordance with the terms and conditions of this Agreement (the “Owners’ Representative”).

 

WHEREAS, Purchaser, the Company, the Company Owners and Owners’ Representative are parties to that certain Share Exchange Agreement, dated as of December 21, 2018 (the “Original Agreement”) and now wish to amend the Original Agreement as set forth herein; and

 

WHEREAS, Pursuant to Section 10.15 of the Original Agreement, the Owners’ Representative may bind the Company Owners to an amendment of the Original Agreement;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1. Amendment . Pursuant to Section 10.6 of the Original Agreement, the words “one (1) year” in Section 6.8(a) of the Original Agreement are hereby amended to read “six (6) month”.

 

2. Miscellaneous .

 

(a) Defined terms used herein without definition shall have the meaning given to them in the Original Agreement.

 

(b) This Amendment and the rights and obligations of the parties hereto shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without application of the conflicts of laws provisions thereof.

 

(c) This Amendment shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the Original Agreement. Except as specifically modified hereby, all of the provisions of the Original Agreement, which are not in conflict with the terms of this Amendment, shall remain in full force and effect.

 

(d) This Amendment may be executed in any number of counterparts and by the parties in separate 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. A signed copy of this Amendment delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Amendment.

 

[Signatures appear on following page]

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers hereunto duly authorized on the date first above written.

 

 

  SMAAASH ENTERTAINMENT INC.
     
  By: /s/ F. Jacob Cherian  
    Name: F. Jacob Cherian
    Title: Chief Executive Officer

 

  The Company:
   
  SIMPLICITY ESPORTS, LLC
     
  By: /s/ Jed Kaplan  
  Name: Jed Kaplan
  Title: Manager
     
  Owners’ Representative:
   
  /s/ Jed Kaplan  
  Name: Jed Kaplan

 

2

Exhibit 10.3 

 

SMAAASH ENTERTAINMENT, INC.

 

SECURITIES EXCHANGE AGREEMENT

 

This Securities Exchange Agreement (this “ Agreement ”) is made as of December 20, 2018 (“Effective Date”), by and among Smaaash Entertainment, Inc., a Delaware corporation (the “ Company ”), and Maxim Group LLC (the “ Holder ”). Capitalized terms used herein but not otherwise defined shall have such meaning as described in the Notes (as defined below).

 

RECITALS

 

WHEREAS, the Holder currently holds a Demand Secured Promissory Note originally issued by the Company to the Holder on November 20, 2018 (the “ Demand Note ”); and

 

WHEREAS, subject to the terms and conditions set forth herein, the Company and the Holder desire to exchange the Demand Note (the “ Exchange ”) for a Series A-1 Exchange Convertible Note (the “ Series A-1 Note ”) and a Series A-2 Exchange Convertible Note (the “ Series A-2 Note ,” and together with the Series A-1 Note and in the form attached as Exhibit A hereto, the “ Notes ”), convertible into shares (the “ Conversion Shares ”) of the Company’s common stock, $0.0001 par value per share (the “ Common Stock ”), in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “ Securities Act ”).

 

WHEREAS, at the Closing, the parties hereto shall execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “ Registration Rights Agreement ”), pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

In consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Holder hereby agree as follows:

 

AGREEMENT

 

SECTION 1.     EXCHANGE AND TERMINATION.

 

a)            In consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Holder agrees to deliver and surrender to the Company for cancellation the Demand Note in exchange for the Notes, and the Company agrees to deliver the Notes to the Holder.

 

b)            The closing under this Agreement (the “ Closing ”) shall take place upon the satisfaction of each of the conditions set forth in Sections 4 and 5 hereof, and in any event within three (3) trading days of the date hereof (the “ Closing Date ”). At the Closing, (i) the Company shall deliver the Notes to the Holder and (ii) the Demand Note shall automatically be cancelled and shall be null and void.

 

 

 

 

c)            If the Closing has not occurred by December 27, 2018, this Agreement shall terminate; provided, however , that no such termination will affect the right of any party to sue for any breach by any other party (or parties) of their respective obligations hereunder.

 

d)           As soon as commercially practicable following the Closing Date, the Holder shall deliver to the Company the original Demand Note or a lost note affidavit (in form and substance reasonably acceptable to the Company).

 

SECTION 2.     REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company hereby represents and warrants as of the date hereof to, and covenants with, the Holder as follows:

 

a)            Organization and Standing. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware, has full corporate power and authority to own or lease its properties and conduct its business as presently conducted, and is duly qualified as a foreign corporation and in good standing in each jurisdiction in which the character of the property owned or leased or the nature of the business transacted by it makes qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect (as defined below). “ Material Adverse Effect ” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Exchange Documents (as defined below) or (iii) the authority or ability of the Company or any of its Subsidiaries to perform any of their respective obligations under any of the Exchange Documents. “ Exchange Documents ” means, collectively, this Agreement, the Notes, the Lock-Up Agreement (as defined below), the Registration Rights Agreement and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.

 

b)            Authorization; Corporate Power. Each of the Exchange Documents to which the Company is a party has been duly authorized, validly executed and delivered on behalf of the Company and is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms ( except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, and (ii) equitable principles generally, including any specific performance) , and the Company has the requisite corporate power and authority to execute and deliver the Exchange Documents to which the Company is a party and the other agreements and documents contemplated hereby and to perform its obligations hereunder and thereunder. The execution and delivery of the Exchange Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Notes has been duly authorized by the Company’s Board of Directors and no further filing, consent, or authorization is required by the Company, its Board of Directors or its stockholders.

 

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c)           Issuance and Delivery of the Securities. The issuance of the Notes are duly authorized and upon issuance in accordance with the terms of the Transaction Documents shall be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, mortgages, defects, claims, liens, pledges, charges, taxes, rights of first refusal, encumbrances, security interests and other encumbrances (collectively “Liens”) with respect to the issuance thereof. As of the Closing, the Company shall have reserved from its duly authorized capital stock not less than the maximum number of Conversion Shares issuable pursuant to the Notes (assuming for purposes hereof that (x) such Notes are convertible at the lowest conversion price potentially available for issuance thereunder, (y) interest on the Notes shall accrue through the Maturity Date (as defined in the Notes) of the Notes and (z) any such conversion shall not take into account any limitations on the conversion of the Notes set forth in the Notes). The Conversion Shares, when issued in accordance with the terms of the Notes, will be validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Lock-up Agreement, in the form attached as Exhibit C hereto, executed by the Holder dated as of the date hereof (the “ Lock-up Agreement ”).

 

d)           Governmental Consents. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Exchange Documents to which the Company is a party or the issuance of the Notes or the consummation of any other transaction contemplated by this Agreement.

 

e)            No Default or Violation . The execution and delivery of the Agreement and the consummation of the transactions contemplated by this Agreement by the Company will not (i) result in a breach of or a default under any of the terms or provisions of (A) the Company’s certificate of incorporation or by-laws, or (B) any material provision of any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company is a party or by which it or any of its material properties or assets is bound or (ii) result in a violation of any provision of any law, statute, rule, regulation, or any existing applicable decree, judgment or order by any Governmental Entity (as defined below) having jurisdiction over the Company, or any of its material properties or assets except in the case of clauses (i)(B) or (ii) for any such breaches, defaults or violations which would not have a Material Adverse Effect. “ Governmental Entity ” means any nation, state, county, city, town, village, district, or other political jurisdiction of any nature, federal, state, local, municipal, foreign, or other government, governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal), multi-national organization or body; or body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature or instrumentality of any of the foregoing, including any entity or enterprise owned or controlled by a government or a public international organization or any of the foregoing.

 

f)            Securities Law Exemptions . Assuming the accuracy of the representations and warranties of the Holder contained herein, the offer and issuance by the Company of the Notes is exempt from registration under the Securities Act pursuant to the exemption provided by Section 3(a)(9) thereof.

 

g)           Transfer Taxes . On the date hereof, all share transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance of the Exchange Notes to be exchanged with the Holder hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

 

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h)           Securities Act Exemption . The Company confirms that neither the Holder nor anyone acting on behalf of the Holder has paid the Company any commission or remuneration directly or indirectly in connection with or in order to solicit or facilitate the Exchange.

 

SECTION 3.     REPRESENTATIONS and WARRANTIES OF THE HOLDER.

 

The Holder represents and warrants to and covenants with the Company that:

 

a)            Valid Existence; Good Standing . The Holder is validly existing and in good standing under the laws of the jurisdiction of its organization.

 

b)            Authority; Authorization . The Holder has full right, power, authority and capacity to enter into this Agreement, the Registration Rights Agreement, the Lock-up Agreement and the other agreements and documents contemplated hereby and to perform its obligations hereunder and thereunder and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Lock-up Agreement. Upon the execution and delivery of this Agreement, the Registration Rights Agreement and the Lock-up Agreement by the Holder, this Agreement, the Registration Rights Agreement and the Lock-up Agreement shall constitute valid and binding obligations of the Holder, enforceable in accordance with its terms (except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, and (ii) as limited by equitable principles generally, including any specific performance).

 

c)            Title . The Holder owns and holds the entire right, title and interest in and to, and is the record and beneficial owner of, the Demand Note and the Holder owns the Demand Note free and clear of all Liens. There is no restriction affecting the ability of the Holder to transfer the legal and beneficial title and ownership of the Demand Note to the Company.

 

SECTION 4.     CONDITIONS TO COMPANY’S OBLIGATIONS AT THE CLOSING.

 

The Company’s obligation to deliver the Notes to the Holder at the Closing shall be subject to the following conditions to the extent not waived by the Company:

 

a)            Execution and Delivery . The Holder shall have executed and delivered this Agreement, the Registration Rights Agreement and the Lock-up Agreement to the Company.

 

b)           Covenants . T he Holder shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Holder at or prior to the Closing Date.

 

c)            Representations and Warranties. The representations and warranties of the Holder shall be true and correct in all material respects as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date).

 

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SECTION 5.     CONDITIONS TO THE HOLDER’s OBLIGATIONS AT THE CLOSING.

 

The Holder’s obligation to deliver the Demand Note and accept delivery of the Notes shall be subject to the following conditions to the extent not waived by the Holder:

 

a)            Execution and Delivery. The Company shall have executed and delivered this Agreement, the Notes and the Registration Rights Agreement to the Holder.

 

b)           Covenants . 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 Date.

 

c)            Representations and Warranties. Each and every representation and warranty of the Company shall be true and correct in all material respects (except for representations and warranties qualified by material or Material Adverse Effect, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct in all material respects (except for representations and warranties qualified by material or Material Adverse Effect, which shall be true and correct in all respects) as of such specific date).

 

d)           The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the issuance of the Conversion Shares and the Notes, including without limitation, those required by the Nasdaq Capital Market for the listing of the Conversion Shares thereon.

 

e)            No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or Governmental Entity of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Exchange Documents.

 

SECTION 6.     NOTICES.

 

All notices, requests, consents and other communications hereunder shall be in writing, shall be sent by confirmed electronic mail, or mailed by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, and shall be deemed given when so sent in the case of electronic mail transmission, or when so received in the case of mail or courier, and addressed as follows:

 

a)            if to the Company, to:

 

Smaaash Entertainment, Inc.
1345 Avenue of the Americas, 15th Floor
New York, NY 10105
Attention: F. Jacob Cherian
E-Mail: fjc@i-amcapital.com

 

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or to such other person at such other place as the Company shall designate to the Holder in writing; and

 

b)            if to the Holder, at the address as set forth at the end of this Agreement, or at such other address as may have been furnished by the Holder to the Company in writing.

 

with a copy (for informational purposes only) to:

 

Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Telephone: (212) 808-7540
Attention: Michael A. Adelstein, Esq.
E-mail: madelstein@kelleydrye.com

 

SECTION 7.    COVENANTS

 

a)            No Integration . None of the Company, its subsidiaries, any of their affiliates, or any person acting on their behalf shall, directly or indirectly, make any offers or sales of any security (as defined in the Securities Act) or solicit any offers to buy any security or take any other actions, under circumstances that would require registration of any of the Notes or the Conversion Shares under the Securities Act or cause any of the transactions contemplated hereby to be integrated with such offering or any prior offerings by the Company for purposes of Regulation D under the Securities Act.

 

b)            Listing . The Company shall promptly secure the listing or designation for quotation (as applicable) of all of the Conversion Shares upon the principal Nasdaq Capital Market (subject to official notice of issuance) and shall maintain such listing of all the Conversion Shares from time to time issuable under the terms of the Exchange Documents.

 

c)            Fees . Each party to this Agreement shall bear its own expenses in connection with the structuring, documentation, negotiation and closing of the transactions contemplated hereby, except that the Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, transfer agent fees, Depository Trust Company (“ DTC ”) fees relating to or arising out of the transactions contemplated hereby.

 

d)            Holding Period . For the purposes of Rule 144, the Company acknowledges that the holding period of the Notes (and upon conversion of the Notes, the Conversion Shares) may be tacked onto the holding period of the Demand Note, and the Company agrees not to take a position contrary to this Section 7(d). The Company acknowledges and agrees that (assuming the Holder is not an affiliate of the Company) in connection with any resale of any Conversion Shares pursuant to Rule 144, the Holder shall solely be required to provide reasonable assurances that such Exchange Shares are eligible for resale, assignment or transfer under Rule 144, which shall not include an opinion of Holder’s counsel. The Company shall be responsible for any transfer agent fees or DTC fees or legal fees of the Company’s counsel with respect to the removal of legends, if any, or issuance of Conversion Shares in accordance herewith.

 

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e)            Blue Sky . The Company shall make all filings and reports relating to the Exchange required under applicable securities or “Blue Sky” laws of the states of the United States following the date hereof, if any.

 

SECTION 8.     MISCELLANEOUS.

 

a)            Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.

 

b)             Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

 

c)            Governing Law. This Agreement shall be governed by and construed under the laws of the State of Illinois without regard to the choice of law principles thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the Chicago, Illinois for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or thereby, and hereby irrevocably waives any objection that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder or to enforce a judgment or other court ruling in favor of the Holder. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

d)            Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains an electronic file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or electronic file signature page (as the case may be) were an original thereof.

 

e)            Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Holder, including, without limitation, by way of a Fundamental Transaction (as defined in the Notes) (unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Notes). The Holder may assign some or all of its rights hereunder in connection with any transfer of any of its Notes or Conversion Shares without the consent of the Company, in which event such assignee shall be deemed to be the Holder hereunder with respect to such assigned rights.

 

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f)             Entire Agreement; Amendments. This Agreement and other Exchange Documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by all parties, or, in the case of a waiver, by the party waiving compliance. Except as expressly stated herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder preclude any other or future exercise of any other right, power or privilege hereunder.

 

g)            Survival . The representations, warranties, covenants and agreements made in this Agreement shall survive the closing of the transactions contemplated hereby and the exchange and delivery of the Demand Note and the Notes.

 

h)            Indemnification.

 

(i)            In consideration of the Holder’s execution and delivery of the Exchange Documents and consummation of the Exchange and in addition to all of the Company’s other obligations under the Exchange Documents, the Company shall defend, protect, indemnify and hold harmless the Holder and each holder of any Notes and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees ”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company or any of its subsidiaries in any of the Exchange Documents, (ii) any breach of any covenant, agreement or obligation of the Company or any of its Subsidiaries contained in any of the Exchange Documents or (iii) any cause of action, suit, proceeding or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company or any Subsidiary) or which otherwise involves such Indemnitee that arises out of or results from (A) the execution, delivery, performance or enforcement of any of the Exchange Documents, or (B) the status of the Holder or holder of the Notes either as an investor in the Company pursuant to the transactions contemplated by the Exchange Documents or as a party to this Agreement (including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable relief). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

 

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(ii)           Promptly after receipt by an Indemnitee under this Section 8(h) of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Section 8(h), deliver to the Company a written notice of the commencement thereof, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnitee; provided, however, that an Indemnitee shall have the right to retain its own counsel with the fees and expenses of such counsel to be paid by the Company if: (A) the Company has agreed in writing to pay such fees and expenses; (B) the Company shall have failed promptly to assume the defense of such Indemnified Liability and to employ counsel reasonably satisfactory to such Indemnitee in any such Indemnified Liability; or (C) the named parties to any such Indemnified Liability (including any impleaded parties) include both such Indemnitee and the Company, and such Indemnitee shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnitee and the Company (in which case, if such Indemnitee notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, then the Company shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Company), provided further, that in the case of clause (C) above the Company shall not be responsible for the reasonable fees and expenses of more than one (1) separate legal counsel for the Indemnitees. The Indemnitee shall reasonably cooperate with the Company in connection with any negotiation or defense of any such action or Indemnified Liability by the Company and shall furnish to the Company all information reasonably available to the Indemnitee which relates to such action or Indemnified Liability. The Company shall keep the Indemnitee reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. The Company shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the Company shall not unreasonably withhold, delay or condition its consent. The Company shall not, without the prior written consent of the Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such Indemnified Liability or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnitee. Following indemnification as provided for hereunder, the Company shall be subrogated to all rights of the Indemnitee with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the Company within a reasonable time of the commencement of any such action shall not relieve the Company of any liability to the Indemnitee under this Section 8(h), except to the extent that the Company is materially and adversely prejudiced in its ability to defend such action.

 

(iii)          The indemnification required by this Section 8(h) shall be made by periodic payments of the amount thereof during the course of the investigation or defense, within ten (10) days after bills are received or Indemnified Liabilities are incurred subject to the delivery by the applicable Indemnitees to the Company of an undertaking that such Indemnitees will return such amounts if it is determined that they are not entitled to indemnification under this Section 8(h) with respect to the applicable matter.

 

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(iv)          The indemnity agreement contained herein shall be in addition to (A) any cause of action or similar right of the Indemnitee against the Company or others, and (B) any liabilities the Company may be subject to pursuant to the law.

 

i)            Most Favored Nation. The Company hereby represents and warrants as of the date hereof (and covenants and agrees that at any time the Notes remain outstanding) any direct, or indirect, agreement or other arrangement between the Company and any of Jed Kaplan, Simplicity Esports, LLC and each of the equity holders of Simplicity Esports, LLC (including without limitation the Acquisition Transaction) (each, a “ Simplicity Party ”) shall not include any resets, antidilution rights, other adjustments to conversion prices or exercise prices, exchange rights, registration rights, lock-up restrictions or reduction of any lock-up restrictions, as applicable, that is, is or will be more favorable to such Simplicity Party than those of the Holder in any applicable Exchange Document (each such agreement or arrangement, a “Simplicity Document”). If, and whenever on or after the date hereof, the Company enters into a Simplicity Document, then (i) the Company shall provide notice thereof to the Holder immediately following the occurrence thereof and (ii) the terms and conditions of the applicable Exchange Documents shall be, without any further action by the Holder or the Company, automatically amended and modified in an economically and legally equivalent manner such that the Holder shall receive the benefit of the more favorable terms and/or conditions (as the case may be) set forth in such Simplicity Document. Notwithstanding the foregoing, upon written notice to the Company at any time the Holder may elect not to accept the benefit of any such amended or modified term or condition, in which event the term or condition contained in the applicable Exchange Document shall apply to the Holder as it was in effect immediately prior to such amendment or modification as if such amendment or modification never occurred with respect to the Holder. The provisions of this Section 8(i) shall apply similarly and equally to each Settlement Document.

 

[signature pages follow]

 

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.

 

  SMAAASH ENTERTAINMENT, INC.
     
  By: /s/ F. Jacob Cherian
  Name: /s/ F. Jacob Cherian
  Title: Chief Executive Officer

 

 

 

 

HOLDER:  
     
MAXIM GROUP LLC  
     
By: /s/ Clifford Teller  
Name: Clifford Teller  
Title: Executive Managing Director of Investment Banking  

 

HOLDER SIGNATURE PAGE TO

GEVO WARRANT EXCHANGE AGREEMENT

 

 

Exhibit 10.4

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: November 20, 2018

Exchange Date: December 20, 2018

Original Conversion Price (subject to adjustment herein): $1.93

 

$500,000

 

SERIES A-1 Exchange CONVERTIBLE NOTE

 

FOR VALUE RECEIVED, SMAAASH ENTERTAINMENT, INC., a Delaware corporation (the “ Company ”) promises to pay to MAXIM GROUP LLC or its registered assigns (the “ Holder ”), or shall have paid pursuant to the terms hereunder, the principal sum of $500,000 on the earlier of the closing date of the Acquisition Transaction or June 20, 2020 (the “ Maturity Date ”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is one of a series of unsecured convertible notes (excluding this Note, the “ Other Notes ”, and together with this Note, the “ Notes ”) issued in exchange (the “ Exchange ”) for that certain Demand Secured Promissory Note (the “ Original Security ”) originally issued by the Company to the Holder (as defined below) on November 20, 2018 pursuant to that certain Exchange Agreement, by and between the Company and the Holder, dated as of December 20, 2018 (the “ Exchange Agreement ”). Pursuant to Rule 144 of the Securities Act (as defined below), the holding period of this Note and the Conversion Shares (as defined below) issuable upon conversion hereof shall tack back to November 20, 2018 and the Company shall not take any legal position to the contrary of the foregoing. This Note is subject to the following additional provisions:

 

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Section 1 .           Definitions . For the purposes hereof, in addition to the terms defined elsewhere in this Note, the following terms shall have the following meanings:

 

Acquisition Transaction ” means the transactions contemplated by that certain Share Exchange Agreement, dated as of December 18, 2018, by and among the Company, Jed Kaplan, Simplicity Esports, LLC and each of the equity holders of Simplicity Esports, LLC, as in effect as of the date hereof, and the closing date thereof, the “ Acquisition Closing Date ”.

 

Alternate Consideration ” shall have the meaning set forth in Section 5(e).

 

Automatic Conversion ” shall have the meaning set forth in Section 6(c).

 

Automatic Conversion Date ” shall have the meaning set forth in Section 6(c).

 

Bankruptcy Event ” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

Beneficial Ownership Limitation ” shall have the meaning set forth in Section 4(d).

 

Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Buy-In ” shall have the meaning set forth in Section 4(c)(v).

 

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Change of Control Transaction ” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Notes and the Securities issued together with the Notes), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Exchange Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

Conversion ” shall have the meaning ascribed to such term in Section 4.

 

Conversion Date ” shall have the meaning set forth in Section 4(a).

 

Conversion Price ” shall have the meaning set forth in Section 4(b).

 

Conversion Shares ” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.

 

Note Register ” shall have the meaning set forth in Section 2(c).

 

Effectiveness Period ” shall have the meaning set forth in the Registration Rights Agreement.

 

Equity Conditions ” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Note, (c) the Company has satisfied all of the current public information requirements of Rule 144, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, and (h) the applicable Holder is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates, that constitutes, or may constitute, material non-public information (other than in its capacity as a placement agent or underwriter of the Company, if applicable).

 

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Event of Default ” shall have the meaning set forth in Section 8(a).

 

Exchange Act ” means the Securities and Exchange Act of 1934, as amended.

 

Fundamental Transaction ” shall have the meaning set forth in Section 5(e).

 

Indebtedness ” means (x) any liabilities for borrowed money or amounts owed in excess of $250,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $250,000 due under leases required to be capitalized in accordance with generally accepted accounting principles.

 

Interest Conversion Rate ” means the then applicable Conversion Price.

 

Interest Conversion Shares ” shall have the meaning set forth in Section 2(a).

 

Interest Notice Period ” shall have the meaning set forth in Section 2(a).

 

Interest Payment Date ” shall have the meaning set forth in Section 2(a).

 

Interest Share Amount ” shall have the meaning set forth in Section 2(a).

 

Late Fees ” shall have the meaning set forth in Section 2(d).

 

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Mandatory Default Amount ” means the sum of (a) the greater of (i) the outstanding principal amount of this Note, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 125% of the outstanding principal amount of this Note, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

 

Illinois Courts ” shall have the meaning set forth in Section 9(d).

 

Notice of Conversion ” shall have the meaning set forth in Section 4(a).

 

Optional Redemption ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Amount ” means the sum of (a) 100% of the then outstanding principal amount of the Note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Note.

 

Optional Redemption Date ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Notice ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Notice Date ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Period ” shall have the meaning set forth in Section 6(a).

 

Original Issue Date ” means the date of the first issuance of the Original Security, regardless of the Exchange, any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Notes.

 

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Registration Rights Agreement ” means the Registration Rights Agreement, dated as of the Exchange Date, among the Company and the original Holders, in the form of Exhibit B attached to the Exchange Agreement.

 

Registration Statement ” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.

 

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Repayment Failure Conversion Amount ” means, with respect to any given Notice of Conversion subject to a Repayment Failure, the greater of (i) 105% of the aggregate principal, interest and other amounts hereunder subject to conversion in such Notice of Conversion and (ii) the product of (x) the aggregate number of shares of Common Stock originally issuable pursuant to such Notice of Conversion (without regard to any Right of Repayment) multiplied by (y) the greatest closing sale price of the Common Stock on any Trading Day during the Repayment Period.

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Share Delivery Date ” shall have the meaning set forth in Section 4(c)(ii).

 

Successor Entity ” shall have the meaning set forth in Section 5(e).

 

Trading Day ” means a day on which the principal Trading Market is open for trading.

 

Trading Market ” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

Transaction Documents ” means this Note, the Exchange Agreement and the Registration Rights Agreement.

 

VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets, 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 (d) 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 Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Section 2 .           Interest .

 

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a)        Payment of Interest in Cash or Kind . The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of 2.76% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the Exchange Date, on each Conversion Date (as to that principal amount then being converted), on each Optional Redemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date, an “ Interest Payment Date ”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at the Interest Conversion Rate (the dollar amount to be paid in shares, the “ Interest Share Amount ”) or a combination thereof; provided , however , that payment in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in writing) during the 20 Trading Days immediately prior to the applicable Interest Payment Date (the “ Interest Notice Period ”) and through and including the date such shares of Common Stock are actually issued to the Holder, (ii) the Company shall have given the Holder notice in accordance with the notice requirements set forth below and (iii) as to such Interest Payment Date, prior to such Interest Notice Period (but not more than five (5) Trading Days prior to the commencement of such Interest Notice Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Interest Share Amount equal to the quotient of (x) the applicable Interest Share Amount divided by (y) the lesser of the (i) then Conversion Price and (ii) the Interest Conversion Rate assuming for such purposes that the Interest Payment Date is the Trading Day immediately prior to the commencement of the Interest Notice Period (the “ Interest Conversion Shares ”).

 

b)        Company’s Election to Pay Interest in Cash or Kind . Subject to the terms and conditions herein, the decision whether to pay interest hereunder in cash, shares of Common Stock or a combination thereof shall be at the sole discretion of the Company. Prior to the commencement of any Interest Notice Period, the Company shall deliver to the Holder a written notice of its election to pay interest hereunder on the applicable Interest Payment Date either in cash, shares of Common Stock or a combination thereof and the Interest Share Amount as to the applicable Interest Payment Date, provided that the Company may indicate in such notice that the election contained in such notice shall apply to future Interest Payment Dates until revised by a subsequent notice. During any Interest Notice Period, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest Payment Date. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder shall be deemed an election by the Company to pay the interest on such Interest Payment Date in cash. At any time the Company delivers a notice to the Holder of its election to pay the interest in shares of Common Stock, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing such election. The aggregate number of shares of Common Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest Conversion Shares previously issued to the Holder in connection with such Interest Payment Date.

 

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c)        Interest Calculations . Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Exchange Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Payment of interest in shares of Common Stock (other than the Interest Conversion Shares issued prior to an Interest Notice Period) shall otherwise occur pursuant to Section 4(c)(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion Date. Interest shall cease to accrue with respect to any principal amount converted, provided that, the Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “ Note Register ”).

 

d)        Late Fee . All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law (the “ Late Fees ”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full. Notwithstanding anything to the contrary contained herein, if, on any Interest Payment Date the Company has elected to pay accrued interest in the form of Common Stock but the Company is not permitted to pay accrued interest in Common Stock because it fails to satisfy the conditions for payment in Common Stock set forth in Section 2(a) herein, then, at the option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly scheduled interest payment in cash, shall deliver, within three (3) Trading Days of each applicable Interest Payment Date, an amount in cash equal to the product of (x) the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on such Interest Payment Date multiplied by (y) the highest VWAP during the period commencing on the Interest Payment Date and ending on the Trading Day prior to the date such payment is actually made. If any Interest Conversion Shares are issued to the Holder in connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder shall promptly return such excess shares to the Company.

 

e)        Prepayment . Except as otherwise set forth in this Note (including, without limitation, an Optional Redemption accordance with Section 6(a) below), the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

f)        Exchange . In the event that the Acquisition Transaction has not closed on or before January 31, 2019, this Note, along with the Series A-2 2.76% Senior Convertible Note, shall be exchanged for a Demand Secured Promissory Note with an aggregate outstanding principal amount of $1,800,000 in the same form as the Original Security (and with such accrued and unpaid interest as if the Exchange never occurred) and this Note along with the Series A-2 2.76% Senior Convertible Note shall automatically, and without any further action of the Holder, be of no further force and effect.

 

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Section 3.           Registration of Transfers and Exchanges .

 

a)        Different Denominations . This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b)        Investment Representations . This Note has been issued subject to certain investment representations of the original Holder set forth in the Exchange Agreement and may be transferred or exchanged only in compliance with the Exchange Agreement and applicable federal and state securities laws and regulations.

 

c)        Reliance on Note Register . Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

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Section 4.                Conversion .

 

a)             Voluntary Conversion . At any time after the Exchange Date until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) and the Company’s Right of Repayment). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “ Notice of Conversion ”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, subject to the Right of Repayment, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder (subject to the Right of Repayment). No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Note as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof. Notwithstanding the foregoing, upon receipt of a Notice of Conversion, the Company shall have the right to repay all or any portion of the Note included in the Notice of Conversion (the “ Right of Repayment ”). The Company shall effect its Right of Repayment by furnishing notice to the Holder within one (1) Business Day of receipt of the Notice of Conversion, which such notice shall include the portion of the Note that the Company is electing to repay (the “ Repayment Notice ”). The Company shall then have fourteen (14) days (the “ Repayment Period ”) to repay the portion of the Note identified in the Repayment Notice. In the event that the Company fails to repay the Note in accordance with the Repayment Notice (a “ Repayment Failure ”), unless the Holder elects to void such Notice of Conversion, the Company shall issue to the Holder such aggregate number of shares of Common Stock equal to the quotient of (x) the Repayment Failure Conversion Amount, divided by (y) the Conversion Price in effect (as if a Notice of Conversion was delivered to the Company with respect thereto on the date of such applicable Repayment Failure).

 

b)             Conversion Price . The conversion price in effect on any Conversion Date shall initially be equal to $ 1.93 , subject to adjustment herein (the “ Conversion Price ”); provided, that upon the Acquisition Closing Date, the Conversion Price shall be automatically adjusted to equal the arithmetic average of the VWAP in the five (5) Trading Days prior to the Acquisition Closing Date.

 

c)             Mechanics of Conversion .

 

i.          Conversion Shares Issuable Upon Conversion of Principal Amount . The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (y) the Conversion Price.

 

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ii.         Delivery of Conversion Shares Upon Conversion . Not later than (A) the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date or (B) two (2) Trading Days after the Repayment Failure if a Repayment Notice is delivered by the Company in accordance with Section 4(a) above (the “ Share Delivery Date ”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Exchange Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of Common Stock at least 20 Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a) but assuming that the Interest Notice Period is the 20 Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the Company and excluding for such issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment prior to the commencement of the Interest Notice Period) and (B) a bank check in the amount of accrued and unpaid interest (if the Company has elected or is required to pay accrued interest in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “ Standard Settlement Period ” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

iii.        Failure to Deliver Conversion Shares . If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

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iv.        Obligation Absolute; Partial Liquidated Damages . The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided , however , that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5 th ) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v.         Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion . In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Conversion Shares upon conversion of this Note as required pursuant to the terms hereof.

 

vi.        Reservation of Shares Issuable Upon Conversion . The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Exchange Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Note and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

vii.       Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

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viii.      Transfer Taxes and Expenses . The issuance of Conversion Shares on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d)             Holder’s Conversion Limitations . The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “ Attribution Parties ”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) 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 (including, without limitation, any other Notes or the Warrants) beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61 st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note. Notwithstanding the foregoing, on the Automatic Conversion Date, if an Automatic Conversion of the then outstanding principal amount of this Notes would require the issuance to the Holder of a number of shares that would exceed the Beneficial Ownership Limitation, then any such shares in excess of the Beneficial Ownership Limitation shall be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation, at which time or times the Holder shall be issued such shares to the same extent as if there had been no such limitation.

 

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Section 5 .          Certain Adjustments .

 

a)        Stock Dividends and Stock Splits . If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)       [Intentionally Omitted]

 

c)        Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights ( provided , however , that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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d)        Pro Rata Distributions . During such time as this Note is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e)        Fundamental Transaction . If, at any time while this Note is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f)             Calculations . All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

g)            Notice to the Holder .

 

i.          Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii.         Notice to Allow Conversion by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 6 .          Redemption and Automatic Conversion .

 

a)        Optional Redemption at Election of Company . Subject to the provisions of this Section 6(a), at any time after the date hereof the Company may deliver a notice to the Holder (an “ Optional Redemption Notice ” and the date such notice is deemed delivered hereunder, the “ Optional Redemption Notice Date ”) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Note for cash in an amount equal to the Optional Redemption Amount on the 20 th Trading Day following the Optional Redemption Notice Date (such date, the “ Optional Redemption Date ”, such 20 Trading Day period, the “ Optional Redemption Period ” and such redemption, the “ Optional Redemption ”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio . The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full.

 

b)        Redemption Procedure . The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio , and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. Notwithstanding anything to the contrary in this Section 6, the Company’s determination to redeem in cash or its elections under Section 6(b) shall be applied ratably among the Holders of Notes. The Holder may elect to convert the outstanding principal amount of the Note pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

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c)        Automatic Conversion . Notwithstanding anything herein to the contrary, on the earlier to occur of (x) the Maturity Date and (y) the Acquisition Closing Date (the “ Automatic Conversion Date ”), as long as no Event of Default then exists and, solely if such Automatic Conversion Date is also the Maturity Date, each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the twenty (20) Trading Day during the period ending, and including, the Trading Day immediately prior to the Automatic Conversion Date, all of the then outstanding principal amount of this Note, accrued but unpaid interest, liquidated damages and other amounts owing to the Holder under this Note shall be converted into Conversion Shares on the Acquisition Closing Date (such conversion, an “ Automatic Conversion ”) in accordance with Section 4 as if the Holder delivered a Notice of Conversion to the Company on the second Trading Day immediately prior to the Acquisition Closing Date. For purposes of clarification, an Automatic Conversion shall be subject to all of the provisions of Section 4, including, without limitation, the provision requiring payment of liquidated damages and limitations on conversions.

 

Section 7 .        Negative Covenants . As long as any portion of this Note remains outstanding, unless the Holder shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a)       amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

b)       repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Note;

 

c)       repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Notes if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Exchange Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

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d)            pay cash dividends or distributions on any equity securities of the Company;

 

e)            enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

f)             enter into any agreement with respect to any of the foregoing.

 

Section 8 .               Events of Default .

 

a)            “ Event of Default ” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i.         any default in the payment of (A) the principal amount of any Note or (B) interest, liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

 

ii.        the Company shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below) or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

 

iii.       a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

 

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iv.       any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v.        the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi.       the Company or any Subsidiary shall default on any of its obligations under 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 that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii.      the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

 

viii.     the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix.        the Initial Registration Statement (as defined in the Registration Rights Agreement) shall not have been declared effective by the Commission on or prior to the 120 th calendar day after the date hereof or the Company does not meet the current public information requirements under Rule 144 in respect of the Registrable Securities (as defined in the Registration Rights Agreement);

 

x.         if, during the Effectiveness Period (as defined in the Registration Rights Agreement), either (a) the effectiveness of the Registration Statement lapses for any reason or (b) the Holder shall not be permitted to resell Registrable Securities (as defined in the Registration Rights Agreement) under the Registration Statement for a period of more than 20 consecutive Trading Days or 30 non-consecutive Trading Days during any 12 month period; provided , however , that if the Company is negotiating a merger, consolidation, acquisition or sale of all or substantially all of its assets or a similar transaction and, in the written opinion of counsel to the Company, the Registration Statement would be required to be amended to include information concerning such pending transaction(s) or the parties thereto which information is not available or may not be publicly disclosed at the time, the Company shall be permitted an additional 10 consecutive Trading Days during any 12 month period pursuant to this Section 8(a)(x);

 

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xi.       the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(c) or any Automatic Conversion Date pursuant to Section 6(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Notes in accordance with the terms hereof (except, it shall not be an Event of Default if any shares issued to Holder are required to be held in abeyance upon an Automatic Conversion in accordance with Section 4(d) herein);

 

xii.      [Intentionally Omitted];

 

xiii.     the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xiv.     any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days; or

 

xv.      a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity Conditions are satisfied or that there has been no Equity Conditions Failure or as to whether any Event of Default has occurred.

 

b)        Remedies Upon Event of Default . If any Event of Default occurs, the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

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Section 9 .          Miscellaneous .

 

a)        Notices . Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Exchange Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

b)        Absolute Obligation . Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks pari passu with all Other Notes now or hereafter issued under the terms set forth herein.

 

c)        Lost or Mutilated Note . If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.

 

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d)        Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the Chicago, Illinois (the “ Illinois Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Illinois Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such Illinois Courts, or such Illinois Courts are improper or inconvenient venue for such proceeding. 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 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 Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

e)        Amendments and Waiver . Except for Section 4(d), which may not be amended, modified or waived hereunder, any amendment, modification or waiver of this Note shall require the prior written consent of the Company and the Holder. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion.

 

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f)        Severability . If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

g)        Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note.

 

h)        Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

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i)         Headings . The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

 

Section 10.       Disclosure . Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

Section 11.       Waiver Against Trust . For and in consideration of the Company agreeing to issue this Note, the Holder hereby agrees that it does not have any right, title, interest or claim of any kind (the “Claim”) in or to any monies in the trust account(s) established for the benefit of certain sellers of the Company’s shares and hereby waives any Claim it may have in the future as a result of, or arising out of, any breach by the Company of this Note and will not seek recourse against any such trust account(s) for any such breach of this Note by the Company.

 

*********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

 

  Smaaash Entertainment, Inc.
   
  By: /s/ F. Jacob Cherian
  Name: F. Jacob Cherian
  Title: Chief Executive Officer
  Facsimile No. for delivery of Notices: ______________

 

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ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Exchange Convertible Note of Smaaash Entertainment, Inc., a Delaware corporation (the “ Company ”), into shares of common stock (the “ Common Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

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. 

 

Conversion calculations:

 

Date to Effect Conversion:

 

Principal Amount of Note to be Converted:

 

Payment of Interest in Common Stock __ yes __ no

If yes, $_____ of Interest Accrued on Account of Conversion at Issue.

 

Number of shares of Common Stock to be issued:

 

Signature:

 

Name:

 

Address for Delivery of Common Stock Certificates:

 

Or

 

DWAC Instructions:

 

Broker No: ______________ 

Account No: ____________

 

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Exhibit 10.5

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: November 20, 2018

Exchange Date: December 20, 2018

Original Conversion Price (subject to adjustment herein): $1.93

 

$1,000,000

 

SERIES A-2 Exchange CONVERTIBLE NOTE

 

FOR VALUE RECEIVED, SMAAASH ENTERTAINMENT, INC., a Delaware corporation (the “ Company ”) promises to pay to MAXIM GROUP LLC or its registered assigns (the “ Holder ”), or shall have paid pursuant to the terms hereunder, the principal sum of $1,000,000 on June 20, 2020 (the “ Maturity Date ”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is one of a series of unsecured convertible notes (excluding this Note, the “ Other Notes ”, and together with this Note, the “ Notes ”) issued in exchange (the “ Exchange ”) for that certain Demand Secured Promissory Note (the “ Original Security ”) originally issued by the Company to the Holder (as defined below) on November 20, 2018 pursuant to that certain Exchange Agreement, by and between the Company and the Holder, dated as of December 20, 2018 (the “ Exchange Agreement ”). Pursuant to Rule 144 of the Securities Act (as defined below), the holding period of this Note and the Conversion Shares (as defined below) issuable upon conversion hereof shall tack back to November 20, 2018 and the Company shall not take any legal position to the contrary of the foregoing. This Note is subject to the following additional provisions:

 

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Section 1 .            Definitions . For the purposes hereof, in addition to the terms defined elsewhere in this Note, the following terms shall have the following meanings:

 

Acquisition Transaction ” means the transactions contemplated by that certain Share Exchange Agreement, dated as of December 18, 2018, by and among the Company, Jed Kaplan, Simplicity Esports, LLC and each of the equity holders of Simplicity Esports, LLC, as in effect as of the date hereof, and the closing date thereof, the “ Acquisition Closing Date ”.

 

Alternate Consideration ” shall have the meaning set forth in Section 5(e).

 

Automatic Conversion ” shall have the meaning set forth in Section 6(c).

 

Automatic Conversion Date ” shall have the meaning set forth in Section 6(c).

 

Bankruptcy Event ” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

Beneficial Ownership Limitation ” shall have the meaning set forth in Section 4(d).

 

Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Buy-In ” shall have the meaning set forth in Section 4(c)(v).

 

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Change of Control Transaction ” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Notes and the Securities issued together with the Notes), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Exchange Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

Conversion ” shall have the meaning ascribed to such term in Section 4.

 

Conversion Date ” shall have the meaning set forth in Section 4(a).

 

Conversion Price ” shall have the meaning set forth in Section 4(b).

 

Conversion Shares ” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.

 

Note Register ” shall have the meaning set forth in Section 2(c).

 

Effectiveness Period ” shall have the meaning set forth in the Registration Rights Agreement.

 

Equity Conditions ” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Note, (c) the Company has satisfied all of the current public information requirements of Rule 144, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, and (h) the applicable Holder is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates, that constitutes, or may constitute, material non-public information (other than in its capacity as a placement agent or underwriter of the Company, if applicable).

 

3

 

 

Event of Default ” shall have the meaning set forth in Section 8(a).

 

Exchange Act ” means the Securities and Exchange Act of 1934, as amended.

 

Floor Price ” means $0.50 (or such other lower price as approved by the applicable Trading Market from time to time).

 

Fundamental Transaction ” shall have the meaning set forth in Section 5(e).

 

Indebtedness ” means (x) any liabilities for borrowed money or amounts owed in excess of $250,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $250,000 due under leases required to be capitalized in accordance with generally accepted accounting principles. 

 

Interest Conversion Rate ” means the then applicable Conversion Price.

 

Interest Conversion Shares ” shall have the meaning set forth in Section 2(a).

 

Interest Notice Period ” shall have the meaning set forth in Section 2(a).

 

Interest Payment Date ” shall have the meaning set forth in Section 2(a).

 

Interest Share Amount ” shall have the meaning set forth in Section 2(a).

 

Late Fees ” shall have the meaning set forth in Section 2(d).

 

4

 

 

Mandatory Default Amount ” means the sum of (a) the greater of (i) the outstanding principal amount of this Note, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 125% of the outstanding principal amount of this Note, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

 

Illinois Courts ” shall have the meaning set forth in Section 9(d).

 

Notice of Conversion ” shall have the meaning set forth in Section 4(a).

 

Optional Redemption ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Amount ” means the sum of (a) 100% of the then outstanding principal amount of the Note, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Note.

 

Optional Redemption Date ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Notice ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Notice Date ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Period ” shall have the meaning set forth in Section 6(a).

 

Original Issue Date ” means the date of the first issuance of the Original Security, regardless of the Exchange, any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Notes.

 

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Registration Rights Agreement ” means the Registration Rights Agreement, dated as of the Exchange Date, among the Company and the original Holders, in the form of Exhibit B attached to the Exchange Agreement.

 

Registration Statement ” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.

 

5

 

 

Repayment Failure Conversion Amount ” means, with respect to any given Notice of Conversion subject to a Repayment Failure, the greater of (i) 105% of the aggregate principal, interest and other amounts hereunder subject to conversion in such Notice of Conversion and (ii) the product of (x) the aggregate number of shares of Common Stock originally issuable pursuant to such Notice of Conversion (without regard to any Right of Repayment) multiplied by (y) the greatest closing sale price of the Common Stock on any Trading Day during the Repayment Period.

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Share Delivery Date ” shall have the meaning set forth in Section 4(c)(ii).

 

Successor Entity ” shall have the meaning set forth in Section 5(e).

 

Trading Day ” means a day on which the principal Trading Market is open for trading.

 

Trading Market ” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

Transaction Documents ” means this Note, the Exchange Agreement and the Registration Rights Agreement.

 

VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets, 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 (d) 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 Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

6

 

 

Section 2 .                Interest .

 

a)             Payment of Interest in Cash or Kind . The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of 2.76% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the Exchange Date, on each Conversion Date (as to that principal amount then being converted), on each Optional Redemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date, an “ Interest Payment Date ”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at the Interest Conversion Rate (the dollar amount to be paid in shares, the “ Interest Share Amount ”) or a combination thereof; provided , however , that payment in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in writing) during the 20 Trading Days immediately prior to the applicable Interest Payment Date (the “ Interest Notice Period ”) and through and including the date such shares of Common Stock are actually issued to the Holder, (ii) the Company shall have given the Holder notice in accordance with the notice requirements set forth below and (iii) as to such Interest Payment Date, prior to such Interest Notice Period (but not more than five (5) Trading Days prior to the commencement of such Interest Notice Period), the Company shall have delivered to the Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Interest Share Amount equal to the quotient of (x) the applicable Interest Share Amount divided by (y) the lesser of the (i) then Conversion Price and (ii) the Interest Conversion Rate assuming for such purposes that the Interest Payment Date is the Trading Day immediately prior to the commencement of the Interest Notice Period (the “ Interest Conversion Shares ”).

 

b)             Company’s Election to Pay Interest in Cash or Kind . Subject to the terms and conditions herein, the decision whether to pay interest hereunder in cash, shares of Common Stock or a combination thereof shall be at the sole discretion of the Company. Prior to the commencement of any Interest Notice Period, the Company shall deliver to the Holder a written notice of its election to pay interest hereunder on the applicable Interest Payment Date either in cash, shares of Common Stock or a combination thereof and the Interest Share Amount as to the applicable Interest Payment Date, provided that the Company may indicate in such notice that the election contained in such notice shall apply to future Interest Payment Dates until revised by a subsequent notice. During any Interest Notice Period, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest Payment Date. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder shall be deemed an election by the Company to pay the interest on such Interest Payment Date in cash. At any time the Company delivers a notice to the Holder of its election to pay the interest in shares of Common Stock, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing such election. The aggregate number of shares of Common Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest Conversion Shares previously issued to the Holder in connection with such Interest Payment Date.

 

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c)             Interest Calculations . Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Exchange Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Payment of interest in shares of Common Stock (other than the Interest Conversion Shares issued prior to an Interest Notice Period) shall otherwise occur pursuant to Section 4(c)(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion Date. Interest shall cease to accrue with respect to any principal amount converted, provided that, the Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “ Note Register ”).

 

d)              Late Fee . All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law (the “ Late Fees ”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full. Notwithstanding anything to the contrary contained herein, if, on any Interest Payment Date the Company has elected to pay accrued interest in the form of Common Stock but the Company is not permitted to pay accrued interest in Common Stock because it fails to satisfy the conditions for payment in Common Stock set forth in Section 2(a) herein, then, at the option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly scheduled interest payment in cash, shall deliver, within three (3) Trading Days of each applicable Interest Payment Date, an amount in cash equal to the product of (x) the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on such Interest Payment Date multiplied by (y) the highest VWAP during the period commencing on the Interest Payment Date and ending on the Trading Day prior to the date such payment is actually made. If any Interest Conversion Shares are issued to the Holder in connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder shall promptly return such excess shares to the Company.

 

e)             Prepayment . Except as otherwise set forth in this Note (including, without limitation, an Optional Redemption accordance with Section 6(a) below), the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

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f)              Exchange . In the event that the Acquisition Transaction has not closed on or before January 31, 2019, this Note, along with the Series A-1 2.76% Senior Convertible Note, shall be exchanged for a Demand Secured Promissory Note with an aggregate outstanding principal amount of $1,800,000 in the same form as the Original Security (and with such accrued and unpaid interest as if the Exchange never occurred) and this Note along with the Series A-1 2.76% Senior Convertible Note shall automatically, and without any further action of the Holder, be of no further force and effect.

 

Section 3.                Registration of Transfers and Exchanges .

 

a)             Different Denominations . This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b)             Investment Representations . This Note has been issued subject to certain investment representations of the original Holder set forth in the Exchange Agreement and may be transferred or exchanged only in compliance with the Exchange Agreement and applicable federal and state securities laws and regulations.

 

c)             Reliance on Note Register . Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

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Section 4.                Conversion .

 

a)             Voluntary Conversion . At any time after the Exchange Date until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) and the Company’s Right of Repayment). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “ Notice of Conversion ”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, subject to the Right of Repayment, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder (subject to the Right of Repayment). No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Note as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof. Notwithstanding the foregoing, upon receipt of a Notice of Conversion, the Company shall have the right to repay all or any portion of the Note included in the Notice of Conversion (the “ Right of Repayment ”). The Company shall effect its Right of Repayment by furnishing notice to the Holder within one (1) Business Day of receipt of the Notice of Conversion, which such notice shall include the portion of the Note that the Company is electing to repay (the “ Repayment Notice ”). The Company shall then have fourteen (14) days (the “ Repayment Period ”) to repay the portion of the Note identified in the Repayment Notice. In the event that the Company fails to repay the Note in accordance with the Repayment Notice (a “ Repayment Failure ”), unless the Holder elects to void such Notice of Conversion, the Company shall issue to the Holder such aggregate number of shares of Common Stock equal to the quotient of (x) the Repayment Failure Conversion Amount, divided by (y) the Conversion Price in effect (as if a Notice of Conversion was delivered to the Company with respect thereto on the date of such applicable Repayment Failure).

 

b)             Conversion Price . The conversion price in effect on any Conversion Date shall initially be equal to $ 1.93 , subject to adjustment herein (the “ Conversion Price ”); provided, that upon receipt of the Notice of Conversion, the Conversion Price shall be automatically adjusted to equal the lower of (x) the Conversion Price then in effect and (y) the greater of (A) the arithmetic average of the VWAP in the five (5) Trading Days prior to the Notice of Conversion and (B) the Floor Price.

 

c) Mechanics of Conversion .

 

i.             Conversion Shares Issuable Upon Conversion of Principal Amount . The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (y) the Conversion Price.

 

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ii.            Delivery of Conversion Shares Upon Conversion . Not later than (A) the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date or (B) two (2) Trading Days after the Repayment Failure if a Repayment Notice is delivered by the Company in accordance with Section 4(a) above (the “ Share Delivery Date ”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Exchange Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of Common Stock at least 20 Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a) but assuming that the Interest Notice Period is the 20 Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the Company and excluding for such issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment prior to the commencement of the Interest Notice Period) and (B) a bank check in the amount of accrued and unpaid interest (if the Company has elected or is required to pay accrued interest in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “ Standard Settlement Period ” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

 

iii.           Failure to Deliver Conversion Shares . If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

 

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iv.          Obligation Absolute; Partial Liquidated Damages . The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided , however , that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5 th ) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v.           Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion . In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Conversion Shares upon conversion of this Note as required pursuant to the terms hereof.

 

vi.          Reservation of Shares Issuable Upon Conversion . The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Exchange Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Note and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).

 

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vii.         Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii.         Transfer Taxes and Expenses . The issuance of Conversion Shares on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d)             Holder’s Conversion Limitations . The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “ Attribution Parties ”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) 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 (including, without limitation, any other Notes or the Warrants) beneficially owned by the Holder or any of its Affiliates or Attribution Parties.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61 st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note. Notwithstanding the foregoing, on the Automatic Conversion Date, if an Automatic Conversion of the then outstanding principal amount of this Notes would require the issuance to the Holder of a number of shares that would exceed the Beneficial Ownership Limitation, then any such shares in excess of the Beneficial Ownership Limitation shall be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation, at which time or times the Holder shall be issued such shares to the same extent as if there had been no such limitation.

 

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Section 5 .                Certain Adjustments .

 

a)             Stock Dividends and Stock Splits . If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)             [Intentionally Omitted]

 

c)             Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights ( provided , however , that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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d)             Pro Rata Distributions . During such time as this Note is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e)            Fundamental Transaction . If, at any time while this Note is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f)            Calculations . All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

g)           Notice to the Holder .

 

i.             Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii.            Notice to Allow Conversion by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 6 .              Redemption and Automatic Conversion .

 

a)             Optional Redemption at Election of Company . Subject to the provisions of this Section 6(a), at any time after the date hereof the Company may deliver a notice to the Holder (an “ Optional Redemption Notice ” and the date such notice is deemed delivered hereunder, the “ Optional Redemption Notice Date ”) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Note for cash in an amount equal to the Optional Redemption Amount on the 20 th Trading Day following the Optional Redemption Notice Date (such date, the “ Optional Redemption Date ”, such 20 Trading Day period, the “ Optional Redemption Period ” and such redemption, the “ Optional Redemption ”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio . The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full.

 

b)             Redemption Procedure . The payment of cash or issuance of Common Stock, as applicable, pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio , and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. Notwithstanding anything to the contrary in this Section 6, the Company’s determination to redeem in cash or its elections under Section 6(b) shall be applied ratably among the Holders of Notes. The Holder may elect to convert the outstanding principal amount of the Note pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

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c)              Automatic Conversion . Notwithstanding anything herein to the contrary, on the Maturity Date (the “ Automatic Conversion Date ”), as long as no Event of Default then exists and each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the twenty (20) Trading Day during the period ending, and including, the Trading Day immediately prior to the Automatic Conversion Date, all of the then outstanding principal amount of this Note, accrued but unpaid interest, liquidated damages and other amounts owing to the Holder under this Note shall be converted into Conversion Shares on the Acquisition Closing Date (such conversion, an “ Automatic Conversion ”) in accordance with Section 4 as if the Holder delivered a Notice of Conversion to the Company on the second Trading Day immediately prior to the Acquisition Closing Date. For purposes of clarification, an Automatic Conversion shall be subject to all of the provisions of Section 4, including, without limitation, the provision requiring payment of liquidated damages and limitations on conversions.

 

Section 7 .                Negative Covenants . As long as any portion of this Note remains outstanding, unless the Holder shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a)            amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

b)            repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Note;

 

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c)           repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Notes if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Exchange Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

d)           pay cash dividends or distributions on any equity securities of the Company;

 

e)           enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

f)            enter into any agreement with respect to any of the foregoing.

 

Section 8 .            Events of Default .

 

a)           “ Event of Default ” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i.             any default in the payment of (A) the principal amount of any Note or (B) interest, liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

 

ii.            the Company shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below) or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

 

iii.           a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

 

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iv.           any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v.            the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi.           the Company or any Subsidiary shall default on any of its obligations under 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 that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii.          the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

 

viii.          the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix.           the Initial Registration Statement (as defined in the Registration Rights Agreement) shall not have been declared effective by the Commission on or prior to the 120 th calendar day after the date hereof or the Company does not meet the current public information requirements under Rule 144 in respect of the Registrable Securities (as defined in the Registration Rights Agreement);

 

x.            if, during the Effectiveness Period (as defined in the Registration Rights Agreement), either (a) the effectiveness of the Registration Statement lapses for any reason or (b) the Holder shall not be permitted to resell Registrable Securities (as defined in the Registration Rights Agreement) under the Registration Statement for a period of more than 20 consecutive Trading Days or 30 non-consecutive Trading Days during any 12 month period; provided , however , that if the Company is negotiating a merger, consolidation, acquisition or sale of all or substantially all of its assets or a similar transaction and, in the written opinion of counsel to the Company, the Registration Statement would be required to be amended to include information concerning such pending transaction(s) or the parties thereto which information is not available or may not be publicly disclosed at the time, the Company shall be permitted an additional 10 consecutive Trading Days during any 12 month period pursuant to this Section 8(a)(x);

 

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xi.            the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(c) or any Automatic Conversion Date pursuant to Section 6(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Notes in accordance with the terms hereof (except, it shall not be an Event of Default if any shares issued to Holder are required to be held in abeyance upon an Automatic Conversion in accordance with Section 4(d) herein);

 

xii.           [Intentionally Omitted];

 

xiii.          the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xiv.          any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days; or

 

xv.            a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity Conditions are satisfied or that there has been no Equity Conditions Failure or as to whether any Event of Default has occurred.

 

b)           Remedies Upon Event of Default . If any Event of Default occurs, the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

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Section 9 .              Miscellaneous .

 

a)            Notices . Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a).  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Exchange Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

b)            Absolute Obligation . Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks pari passu with all Other Notes now or hereafter issued under the terms set forth herein.

 

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c)             Lost or Mutilated Note . If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.

 

d)              Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the Chicago, Illinois (the “ Illinois Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Illinois Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such Illinois Courts, or such Illinois Courts are improper or inconvenient venue for such proceeding. 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 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 Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

e)             Amendments and Waiver . Except for Section 4(d), which may not be amended, modified or waived hereunder, any amendment, modification or waiver of this Note shall require the prior written consent of the Company and the Holder. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion.

 

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f)             Severability . If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

g)            Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note.

 

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h)            Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i)             Headings . The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

 

Section 10.             Disclosure . Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

Section 11.            Waiver Against Trust . For and in consideration of the Company agreeing to issue this Note, the Holder hereby agrees that it does not have any right, title, interest or claim of any kind (the “Claim”) in or to any monies in the trust account(s) established for the benefit of certain sellers of the Company’s shares and hereby waives any Claim it may have in the future as a result of, or arising out of, any breach by the Company of this Note and will not seek recourse against any such trust account(s) for any such breach of this Note by the Company.

 

*********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

 

 

Smaaash Entertainment, Inc.

   
  By: /s/ F. Jacob Cherian
 

Name: F. Jacob Cherian 

Title: Chief Executive Officer

Facsimile No. for delivery of Notices: _______________

 

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ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Exchange Convertible Note of Smaaash Entertainment, Inc., a Delaware corporation (the “ Company ”), into shares of common stock (the “ Common Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

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.

 

Conversion calculations:

 

  Date to Effect Conversion:
   
  Principal Amount of Note to be Converted:
   
  Payment of Interest in Common Stock __ yes __ no
  If yes, $_____ of Interest Accrued on Account of Conversion at Issue.
   
  Number of shares of Common Stock to be issued:
   
  Signature:
   
  Name:
   
  Address for Delivery of Common Stock Certificates:
   
  Or
   
  DWAC Instructions:
   
  Broker No:________________
  Account No:_______________

 

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Exhibit 10.6

 

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of December 20, 2018, between SMAAASH ENTERTAINMENT, INC., a Delaware corporation (the “ Company ”), and MAXIM GROUP LLC (“ Maxim ”).

 

This Agreement is made pursuant to the Securities Exchange Agreement, dated as of the date hereof, between the Company and each Holder (the “ Exchange Agreement ”) pursuant to which the Company is issuing a Series A-1 Exchange Convertible Note and a Series A-2 Exchange Convertible Note (collectively, the “ Notes ”) in exchange for that certain Demand Secured Promissory Note originally issued by the Company to the Maxim on November 20, 2018.

 

The Company and Maxim hereby agrees as follows:

 

1.              Definitions .

 

Capitalized terms used and not otherwise defined herein that are defined in the Notes shall have the meanings given such terms in the Notes. As used in this Agreement, the following terms shall have the following meanings:

 

Advice ” shall have the meaning set forth in Section 6(d).

 

Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

Commission ” means the United States Securities and Exchange Commission.

 

Effectiveness Date ” means, with respect to the Initial Registration Statement required to be filed hereunder, the 120 th calendar day following the date hereof (or, in the event of a “full review” by the Commission, the 150 th calendar day following the date hereof) and with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the 90 th calendar day following the date on which an additional Registration Statement is required to be filed hereunder (or, in the event of a “full review” by the Commission, the 120 th calendar day following the date such additional Registration Statement is required to be filed hereunder); provided , however , that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.

 

 

 

 

Effectiveness Period ” shall have the meaning set forth in Section 2(a).

 

Event ” shall have the meaning set forth in Section 2(d).

 

Event Date ” shall have the meaning set forth in Section 2(d).

 

Filing Date ” means, with respect to the Initial Registration Statement required hereunder, the 60 th calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.

 

Holder ” or “ Holders ” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

Indemnified Party ” shall have the meaning set forth in Section 5(c).

 

Indemnifying Party ” shall have the meaning set forth in Section 5(c).

 

Initial Registration Statement ” means the initial Registration Statement filed pursuant to this Agreement.

 

Losses ” shall have the meaning set forth in Section 5(a).

 

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Plan of Distribution ” shall have the meaning set forth in Section 2(a).

 

Priority Securities ” shall mean an aggregate of 5,461,500 shares of Common Stock consisting of (i) the 5,200,000 shares of Common Stock that may be issued upon the exercise of 5,200,000 warrants originally sold as part of units in the Company’s initial public offering and (ii) the 261,500 shares of Common Stock that may be issued upon the exercise of 261,500 warrants originally sold in a private placement prior to the Company’s initial public offering.

 

Prospectus ” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 

 

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Registrable Securities ” means, as of any date of determination, (a) all of the shares of Common Stock then issued and issuable upon conversion in full of the Notes (assuming on such date the Notes are converted in full without regard to any conversion limitations therein), (b) all shares of Common Stock issued and issuable as interest or principal on the Notes assuming all permissible interest and principal payments are made in shares of Common Stock and the Notes are held until maturity, (c) any additional shares of Common Stock issued and issuable in connection with any anti-dilution provisions in the Notes (in each case, without giving effect to any limitations on conversion set forth in the Notes) and (d) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided, however , that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company), as reasonably determined by the Company, upon the advice of counsel to the Company.

 

Registration Statement ” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.

 

Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

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Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Selling Stockholder Questionnaire ” shall have the meaning set forth in Section 3(a).

 

SEC Guidance ” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.

 

Transfer Agent ” means Continental Stock Transfer & Trust Company.

 

2.              Shelf Registration .

 

(a)                On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the “ Plan of Distribution ” attached hereto as Annex A and substantially the “ Selling Stockholder ” section attached hereto as Annex B ; provided , however , that no Holder shall be required to be named as an “underwriter” without such Holder’s express prior written consent. Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “ Effectiveness Period ”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. (New York City time) on a Trading Day. The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. (New York City time) on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424. Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d).

 

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(b)               Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); with respect to filing on Form S-3 or other appropriate form, and subject to the provisions of Section 2(d) with respect to the payment of liquidated damages; provided , however , that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.

 

(c)                Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows:

 

a. First, the Company shall reduce or eliminate any securities to be included other than Registrable Securities and the Priority Securities;

 

b. Second, the Company shall reduce Registrable Securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders); and

 

c. Third, the Company shall reduce Priority Securities.

 

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In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.

 

(d)               If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within fifteen (15) calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective, or (iv) a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive calendar days or more than an aggregate of fifteen (15) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “ Event ”, and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iii) the date which such ten (10) calendar day period is exceeded, and for purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar day period, as applicable, is exceeded being referred to as “ Event Date ”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 1.0% multiplied by the then outstanding principal amount of the Notes. The parties agree that the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be 5% of the then outstanding principal amount of the Notes. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event.

 

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(e)                If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.

 

(f)                Notwithstanding anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder as any Underwriter without the prior written consent of such Holder.

 

3.              Registration Procedures .

 

In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a)                Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “ Selling Stockholder Questionnaire ”) on a date that is not less than two (2) Trading Days prior to the Filing Date or by the end of the fourth (4 th ) Trading Day following the date on which such Holder receives draft materials in accordance with this Section.

 

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(b)               (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

(c)                If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.

 

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(d)               Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided , however , that in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.

 

(e)                Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(f)                Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission, provided that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.

 

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(g)               Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).

 

(h)               Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement, provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

 

(i)                 If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Notes, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

 

(j)                Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.

 

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(k)               Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.

 

(l)                 The Company shall use its best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.

 

(m)             The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

 

4.                      Registration Expenses . All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

 

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5.              Indemnification .

 

(a)                Indemnification by the Company . The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “ Losses ”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(h).

 

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(b)               Indemnification by Holders . Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s information provided in the Selling Stockholder Questionnaire or the proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto. In no event shall the liability of a selling Holder be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

 

(c)                Conduct of Indemnification Proceedings . If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “ Indemnified Party ”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “ Indemnifying Party ”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof, provided that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.

 

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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

 

Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party, provided that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.

 

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(d)               Contribution . If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. In no event shall the contribution obligation of a Holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

 

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6.              Miscellaneous .

 

(a)            Remedies . In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

 

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(b)            No Piggyback on Registrations; Prohibition on Filing Other Registration Statements . Except as set forth on Schedule 6(b) attached hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities. The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement.

 

(c)           [RESERVED]

 

(d)            Discontinued Disposition . By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “ Advice ”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d).

 

(e)            Piggy-Back Registrations . If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided , however , that the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement that is available for resales or other dispositions by such Holder.

 

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(f)             Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 50.1% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security), provided that, if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided , however , that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

 

(g)            Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Notes.

 

(h)            Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Notes.

 

(i)             No Inconsistent Agreements . Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 6(i) , neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

 

(j)             Execution and Counterparts . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

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(k)            Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Notes.

 

(l)             Cumulative Remedies . The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

 

(m)           Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(n)            Headings . The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

18  

 

 

(o)            Independent Nature of Holders’ Obligations and Rights . The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.

 

********************

 

(Signature Pages Follow)

 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. 

 

  SMAAASH ENTERTAINMENT, INC.
     
  By: /s/ F. Jacob Cherian
    Name: F. Jacob Cherian
    Title: Chief Executive Officer

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

 

 

 

[SIGNATURE PAGE OF HOLDERS TO SMSH RRA]

 

 

Name of Holder: Maxim Group LLC

 

Signature of Authorized Signatory of Holder : /s/ Clifford Teller

 

Name of Authorized Signatory: Clifford Teller

 

Title of Authorized Signatory: Executive Managing Director of Investment Banking 

 

[SIGNATURE PAGES CONTINUE] 

 

 

 

 

SCHEDULE 6(B)

 

Each of the selling stockholders listed on the Company’s Registration Statement on Form S-1 (333-228906).

 

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Annex A

 

Plan of Distribution

 

Each Selling Stockholder (the “ Selling Stockholders ”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:

 

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

an exchange distribution in accordance with the rules of the applicable exchange;

 

privately negotiated transactions;

 

settlement of short sales;

 

in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

 

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

a combination of any such methods of sale; or

 

any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

 

 

 

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

 

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

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Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

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SELLING SHAREHOLDERS

 

The common stock being offered by the selling shareholders are those previously issued to the selling shareholders, and those issuable to the selling shareholders, upon exercise of the warrants. For additional information regarding the issuances of those shares of common stock and warrants, see “Private Placement of Shares of Common Stock and Warrants” above. We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock and the warrants, the selling shareholders have not had any material relationship with us within the past three years.

 

The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of common stock and warrants, as of ________, 2018, assuming exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on exercises.

 

The third column lists the shares of common stock being offered by this prospectus by the selling shareholders.

 

In accordance with the terms of a registration rights agreement with the selling shareholders, this prospectus generally covers the resale of the sum of (i) the number of shares of common stock issued to the selling shareholders in the “Private Placement of Shares of Common Stock and Warrants” described above and (ii) the maximum number of shares of common stock issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the warrants. The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus.

 

Under the terms of the warrants, a selling shareholder may not exercise the warrants to the extent such exercise would cause such selling shareholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% of our then outstanding common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of the warrants which have not been exercised. The number of shares in the second column does not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

 

4  

 

 




Name of Selling Shareholder
  Number of shares of Common Stock Owned Prior to Offering   Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus   Number of shares of Common Stock Owned After Offering

 

5  

 

 

Annex C

 

SMAAASH Entertainment, inc.

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “ Registrable Securities ”) of SMAAASH ENTERTAINMENT, INC., a Delaware corporation (the “ Company ”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “ Commission ”) a registration statement (the “ Registration Statement ”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “ Securities Act ”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “ Registration Rights Agreement ”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “ Selling Stockholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

(a) Full Legal Name of Selling Stockholder

 

   

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

 

   

 

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

 

   

  

2. Address for Notices to Selling Stockholder:  

 
 
 

Telephone:  

Fax:  

Contact Person:  

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes ☐      No ☐

  

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes ☐      No ☐

  

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

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(c) Are you an affiliate of a broker-dealer?

 

Yes ☐      No ☐

  

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes ☐      No ☐

  

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Notes.

 

(a) Type and Amount of other securities beneficially owned by the Selling Stockholder:

   
   

 

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5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:

   
   

 

The undersigned agrees to promptly notify the Company of any material inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective; provided, that the undersigned shall not be required to notify the Company of any changes to the number of securities held or owned by the undersigned or its affiliates.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date:     Beneficial Owner:  

 

      By:  
        Name:
        Title: 

   

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO:

 

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Exhibit 10.7

 

LOCK-UP AGREEMENT

 

December 20, 2018

 

Ladies and Gentlemen:

 

Reference is made to that certain Securities Exchange Agreement, dated on or about the date hereof (the “ Exchange Agreement ”), between SMAAASH ENTERTAINMENT, INC. (the “ Company ”) and the undersigned pursuant to which Company is issuing a Series A-1 Exchange Convertible Note and a Series A-2 Exchange Convertible Note (collectively, the “ Notes ”, and the shares of common stock of the Company issuable upon conversion thereof, the “ Conversion Shares ”) in exchange for that certain Demand Secured Promissory Note originally issued by the Company to the Maxim on November 20, 2018. All capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Notes.

 

The undersigned irrevocably agrees with the Company that, from the date hereof until one hundred eighty (180) days following the Acquisition Closing Date (such period, the “ Restriction Period ”), the undersigned will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any Affiliate (as defined below) of the undersigned or any person in privity with the undersigned or any Affiliate of the undersigned), directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), with respect to, the Conversion Shares (collectively, the “ Securities ”); provided, that nothing herein shall preclude the undersigned from selling any other shares of Common Stock (other than the Securities) held by the undersigned or its Affiliates. Beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. In order to enforce this covenant, the Company shall impose irrevocable stop-transfer instructions preventing the transfer agent of the Company from effecting any actions in violation of this letter agreement. For purposes of this Agreement, “ Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act and “ Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

The undersigned acknowledges that the execution, delivery and performance of this letter agreement is a material inducement to the Company to enter into the Exchange Agreement and the Company shall be entitled to specific performance of the undersigned’s obligations hereunder. The undersigned hereby represents that the undersigned has the power and authority to execute, deliver and perform this letter agreement, that the undersigned has received adequate consideration therefor and that the undersigned will directly or indirectly benefit from the Exchange Agreement.

 

 

 

 

This letter agreement may not be amended or otherwise modified in any respect without the written consent of each of the Company and the undersigned. This letter agreement shall be construed and enforced in accordance with the laws of the State of Illinois without regard to the principles of conflict of laws. The undersigned hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of Illinois located in Chicago, Illinois, for the purposes of any suit, action or proceeding arising out of or relating to this letter agreement, and hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that (i) it is not personally subject to the jurisdiction of such court, (ii) the suit, action or proceeding is brought in an inconvenient forum, or (iii) the venue of the suit, action or proceeding is improper. The undersigned hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under the Notes and agrees that such service shall constitute good and sufficient service of process and notice thereof. The undersigned hereby waives any right to a trial by jury. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The undersigned agrees and understands that no issuance or sale of the Securities is created or intended by virtue of this letter agreement.

 

By its signature below, the transfer agent of the Company hereby acknowledges and agrees that, reflecting this letter agreement, it has placed an irrevocable stop transfer instruction on all Securities beneficially owned by the undersigned until the end of the Restriction Period. This letter agreement shall be binding on successors and assigns of the undersigned with respect to the Securities and any such successor or assign shall enter into a similar agreement for the benefit of the Company.

 

 

*** SIGNATURE PAGE FOLLOWS*** 

 

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  Very truly yours,
   
  Signature: /s/ Clifford Teller
  Name (printed): Clifford Teller
  Title (if applicable): Executive Managing Director of Investment Banking
  Entity (if applicable):

 

[ Signature Page to Lock-up Agreement ]

 

3