SECURITIES PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”) is dated as
of October 7, 2016, between Friendable, Inc., a Nevada corporation
(the “
Company
”), and each
purchaser identified on the signature pages hereto (each, including
its successors and permitted assigns, a “
Purchaser
” and
collectively, the “
Purchasers
”).
WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant
to Section 4(a)(2) of the Securities Act of 1933, as amended (the
“
Securities
Act
”), and Rule 506 promulgated thereunder, the
Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the
Company, securities of the Company as more fully described in this
Agreement (the “
Offering
”).
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Company
and each Purchaser agree as follows:
ARTICLE
I.
DEFINITIONS
1.1
Definitions
. In addition to the
terms defined elsewhere in this Agreement: (a) capitalized terms
that are not otherwise defined herein have the meanings given to
such terms in the Notes (as defined herein), and (b) the following
terms have the meanings set forth in this Section 1.1:
“
Accredited Investor
”
shall have the meaning ascribed to such term in Section
3.2(c).
“
Acquiring Person
” shall
have the meaning ascribed to such term in Section 4.7.
“
Action
” shall have the
meaning ascribed to such term in Section 3.1(j).
“
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.
“
Board of Directors
” means
the board of directors of the Company.
“
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 required by law or other
governmental action to close.
“
Buy In
” shall have the
meaning ascribed to such term in Section 4.1(h).
“
Closing
”
means a closing of the purchase and sale of the
Securities pursuant to Section 2.1.
“
Closing Date
”
means the Business Day on which all of
the Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the
Purchasers’ obligation to pay the Subscription Amount at such
Closing, and (ii) the Company’s obligations to deliver the
Securities to be issued and sold at such Closing, in each case,
have been satisfied or waived, but in no event later than the third
Business Day following the date hereof.
“
Commission
” means the
United States Securities and Exchange Commission.
“
Common Stock
” means the
common stock of the Company, par value $0.0001 per share, and any
other class of securities into which such securities may hereafter
be reclassified or changed.
“
Common Stock Equivalents
”
means any securities of the Company or any Subsidiary which would
entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible
into or exercisable or exchangeable for, or otherwise entitles the
holder thereof to receive, Common Stock.
“
Company Counsel
” means,
Lucosky Brookman LLP, 101 Wood Avenue South, Woodbridge, NJ 08830,
Attn: Steven A. Lipstein, Esq., fax: (732) 395-4401.
“
Conversion Price
” shall
have the meaning ascribed to such term in the Notes.
“
Disclosure Schedules
”
means the schedules and exhibits of the Company delivered
concurrently herewith.
“
Disqualification Event
”
shall have the meaning ascribed to such term in Section
3.1(oo).
“
Escrow
Agent
” means G&M.
“
Escrow Agreement
” means
the escrow agreement to be employed in connection with the sale of
the Securities, a copy of which is annexed hereto as
Exhibit C
.
“
Equity Line of Credit
”
shall have the meaning ascribed to such term in Section
4.13.
“
Evaluation Date
” shall
have the meaning ascribed to such term in Section
3.1(r).
“
Exchange Act
” means the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
“
Exempt Issuance
” means
the issuance of (a) shares of Common Stock and options to officers,
directors, or employees of the Company after the Closing Date up to
the amounts and on the terms set forth on
Schedule 3.1(g)
consistent with
past practices pursuant to the Stock Option Plans, (b) securities
exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement,
provided that such securities and any term thereof have not been
amended since the date of this Agreement to increase the number of
such securities or to decrease the issue price, exercise price,
exchange price or conversion price of such securities and which
securities and the principal terms thereof are set forth on
Schedule 3.1(g)
,
and described in the SEC Reports, (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of
the disinterested directors of the Company, provided that any such
issuance shall only be to a Person (or to the equity holders of a
Person) which is, itself or through its subsidiaries, an operating
company or an owner of an asset in a business synergistic with the
business of the Company and shall be intended to provide to the
Company substantial additional benefits in addition to the
investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing
in securities, (d) as set forth on
Schedule 3.1(g)
, and (e)
securities issued or issuable to the Purchasers and their assigns
pursuant to this Agreement, the Notes or the Warrants and other
Transaction Documents including without limitation, Section 4.17
and Section 4.23 herein, or upon exercise, conversion or exchange
of any such securities.
“
Exercise Price
” shall
have the meaning ascribed to such term in the
Warrants.
“
FCPA
” means the Foreign
Corrupt Practices Act of 1977, as amended.
“
FDA
” shall have the
meaning ascribed to such term in Section 3.1(nn).
“
Form 8-K
” shall have the
meaning ascribed to such term in Section 4.6.
“
GAAP
” shall have the
meaning ascribed to such term in Section 3.1(h).
“
G&M
” shall mean
Grushko & Mittman, P.C., with offices located at 515 Rockaway
Avenue, Valley Stream, New York 11581, Fax:
212-697-3575.
“
Hang With Agreements
”
shall mean: (i) the Series A Convertible Participating Preferred
Stock Purchase Agreement; (ii) the Software License Agreement; and
(iii) all of the schedules, exhibits and agreements delivered in
connection with the foregoing.
“
Hang With Transaction
”
shall mean the investment by the Company in Hang With, Inc.
pursuant to the unamended terms as set forth on (i) the Term Sheet
annexed hereto as
Exhibit
G
, and (ii) the Hang With Agreements annexed hereto as
Exhibit
H
.
“
Indebtedness
” shall have
the meaning ascribed to such term in Section 3.1(z).
“
Intellectual Property
Rights
” shall have the meaning ascribed to such term
in Section 3.1(o).
“
Investor Questionnaire
”
means the form of Accredited Investor Questionnaire annexed hereto
as
Exhibit
E
.
“
Issuer Covered Person
”
shall have the meaning ascribed to such term in Section
3.1(oo).
“
Legal Opinion
” shall have
the meaning ascribed to such term in Section
2.2(a)(ii).
“
Legend Removal Date
”
shall have the meaning ascribed to such term in Section
4.1(d).
“
Liens
” means a lien,
charge, pledge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.
“
Listing Default
” shall
have the meaning ascribed to such term in Section
4.11(c).
“
Majority in Interest
”
shall have the meaning ascribed to such term in Section
5.5.
“
Material Adverse Effect
”
shall have the meaning assigned to such term in Section
3.1(b).
“
Material Permits
” shall
have the meaning ascribed to such term in Section
3.1(m).
“
Maximum Rate
” shall have
the meaning ascribed to such term in Section 5.17.
“
Money Laundering
Laws
” shall have the
meaning ascribed to such term in Section
3.1(gg).
“
Notes
” means the
convertible notes issuable pursuant to this Agreement, in the form
of
Exhibit A
hereto.
“
OFAC
” shall have the
meaning ascribed to such term in Section 3.1(ii).
“
Participation Maximum
”
shall have the meaning ascribed to such term in Section
4.17(a).
“
Permitted Indebtedness
”
means (a) any liabilities for borrowed money or amounts owed not in
excess of $100,000 in the aggregate (other than trade accounts
payable incurred in the ordinary course of business), (b) 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) not affecting more than $100,000 in
the aggregate, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any
lease payments not in excess of $100,000 due under leases required
to be capitalized in accordance with GAAP.
“
Permitted Lien
” means the
individual and collective reference to the following: (a) Liens for
taxes, assessments and other governmental charges or levies not yet
due or Liens for taxes, assessments and other governmental charges
or levies being contested in good faith and by appropriate
proceedings for which adequate reserves (in the good faith judgment
of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred
in the ordinary course of the Company’s business, such as
carriers’, warehousemen’s and mechanics’ Liens,
statutory landlords’ Liens, and other similar Liens arising
in the ordinary course of the Company’s business, and which
(x) do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such Liens, and (c) Liens in
connection with Permitted Indebtedness under clauses (a), and (b)
thereunder, and Liens incurred in connection with Permitted
Indebtedness under clause (c) thereunder, provided that such Liens
are not secured by assets of the Company or its Subsidiaries other
than the assets so acquired or leased.
“
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.
“
Pre-Notice
” shall have
the meaning ascribed to such term in Section 4.17(b).
“
Proceeding
” means an
action, claim, suit, investigation or proceeding (including,
without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or
threatened.
“
Pro-Rata Portion
” shall
have the meaning ascribed to such term in Section
4.17(e).
“
Public Information
Failure
” shall have the meaning ascribed to such term
in Section 4.3(b).
“
Public Information Failure
Payments
” shall have the meaning ascribed to such term
in Section 4.3(b).
“
Purchaser Party
” shall
have the meaning ascribed to such term in Section
4.10.
“
Required Approvals
” shall
have the meaning ascribed to such term in Section
3.1(e).
“
Required Minimum
” means,
as of any date, the maximum aggregate number of shares of Common
Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Underlying Shares issuable
upon exercise in full of all Warrants or conversion in full of all
Notes, ignoring any conversion or exercise limits set forth
therein, and assuming that any previously unconverted Notes will be
held until the third anniversary of the issue date of such
Notes.
“
Rule 144
” means Rule 144
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.
“
SEC Reports
” shall have
the meaning ascribed to such term in Section 3.1(h).
“
Securities
” means the
Notes, the Warrants, and the Underlying Shares.
“
Securities Act
” means the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Short Sales
” means
“short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and
similar arrangements (including on a total return basis) whether
such transactions are made through U.S. or non-U.S. broker dealers
or foreign regulated brokers.
“
Stock Option Plans
” means
the Company’s 2011 Stock Option Plan and the Company’s
2014 Equity Incentive Plan, copies of which are included in the SEC
Reports.
“
Subscription Amount
”
means, as to each Purchaser, the
aggregate amoun
t to be paid for
the Notes and Warrants purchased hereunder at the Closing as
specified below such Purchaser’s name on the signature page
of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately
available funds.
“
Subsequent Financing
”
shall have the meaning ascribed to such term in Section
4.17(a).
“
Subsequent Financing
Notice
” shall have the meaning ascribed to such term
in Section 4.17(b).
“
Subsidiary
” means
with respect to any entity at any
date, any direct or indirect corporation, limited or general
partnership, limited liability company, trust, estate, association,
joint venture or other business entity of which (A) more than
30% of (i) the outstanding capital stock having (in the
absence of contingencies) ordinary voting power to elect a majority
of the board of directors or other managing body of such entity,
(ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership
or limited liability company or (iii) in the case of a trust,
estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity
business is, at the time of determination, owned or controlled
directly or indirectly through one or more intermediaries, by such
entity, or (B) is under the actual control of the
Company.
“
Termination Date
” shall
have the meaning ascribed to such term in Section 2.1.
“
Trading Day
” means a day
on which the principal Trading Market is open for trading for three
or more hours.
“
Trading Market
” means the
first listed of 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 MKT, the NASDAQ Capital Market, the NASDAQ
Global Market, the NASDAQ Global Select Market, the New York Stock
Exchange, the OTC Bulletin Board, the OTCQB, or the OTCQX (or any
successors to any of the foregoing).
“
Transaction Documents
”
means this Agreement, the Notes, the Warrants, the Escrow
Agreement, all exhibits and schedules thereto and hereto and any
other documents or agreements executed in connection with the
transactions contemplated hereunder.
“
Transfer Agent
” means
Nevada Agency and Transfer, 50 West Liberty Street, Suite 880,
Reno, NV 89501, and any successor transfer agent of the
Company.
“
Underlying Shares
” means
the shares of Common Stock issued and issuable upon conversion of
the Notes and upon exercise of the Warrants and issued and issuable
in lieu of the cash payment of interest on the Notes in accordance
with the terms of the Notes, and any other shares of Common Stock
issued or issuable to a Purchaser in connection with or pursuant to
the Securities or Transaction Documents.
“
Unlegended Shares
” shall
have the meaning ascribed to such term in Section
4.1(d).
“
Variable Priced Equity Linked
Instruments
” shall have the meaning ascribed to such
term in Section 4.13.
“
Variable Rate
Transaction
”
shall have
the meaning ascribed to such term in Section
4.13.
“
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 the Common Stock is not then listed or quoted for
trading on a Trading Market but is then reported on the OTC Pink
Marketplace maintained by the OTC Markets Group, Inc. (or a similar
organization or agency succeeding to its functions of reporting
prices), the volume weighted average price of the Common Stock on
the first such facility (or a similar organization or agency
succeeding to its functions of reporting prices), 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
a Majority in Interest and reasonably acceptable to the Company,
the fees and expenses of which shall be paid by the
Company.
“
Warrants
” means the
Common Stock purchase warrants delivered to the Purchasers at the
Closing in accordance with Section 2.2(a) hereof in the form of
Exhibit B
attached hereto.
“
Warrant Shares
” means the
shares of Common Stock issuable upon exercise of the
Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1
Closing
. On the Closing Date,
upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and
the Purchasers, severally and not jointly, agree to purchase, an
aggregate of up to $1,615,000 principal amount of Notes and
Warrants as determined pursuant to Section 2.2(a) and set forth on
Schedule 2.1
(each
such purchase and sale being a “
Closing
”). Each Purchaser
shall deliver to the Company such Purchaser’s Subscription
Amount, and the Company shall deliver to each Purchaser its
respective Note and Warrants, as determined pursuant to Section
2.2(a), and the Company and each Purchaser shall deliver the other
items set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the covenants and conditions set forth in Sections
2.2 and 2.3, subsequent Closings shall occur at the offices of
G&M or such other location as the parties shall mutually agree
on the third day of each month following the initial Closing but in
no event later than the last Business Day of each month following
the initial Closing, unless mutually extended by the parties.
Notwithstanding anything herein to the contrary, the initial
Closing must take place on or before October 7, 2016. The Closing
Date for the final Closing shall be as of the date the aggregate
Subscription Amount of $1,615,000 has been released from escrow to
or for the benefit of the Company (the “
Termination Date
”). With
respect to any Closing not held on or before the Termination Date,
the Company shall cause all subscription documents and funds, if
any, to be returned, without interest or deduction to each
prospective Purchaser. Notwithstanding of the date of any Closing
subsequent to the initial Closing, all time effective clauses in
the Transaction Documents shall commence on the initial Closing
Date and Transaction Documents will be deemed modified
Mutatis Mutandum
in connection with
such subsequent Closings, if any, that take place after the initial
Closing. The Maturity Date of the Notes issued at all Closings
subsequent to the initial Closing shall be the same as the Maturity
Date of the Notes issued at the initial Closing. The exercise
period of the Warrants issued at each of the Closings subsequent to
the initial Closing will commence on the date of each respective
subsequent Closings.
NO
MINIMUM NUMBER OF SHARES AND WARRANTS MUST BE SOLD IN ORDER FOR THE
COMPANY TO ACCEPT ANY SUBSCRIPTIONS, AND ALL NET PROCEEDS OF THE
OFFERING WILL BE IMMEDIATELY AVAILABLE FOR COMPANY
PURPOSES.
2.2
Deliveries
.
(a)
On or prior to each
Closing Date, the Company shall deliver or cause to be delivered to
each Purchaser the following:
(i)
this Agreement duly
executed by the Company with the schedules and exhibits thereto
current as of each such Closing Date;
(ii)
a
legal opinion of Company Counsel, substantially in the form of
Exhibit D
attached
hereto;
(iii)
a
Note with a principal amount equal to each Purchaser’s
Subscription Amount registered in the name of such
Purchaser;
(iv)
Warrants
registered in the name of such Purchaser to purchase up to a number
of shares of Common Stock equal to 100% of such Purchaser’s
Subscription Amount divided by the Conversion Price in effect on
such Closing Date, having a per share Exercise Price as set forth
therein, subject to adjustment as provided herein and
therein;
(v)
the Escrow
Agreement duly executed by the Company and Escrow Agent with
instructions by the Company to the Escrow Agent to deliver funds in
the amounts described on
Schedule 4.9
directly to Hang
With, Inc.;
(vi)
a
certificate of the Principal Executive Officer and Chief Executive
Officer (each as defined in the Exchange Act) of the Company, dated
as of each Closing Date, in which such officers shall certify that
the conditions set forth in
Section 2.3(b)
have been
fulfilled, and in connection with subsequent Closings following the
initial Closing, ratifying the terms of this Agreement as an
additional Closing under this Agreement and under the Transaction
Documents; and
(vii)
Secretary’s
certificate containing (i) copies of the text of the resolutions by
which the corporate action on the part of the Company necessary to
approve this Agreement and the other Transaction Documents and the
transactions and actions contemplated hereby and thereby, which
shall be accompanied by a certificate of the corporate secretary or
assistant corporate secretary of Company dated as of the Closing
Date certifying to the Purchasers that such resolutions were duly
adopted and have not been amended or rescinded, (ii) an incumbency
certificate dated as of the Closing Date executed on behalf of
Company by its corporate secretary or one of its assistant
corporate secretaries certifying the office of each officer of
Company executing this Agreement, or any other agreement,
certificate or other instrument executed pursuant hereto, and (iii)
copies of (A) the Company’s Certificate of Incorporation and
bylaws in effect on the Closing Date, and (B) the certificate
evidencing the good standing of Company as of a day within five (5)
Business Days prior to the Closing Date.
(b)
On or prior to each
Closing Date, each Purchaser shall deliver or cause to be delivered
to the Company the following:
(i)
this Agreement and the Escrow Agreement each duly
executed by such Purchaser
;
(ii)
such
Purchaser’s Subscription Amount by wire transfer or as
otherwise permitted under the Escrow Agreement, to the Escrow
Agent; and
(iii)
Accredited
Investor Questionnaire duly executed by each
Purchaser.
(c)
Anything
to the contrary herein notwithstanding, any Purchaser may elect to
bypass the escrow arrangement described herein and arrange for its
Closing directly with the Company without employing the Escrow
Agent as an intermediary.
2.3
Closing
Conditions
.
(a)
The obligations of
the Company hereunder to effect a Closing are subject to the
following conditions being met:
(i)
the accuracy in all
material respects
(determined without
regard to any materiality, Material Adverse Effect or other similar
qualifiers therein)
on the date of this Agreement and as of
each Closing Date of the representations and warranties of the
Purchasers contained herein (unless as of a specific date therein
in which case they shall be accurate as of such date);
(ii)
all
obligations, covenants and agreements of each Purchaser required to
be performed at or prior to the Closing Date shall have been
performed;
(iii)
the
delivery by each Purchaser of the items set forth in Section 2.2(b)
of this Agreement; and
(iv)
the
Escrow Agent shall have received executed signature pages to this
Agreement and the Escrow Agreement from at least one Purchaser
showing an agreement to purchase a Note and Warrants hereunder and
the Escrow Agent shall have received the corresponding Subscription
Amount from such Purchaser, in cash.
(b)
The respective
obligations of a Purchaser hereunder to effect a Closing, unless
waived by such Purchaser, are subject to the following conditions
being met:
(i)
the accuracy in all
material respects
(determined without
regard to any materiality, Material Adverse Effect or other similar
qualifiers therein)
on the date of this Agreement and as of
each Closing Date of the representations and warranties of the
Company contained herein (unless as of a specific date therein in
which case they shall be accurate as of such date);
(ii)
all
obligations, covenants and agreements of the Company required to be
performed at or prior to a Closing Date shall have been
performed;
(iii)
the
Escrow Agent shall have received executed signature pages to this
Agreement and aggregate Subscription Amount of $465,000 with
respect to the initial Closing and the amounts set forth on
Schedule
2.1
with respect to subsequent
Closings from at least one Purchaser showing an agreement to
purchase a Note and Warrants hereunder and the Escrow Agent shall
have received the corresponding Subscription Amount from such
Purchaser in cash;
(iv)
with
regard to the first three Closings only, the Company will have
closed or will be closing the Hang With Transaction, subject only,
with regard to the initial Closing, to the release of funds in the
amount and date set forth on
Schedule 4.9
pursuant to the unamended terms
contained in the Hang With Agreements, and, with regard to
subsequent Closings, to the truthful and accurate agreement of each
of the Company and Hang With, Inc. that each party to the Hang With
Transaction has complied with the Hang With Agreements and to the
release of funds in the amounts and dates set forth on
Schedule
4.9
with respect to the second
and third closings with Hang With, Inc., each pursuant to the
unamended terms contained in the Hang With
Agreements;
(v)
the delivery by the
Company of the items set forth in Section 2.2(a) of this
Agreement;
(vi)
there
shall have been no Material Adverse Effect with respect to the
Company since the date hereof and as of each Closing;
and
(vii)
from
the date hereof to each respective Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the
Company’s principal Trading Market, and, at any time prior to
the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades
are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each
case, in the reasonable judgment of such Purchaser, makes it
impracticable or inadvisable to purchase the Securities at the
Closing.
2.4
Purchaser’s
Right To Terminate.
Anything in any of the
Transaction Documents to the contrary notwithstanding, each
Purchaser has the right to demand and receive from the Escrow Agent
such Purchaser’s Subscription Amount at any time until a
Closing takes place in connection with such Subscription Amount.
The Company and each Purchaser acknowledges that the Escrow Agent
is acting as agent and representative for the Purchaser with
respect to the Purchaser’s Subscription Amount and at no time
is or will be holding any funds on behalf of Palladium Capital
Advisors LLC nor on behalf of the Company until a Closing.
UNDER NO CIRCUMSTANCES WILL THE
PURCHASER’S SUBSCRIPTION AMOUNT BE DELIVERED TO OR UNDER THE
CONTROL OR AUTHORITY OF ANY PLACEMENT AGENT OR BROKER INCLUDING BUT
NOT LIMITED TO PALLADIUM CAPITAL ADVISORS LLC.
For the avoidance of doubt, the
Company shall not be required to pay the amounts to Hang With
listed on
Schedule
5.2
until
the respective first three Closings occur.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1
Representations
and Warranties of the Company
.
Except as set forth in the SEC Reports or
the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation made
herein only to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedules. The Company
hereby makes the following representations and warranties to each
Purchaser:
(a)
Subsidiaries
. All of the direct
and indirect Subsidiaries of the Company and the Company’s
ownership interests therein are set forth on
Schedule 3.1(a)
. The Company
owns, directly or indirectly, all of the capital stock or other
equity interests of each Subsidiary free and clear of any Liens,
and all of the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b)
Organization and Qualification
.
The Company and each Subsidiary is an entity duly incorporated or
otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization,
with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation
nor default of any of the provisions of its respective certificate
or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and each Subsidiary is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, would not
reasonably be expected to result in: (i) a material adverse effect
on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of
operations, assets, business, or condition (financial or otherwise)
of the Company and each Subsidiary, taken as a whole, or (iii) a
material adverse effect on the Company’s ability to perform
in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a
“
Material Adverse
Effect
”) and, no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to
revoke, limit or curtail such power and authority or
qualification.
(c)
Authorization; Enforcement
. The
Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by this
Agreement and each of the other Transaction Documents and otherwise
to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and each of the other
Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and
no further action is required by the Company, the Board of
Directors or the Company’s stockholders in connection
herewith or therewith other than in connection with the Required
Approvals. This Agreement and each other Transaction Document to
which it is a party has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(d)
No Conflicts
. The execution,
delivery and performance by the Company of this Agreement and the
other Transaction Documents, the issuance and sale of the
Securities and the consummation by it of the transactions
contemplated hereby and thereby to which it is a party do not and
will not: (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles
of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration,
adjustment, exchange, reset, exercise or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit
facility, debt, equity or other instrument (evidencing Company or
Subsidiary equity, debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or
affected, or (iii) conflict with or result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected; except in the
case of clause (iii), such as would not reasonably be expected to
result in a Material Adverse Effect.
(e)
Filings, Consents and
Approvals
. The Company is
not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with,
any court or other provincial or foreign or domestic federal,
state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than: (i) the filings
required pursuant to Section 4.6 of this Agreement, (ii)
the
notice and/or application(s) to each applicable Trading Market for
the issuance and sale of the Securities and the listing of the
Underlying Shares for trading thereon in the time and manner
required thereby, all of which shall have been effectuated prior to
the Closing, and (iii)
the
filing of a Form D with the Commission (collectively, the
“
Required
Approvals
”).
(f)
Issuance of the Securities
. The
Securities are duly authorized and, when issued and paid for in
accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on
transfer arising pursuant to applicable securities laws. The
Company has reserved from its duly authorized capital stock a
number of shares of Common Stock for issuance of the Underlying
Shares at least equal to the Required Minimum on the date
hereof.
(g)
Capitalization
. The
capitalization of the Company is as set forth on
Schedule 3.1(g)
included
in the SEC Reports. The Company has not issued any capital stock
since its
most recently filed periodic
report
. Except as set forth on
Schedule 3.1(g)
, no Person has
any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as
disclosed in the SEC Reports or on
Schedule 3.1(g)
, there are no
outstanding options, employee or incentive stock option plans,
warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire any shares
of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common
Stock Equivalents. Except as set forth on
Schedule 3.1(g)
, the issuance
and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange
or reset price under any of such securities. All of the outstanding
shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable, have been issued in material
compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive
rights or similar rights to subscribe for or purchase securities.
Except as contemplated by Section 3.1(e), no further approval or
authorization of any stockholder, the Board of Directors or others
is required for the issuance and sale of the Securities. There are
no stockholders agreements, voting agreements or other similar
agreements with respect to the Company’s capital stock to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders. The
Company is not a party to any Variable Rate Transaction and as of
Closing, there will not be outstanding any Equity Line of Credit
nor Variable Priced Equity Linked Instruments.
(h)
SEC Reports; Financial
Statements
. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including
pursuant to Sections 12(b), 12(g), 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein filed not later than
ten (10) days prior to the date hereof, being collectively referred
to herein as the “
SEC Reports
”) on a timely
basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied
in all material respects with the requirements of the Securities
Act and the Exchange Act, as applicable, and none of the SEC
Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the
SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with
United States generally accepted accounting principles
(“
GAAP
”) applied on a
consistent basis during the periods involved except as may be
otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements included in
the SEC Reports may not contain all footnotes required by GAAP, and
fairly present in all material respects the financial position of
the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments. The Company is,
and has no reason to believe that it will not in the foreseeable
future continue to be in compliance with all its reporting
requirements under the Securities Act and Exchange
Act.
(i)
Material Changes; Undisclosed Events,
Liabilities or Developments
. Since the date of the latest
audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report or on
Schedule 3.1(i)
:
(i) there has been no event, occurrence or development that has had
or that would reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any material
liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to
be reflected in the Company’s financial statements pursuant
to GAAP or disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company
has not declared or made any dividend or distribution of cash or
other property to its stockholders or purchased, redeemed or made
any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate except pursuant to the Stock
Option Plans as set forth on
Schedule 3.1(i)
. The Company
does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of
the Securities contemplated by this Agreement, or as set forth on
Schedule 3.1(i)
, no
event, liability, fact, circumstance, occurrence or development has
occurred or exists or is reasonably expected to occur or exist with
respect to the Company or its Subsidiaries or their respective
businesses, properties, operations, assets or financial condition,
that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made
or deemed made that has not been publicly disclosed at least two
Trading Days prior to the date that this representation is
made.
(j)
Litigation
. Except as set forth
in the SEC Reports, there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge
of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign)
(collectively, an “
Action
”) which (i)
adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision,
have or reasonably be expected to result in a Material Adverse
Effect. Except as set forth in the SEC Reports, neither the Company
nor any Subsidiary, nor any director or officer thereof, is or has
been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of
breach of fiduciary duty. Except as set forth in the SEC Reports,
there has not been, and to the knowledge of the Company, there is
not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer
of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
(k)
Labor Relations
. No labor
dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company or any
Subsidiary, which would reasonably be expected to result in a
Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates
to such employee’s relationship with the Company or such
Subsidiary, and neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and
its Subsidiaries believe that their relationships with their
employees are good. To the knowledge of the Company, no executive
officer of the Company or any Subsidiary, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or
any restrictive covenant in favor of any third party, and the
continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local
and foreign laws and regulations relating to employment and
employment practices, terms and conditions of employment and wages
and hours, except where the failure to be in compliance would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(l)
Compliance
.
To the Company’s knowledge, neither the Company nor any
Subsidiary, (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or
any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it
is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it
or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any judgment,
decree or order of any court, arbitrator or other governmental
authority or (iii) is or has been in violation of any statute,
rule, ordinance or regulation of any governmental authority,
including without limitation all foreign, federal, state and local
laws relating to taxes, environmental protection, occupational
health and safety, product quality and safety and employment and
labor matters, except in each case as would not reasonably be
expected to result in a Material Adverse Effect.
(m)
Regulatory Permits
. The Company
and each Subsidiary possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective
businesses as described in the SEC Reports and as actually
conducted, except where the failure to possess such permits would
not reasonably be expected to result in a Material Adverse Effect
(“
Material
Permits
”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation
or modification of any Material Permit.
(n)
Title to Assets
. Except as
disclosed in the SEC Reports, the Company and each Subsidiary have
good and marketable title in fee simple to all real property (if
any) owned by them and good and marketable title in all personal
property owned by them that is material to the business of the
Company and each Subsidiary, in each case free and clear of all
Liens, except for Permitted Liens and (i) Liens as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such
property by the Company and each Subsidiary and (ii) Liens for the
payment of federal, state or other taxes, for which appropriate
reserves have been made in accordance with GAAP and, the payment of
which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and each
Subsidiary are held by them under valid, subsisting and enforceable
leases with which the Company and each Subsidiary are in
compliance.
(o)
Intellectual Property
. All of
the Company’s and Subsidiary’s material Intellectual
Property Rights are disclosed as required in the SEC
Reports.
(i)
The term
“
Intellectual
Property Rights
” means:
1.
the name of the
Company and each Subsidiary, all fictional business names, trading
names, registered and unregistered trademarks, service marks, and
applications of the Company and each Subsidiary (collectively,
“
Marks''
);
2.
all patents and
patent applications of the Company and each Subsidiary
(collectively, “
Patents''
);
3.
all copyrights in
both published works and unpublished works of the Company and each
Subsidiary (collectively, “
Copyrights
”);
4.
all rights in mask
works of the Company and each Subsidiary (collectively,
“
Rights in Mask
Works''
); and
5.
all know-how, trade
secrets, confidential information, customer lists, software,
technical information, data, process technology, plans, drawings,
and blue prints (collectively, “
Trade Secrets''
); owned, used,
or licensed by the Company and each Subsidiary as licensee or
licensor.
(ii)
Agreements
.
Except as set forth in the SEC Reports, there are no outstanding
and, to Company’s knowledge, no threatened disputes or
disagreements with respect to any agreements relating to any
Intellectual Property Rights to which the Company is a party or by
which the Company is bound.
(iii)
Know-How
Necessary for the Business
. Except as set forth in the SEC
Reports, the Intellectual Property Rights are all those necessary
for the operation of the Company’s and Subsidiaries’
businesses as currently conducted or as represented to the
Purchaser to be conducted. Each of the Company and each Subsidiary
is the owner of all right, title, and interest in and to each of
their respective Intellectual Property Rights, free and clear of
all Liens, and adverse claims, and has the right to use all of the
Intellectual Property Rights. To the Company’s knowledge, no
employee of the Company or any Subsidiary has entered into any
contract that restricts or limits in any way the scope or type of
work in which the employee may be engaged or requires the employee
to transfer, assign, or disclose information concerning his work to
anyone other than the Company or a Subsidiary.
(iv)
Patents
.
Except as set forth in the SEC Reports, the Company and each
Subsidiary is the owner of all right, title and interest in and to
each of the Patents, free and clear of all Liens and adverse
claims. All of the issued Patents are currently in compliance with
formal legal requirements (including payment of filing,
examination, and maintenance fees and proofs of working or use),
are valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days after the
Closing Date. No Patent has been or is now involved in any
interference, reissue, reexamination, or opposition proceeding.
Except as set forth in the SEC Reports, to the Company’s
knowledge: (1) there is no potentially interfering patent or patent
application of any third party, and (2) no Patent is infringed or
has been challenged or threatened in any way. To the
Company’s knowledge, none of the products manufactured and
sold, nor any process or know-how used, by the Company or any
Subsidiary infringes or is alleged to infringe any patent or other
proprietary right of any other Person.
(v)
Trademarks
. The Company and
each Subsidiary is the owner of all right, title, and interest in
and to each of the Marks, free and clear of all Liens and adverse
claims. All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all
formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to
any maintenance fees or taxes or actions falling due within ninety
days after the Closing Date. No Mark has been or is now involved in
any opposition, invalidation, or cancellation and, to the
Company’s knowledge, no such action is threatened with
respect to any of the Marks. To the Company’s knowledge: (1)
there is no potentially interfering trademark or trademark
application of any third party, and (2) no Mark is infringed or has
been challenged or threatened in any way. To the Company’s
knowledge, none of the Marks used by the Company and each
Subsidiary infringes or is alleged to infringe any trade name,
trademark, or service mark of any third party.
(vi)
Copyrights
.
The Company and each Subsidiary is the owner of all right, title,
and interest in and to each of the Copyrights, free and clear of
all Liens and adverse claims. All the Copyrights have been
registered and are currently in compliance with formal
requirements, are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety days
after the Closing Date. To the Company’s knowledge, no
Copyright is infringed or has been challenged or threatened in any
way. To the Company’s knowledge, none of the subject matter
of any of the Copyrights infringes or is alleged to infringe any
copyright of any third party or is a derivative work based on the
work of a third party. All works encompassed by the Copyrights have
been marked with the proper copyright notice.
(vii)
Trade
Secrets
. With respect to each Trade Secret, the
documentation relating to such Trade Secret is current, accurate,
and sufficient in detail and content to identify and explain it and
to allow its full and proper use without reliance on the knowledge
or memory of any individual. The Company has taken all reasonable
precautions to protect the secrecy, confidentiality, and value of
its Trade Secrets. The Company and each Subsidiary has good title
and an absolute (but not necessarily exclusive) right to use the
Trade Secrets. The Trade Secrets are not part of the public
knowledge or literature, and, to the Company’s knowledge,
have not been used, divulged, or appropriated either for the
benefit of any Person (other the Company and each Subsidiary) or to
the detriment of the Company and each Subsidiary. No Trade Secret
is subject to any adverse claim or has been challenged or
threatened in any way.
(p)
Insurance
. The Company and each
Subsidiary are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company
and each Subsidiary are engaged, including, but not limited to,
directors and officers insurance coverage. Neither the Company nor
any Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business without a significant
increase in cost.
(q)
Transactions With Affiliates and
Employees
. Except as set forth in the SEC Reports, none of
the officers or directors of the Company or any Subsidiary and, to
the knowledge of the Company, none of the employees of the Company
or any Subsidiary is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from,
providing for the borrowing of money from or lending of money to or
otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee, stockholder, member
or partner, in each case in excess of $50,000 other than for: (i)
payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company or any
Subsidiary, and (iii) other employee benefits, including stock
option agreements under the Stock Option Plans or any other plan of
the Company except as disclosed on
Schedule 3.1(g).
(r)
Sarbanes-Oxley; Internal Accounting
Controls
. The Company and each Subsidiary are in material
compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations
promulgated by the Commission thereunder that are effective as of
the date hereof and as of the Closing Date.
The Company and each Subsidiary maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The
Company and each Subsidiary have established disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and each Subsidiary and designed such
disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the
Commission’s rules and forms. The Company’s certifying
officers have evaluated the effectiveness of the disclosure
controls and procedures of the Company and each Subsidiary as of
the end of the period covered by the most recently filed periodic
report under the Exchange Act (such date, the
“Evaluation
Date
”). The Company
presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act)
of the Company and its Subsidiaries that have materially affected,
or is reasonably likely to materially affect, the internal control
over financial reporting of the Company and its
Subsidiaries.
(s)
Certain Fees
. Except as set
forth on
Schedule
3.1(s)
, no brokerage, finder’s fees, commissions or
due diligence fees are or will be payable by the Company or any
Subsidiary to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with
respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no obligation with respect to
any such fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section
3.1(s) that may be due in connection with the transactions
contemplated by the Transaction Documents.
(t)
Investment Company
. The Company
is not, and is not an Affiliate of, and immediately after receipt
of payment for the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the
Investment Company Act of 1940, as amended. The Company shall
conduct its business in a manner so that it will not become an
“investment company” subject to registration under the
Investment Company Act of 1940, as amended.
(u)
Registration Rights
. Except as
set forth and described on
Schedule 3.1(u)
, no Person has
any right to cause the Company or any Subsidiary to effect the
registration under the Securities Act of any securities of the
Company or any Subsidiary, except for the Purchasers.
(v)
Reporting Company/Shell
Company
. The Company is a publicly-held company subject to
reporting obligations pursuant to Sections 12(g), 13 and 15(d) of
the Exchange Act. Pursuant to the provisions of the Exchange Act,
the Company has timely filed all reports and other materials
required to be filed by the Company thereunder with the SEC during
the twelve months preceding the date of this Agreement. The Company
has no reason to believe that it will not in the year following the
Closing continue to be in compliance with all listing and reporting
requirements applicable to the Company as of each of the Closing
Dates and thereafter. As of the date of this Agreement and the
Closing Date, the Company is not a “shell company” nor
a former “shell company” (as defined in Rule 405 of the
Securities Act).
(w)
Application of Takeover
Protections
. The Company and the Board of Directors has
taken all necessary action in order to render inapplicable any
control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the
laws of its state of incorporation that is or could become
applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights
under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.
(x)
Disclosure
. Except with respect
to the material terms and conditions of the Offering as set forth
in the Transaction Documents together with the exhibits and
schedules thereto, the Company confirms that neither it nor any
other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that it
believes constitutes or might constitute material, non-public
information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All of the disclosure
furnished by or on behalf of the Company to the Purchasers
regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, when taken together as a
whole, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. The
press releases disseminated by the Company during the twelve months
preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they were made and when made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
(y)
No Integrated Offering
. Except
as set forth on
Schedule
3.1(y)
, assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither
the Company, nor any of its Affiliates, nor any Person acting on
its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security,
under circumstances that would cause the Offering of the Securities
to be integrated with prior offerings by the Company for purposes
of: (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any
applicable shareholder approval provisions of any Trading Market on
which any of the securities of the Company are listed or
designated.
(z)
Solvency
. Based on the
consolidated financial condition of the Company and Subsidiaries as
of each Closing Date, and the Company’s good faith estimate
of the fair market value of its assets, after giving effect to the
receipt by the Company of the proceeds from the sale of the
Securities hereunder: (i) the fair saleable value of the
Company’s assets exceeds the amount that will be required to
be paid on or in respect of the Company’s existing debts and
other liabilities (including known contingent liabilities) as they
mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now
conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of
the business conducted by the Company, consolidated and projected
capital requirements and capital availability thereof, and (iii)
the current cash flow of the Company, together with the proceeds
the Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its
liabilities when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts
as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one
year from the Closing Date. The SEC Reports discloses, as of the
date hereof all outstanding secured and unsecured Indebtedness of
the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement,
“
Indebtedness
” means (x)
any liabilities for borrowed money or amounts owed in excess of
$100,000 in the aggregate (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 $100,000 due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(aa)
Tax
Status
. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i)
has made or filed all United States federal, state and local income
and all foreign income and franchise tax returns, reports and
declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due
on such returns, reports and declarations and (iii) has set aside
on its books provision reasonably adequate for the payment of all
material taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company or of any
Subsidiary know of no basis for any such claim.
(bb)
Foreign
Corrupt Practices
. Neither the Company nor any Subsidiary,
nor to the knowledge of the Company or any Subsidiary, any agent or
other person acting on behalf of the Company or any Subsidiary,
has: (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or
campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company or any Subsidiary (or made by any
person acting on its behalf of which the Company is aware) which is
in violation of law or (iv) violated in any material respect any
provision of FCPA.
(cc)
Accountants
and Lawyers
. The Company’s accounting firm is set
forth on
Schedule
3.1(cc)
of the Disclosure Schedules. To the knowledge and
belief of the Company, such accounting firm: (i) is a registered
public accounting firm as required by the Exchange Act and (ii)
shall express its opinion with respect to the financial statements
to be included in the Company’s Annual Report for the fiscal
year ending December 31, 2016.
There
are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and such
accountants.
(dd)
Acknowledgment
Regarding Purchasers’ Purchase of Securities
. The
Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and
any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely
incidental to the Purchasers’ purchase of the Securities. The
Company further represents to each Purchaser that the
Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company
and its representatives.
(ee)
Acknowledgment
Regarding Purchaser’s Trading Activity
. Anything in this Agreement or elsewhere herein
to the contrary notwithstanding (except for Section 4.16 hereof),
it is understood and acknowledged by the Company that: (i) none of
the Purchasers has been asked by the Company to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the
Securities for any specified term, (ii) past or future open market
or other transactions by any Purchaser, specifically including,
without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of
the Company’s publicly-traded securities, (iii) any
Purchaser, and counter-parties in “derivative”
transactions to which any such Purchaser is a party, directly or
indirectly, may presently have a “short” position in
the Common Stock and (iv) each Purchaser shall not be deemed to
have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction.
The Company further understands and acknowledges that (y) one or
more Purchasers may engage in hedging activities at various times
during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the
Underlying Shares deliverable with respect to Securities are being
determined, and (z) such hedging activities (if any) could reduce
the value of the existing stockholders' equity interests in the
Company at and after the time that the hedging activities are being
conducted. The Company acknowledges that such aforementioned
hedging activities do not constitute a breach of any of the
Transaction Documents.
The Company
acknowledges that anything to the contrary in the Transaction
Documents notwithstanding, Purchaser may sell long any Underlying
Shares it anticipates receiving after conversion of any part of a
Note or exercise of a Warrant.
(ff)
Regulation
M Compliance
. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities,
(ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another
to purchase any other securities of the Company.
(gg)
Money
Laundering
. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements
of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, applicable money laundering statutes and applicable rules
and regulations thereunder (collectively, the “
Money Laundering Laws
”),
and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving
the Company or any Subsidiary with respect to the Money Laundering
Laws is pending or, to the knowledge of the Company or any
Subsidiary, threatened.
(hh)
Stock
Option Plans
. Each stock option and similar security granted
by the Company was granted (i) in accordance with the terms of such
any applicable stock option plans and (ii) with an exercise price
at least equal to the fair market value of the Common Stock on the
date such stock option would be considered granted under GAAP and
applicable law. No stock option granted under any stock option plan
has been backdated. The Company has not knowingly granted, and
there is no and has been no Company policy or practice to knowingly
grant, stock options prior to, or otherwise knowingly coordinate
the grant of stock options with, the release or other public
announcement of material information regarding the Company or its
Subsidiaries or their financial results or prospects.
(ii)
Office
of Foreign Assets Control
. Neither the Company nor any
Subsidiary nor, to the Company's knowledge, any director, officer,
agent, employee or affiliate of the Company is currently subject to
any U.S. sanctions administered by the Office of Foreign Assets
Control of the U.S. Treasury Department (“
OFAC
”).
(jj)
Private
Placement
. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the
Trading Market.
(kk)
No
General Solicitation
. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only
to the Purchasers and certain other Accredited
Investors.
(ll)
Indebtedness
and Seniority
. As of the date hereof, all Indebtedness and
Liens of the Company and the principal terms thereof are set forth
in the SEC Reports. Except as set forth on
Schedule 3.1(ll)
, as of the
Closing Date, no Indebtedness or other equity of the Company is or
will be
pari passu
or
senior to the Notes in right of payment, whether with respect to
interest or upon liquidation or dissolution, or otherwise, other
than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and
capital lease obligations (which is senior only as to the property
covered thereby).
(mm)
Listing
and Maintenance Requirements
.
The Common Stock is listed on the OTC Pink Marketplace maintained
by the OTC Markets Group, Inc. under the symbol FDBL. Except as
disclosed in the Reports, the Company has not, in the twenty-four
(24) months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading
Market.
(nn)
FDA
.
The Company has no applications pending before the jurisdiction of
the U.S. Food and Drug Administration (“
FDA
”).
(oo)
No
Disqualification Events
. With respect to the Securities to
be offered and sold hereunder in reliance on Rule 506 under the
Securities Act, none of the Company, any of its predecessors, any
affiliated issuer, any director, executive officer, other officer
of the Company participating in the offering hereunder, any
beneficial owner of 20% or more of the Company’s outstanding
voting equity securities, calculated on the basis of voting power,
nor any promoter (as that term is defined in Rule 405 under the
Securities Act) connected with the Company in any capacity at the
time of sale (each, an “
Issuer Covered Person
”
and, together, “
Issuer Covered Persons
”)
is subject to any of the “Bad Actor” disqualifications
described in Rule 506(d)(1)(i) to (viii) under the Securities Act
(a “
Disqualification
Event
”), except for a Disqualification Event covered
by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable
care to determine whether any Issuer Covered Person is subject to a
Disqualification Event. The Company has complied, to the extent
applicable, with its disclosure obligations under Rule 506(e), and
has furnished to the Purchasers a copy of any disclosures provided
thereunder.
(pp)
Hang
With Transaction Representations and Warranties
. All of the
Company’s representations and warranties contained in the
Hang With Transaction documents are incorporated by reference
herein for the benefit of the Purchasers.
(qq)
Other
Covered Persons
. Except as set forth on
Schedule 3.1(s)
or to attorneys
for legal services, the Company is not aware of any person that has
been or will be paid (directly or indirectly) remuneration in
connection with the sale of any Regulation D Securities pursuant to
this Agreement.
(rr)
No
Outstanding Variable Priced Equity Linked Instruments
. As of
the Closing Date and for so long as Notes or Warrants are
outstanding, the Company will not have outstanding nor issuable any
Variable Priced Equity Linked Instruments, nor any debt or equity
with anti-dilution, ratchet or reset rights, except as set forth
and described on
Schedule
3.1(rr)
.
(ss)
Securities
may be purchased by Affiliates of the Company or other parties with
a financial interest in the Offering
.
Purchaser acknowledges that Securities may be
purchased by Affiliates of the Company or by other persons who will
receive fees or other compensation or gain which is dependent upon
the success of the Offering. Such purchases may be made at any
time, and will be counted in determining whether the level of
purchases has been met for a Closing of the Offering. Purchasers
acknowledges that the sale of Securities to any Person does not
indicate that such sales have been made to Purchasers who have no
financial or other interest in the Offering, or who otherwise are
exercising independent investment discretion.
(tt)
Survival
.
The foregoing representations and warranties shall survive the
Closing.
3.2
Representations and Warranties of the
Purchasers
. Each Purchaser, for itself and for no other
Purchaser, hereby represents and warrants as of the date hereof and
as of the Closing Date to the Company as follows (unless as of a
specific date therein):
(a)
Organization; Authority
. Such
Purchaser is either an individual or an entity duly incorporated or
formed, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation with full right,
corporate, partnership, limited liability company or similar power
and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution and
delivery of the Transaction Documents and performance by such
Purchaser of the transactions contemplated by the Transaction
Documents have been duly authorized by all necessary corporate,
partnership, limited liability company or similar action, as
applicable, on the part of such Purchaser. Each Transaction
Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with
the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance
with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited
by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by
applicable law.
(b)
Understandings or Arrangements
.
Such Purchaser understands that the Securities are
“restricted securities” and have not been registered
under the Securities Act or any applicable state securities law and
is acquiring the Securities as principal for its own account and
not with a view to or for distributing or reselling such Securities
or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of
distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities in
violation of the Securities Act or any applicable state securities
law (this representation and warranty not limiting such
Purchaser’s right to sell the Securities pursuant to any
registration statement or otherwise in compliance with applicable
federal and state securities laws). Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its
business.
(c)
Purchaser Status
. At the time
such Purchaser was offered the Securities, it was, and as of the
date hereof it is, and on each date on which it exercises any
Warrants or converts any Notes it will be either: (i) an Accredited
Investor as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as
a broker-dealer under Section 15 of the Exchange Act. Such
Purchaser has the authority and is duly and legally qualified to
purchase and own the Securities. Such Purchaser is able to bear the
risk of such investment for an indefinite period and to afford a
complete loss thereof. Such Purchaser has provided the information
in the Accredited Investor Questionnaire attached hereto as
Exhibit E
(the
“
Investor
Questionnaire
”). The information set forth on the
signature pages hereto and the Investor Questionnaire regarding
such Purchaser is true and complete in all respects. Except as
disclosed in the Investor Questionnaire, such Purchaser has had no
position, office or other material relationship within the past
three years with the Company or Persons (as defined below) known to
such Purchaser to be affiliates of the Company, and is not a member
of the Financial Industry Regulatory Authority or an
“associated person” (as such term is defined under the
FINRA Membership and Registration Rules Section 1011).
(d)
Experience of Such Purchaser
.
Such Purchaser, either alone or together with its representatives,
has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser
is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete
loss of such investment.
(e)
Information on Company
. Such
Purchaser has been furnished with or has had access to the SEC
Reports. Purchasers are not deemed to have any knowledge of any
information not included in the SEC Reports unless such information
is delivered in the manner described in the next
sentence. In addition, such Purchaser may have received
in writing from the Company such other information concerning its
operations, financial condition and other matters as such Purchaser
has requested, identified thereon as OTHER WRITTEN INFORMATION
(such other information is collectively, the “
Other Written
Information
”), and considered all factors such
Purchaser deems material in deciding on the advisability of
investing in the Securities. Such Purchaser was afforded (i)
the opportunity to ask such questions as such Purchaser deemed
necessary of, and to receive answers from, representatives of the
Company concerning the merits and risks of acquiring the
Securities; (ii) the right of access to information about the
Company and its financial condition, results of operations,
business, properties, management and prospects sufficient to enable
such Purchaser to evaluate the Securities; and (iii) the
opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense
that is necessary to make an informed investment decision with
respect to acquiring the Securities.
(f)
Compliance with Securities Act;
Reliance on Exemptions
. Such Purchaser understands and
agrees that the Securities have not been registered under the 1933
Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under
the 1933 Act, and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or
any applicable state securities laws or is exempt from such
registration. Such Purchaser understands and agrees that the
Securities are being offered and sold to such Purchaser in reliance
on specific exemptions from the registration requirements of United
States federal and state securities laws and regulations and that
the Company is relying in part upon the truth and accuracy of, and
such Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such
Purchaser set forth herein in order to determine the availability
of such exemptions and the eligibility of such Purchaser to acquire
the Securities.
(g)
Communication of Offer
. Such
Purchaser is not purchasing the Securities as a result of any
“general solicitation” or “general
advertising,” as such terms are defined in Regulation D,
which includes, but is not limited to, any advertisement, article,
notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or on the internet or
broadcast over television, radio or the internet or presented at
any seminar or any other general solicitation or general
advertisement.
(h)
No Governmental Review
. Such
Purchaser understands that no United States federal or state agency
or any other governmental or state agency has passed on or made
recommendations or endorsement of the Securities or the suitability
of the investment in the Securities nor have such authorities
passed upon or endorsed the merits of the Offering.
(i)
No Conflicts
. The execution,
delivery and performance of this Agreement and performance under
the other Transaction Documents and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or
relating hereto or thereto do not and will not (i) result in a
violation of such Purchaser’s charter documents, bylaws or
other organizational documents, if applicable, (ii) conflict with
nor constitute a default (or an event which with notice or lapse of
time or both would become a default) under any agreement to which
such Purchaser is a party, nor (iii) result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any
court or governmental agency applicable to such Purchaser or its
properties (except for such conflicts, defaults and violations as
would not, individually or in the aggregate, have a material
adverse effect on such Purchaser). Such Purchaser is not required
to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations
under this Agreement or perform under the other Transaction
Documents nor to purchase the Securities in accordance with the
terms hereof, provided that for purposes of the representation made
in this sentence, such Purchaser is assuming and relying upon the
accuracy of the relevant representations and agreements of the
Company herein.
(j)
Certain
Transactions and Confidentiality
. Other than consummating
the transactions contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with Purchaser, executed any
purchases or sales, including Short Sales, of the securities of the
Company during the period commencing as of the time that such
Purchaser first received a written term sheet from the Company or
any other Person representing the Company setting forth the
material terms of the transactions contemplated hereby and ending
immediately prior to the execution hereof.
(k)
The
sale of Securities does not indicate Purchaser’s investment
decision is shared by other unaffiliated
Purchasers
.
Because
there may be substantial purchases by Affiliates of the Company, or
other Persons who will receive fees or other compensation or gain
dependent upon the success of the Offering, Purchaser acknowledges
that such Purchaser is not placing any reliance on such sales as an
indication of the merits of the Offering.
(l)
Survival
.
The foregoing representations and warranties shall survive the
Closing.
The
Company acknowledges and agrees that the representations contained
in Section 3.2 shall not modify, amend or affect such
Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or
delivered in connection with this Agreement or the consummation of
the transaction contemplated hereby.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 (a)
Transfer
Restrictions
. The Securities may only be disposed of in
compliance with state and federal securities laws. In connection
with any transfer of Securities other than: (i) pursuant to an
effective registration statement, (ii) pursuant to Rule 144, (iii)
a transfer to the Company, (iv) a transfer to an Affiliate of a
Purchaser, or (v) in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to
provide to the Company, at the Company’s expense, an opinion
of counsel selected by the transferor and reasonably acceptable to
the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer,
any such transferee shall agree in writing to be bound by the terms
of this Agreement and the Registration Rights Agreement and shall
have the rights and obligations of a Purchaser under this Agreement
and the other Transaction Documents.
(b)
Legend
.
The Purchasers agree to the imprinting, so long as is required by
this Section 4.1, of a legend on any of the Securities in the
following form:
[NEITHER] THIS
SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES
ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION
THAT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
(c)
Pledge
.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or
all of the Securities to a financial institution that is an
Accredited Investor and who agrees to be bound by the provisions of
this Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledge or secure
Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate
Purchaser’s expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or
transfer of the Securities, including, if the Securities are
subject to registration pursuant to a registration rights
agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend
the list of selling stockholders thereunder.
(d)
Legend
Removal
. Certificates evidencing the Underlying Shares shall
not contain any legend (“
Unlegended
Shares
”) (including the legend set forth in Section
4.1(b) hereof): (i) while a registration statement covering the
resale of such security is effective under the Securities Act, (ii)
following any sale of such Underlying Shares pursuant to Rule 144,
(iii) if such Underlying Shares are eligible for sale under Rule
144, without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to
such Underlying Shares and without volume or manner-of-sale
restrictions or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Transfer Agent promptly after the effective date of
a registration statement if required by the Transfer Agent to
effect the removal of the legend hereunder. If all or any Notes are
converted or any portion of a Warrant is exercised at a time when
there is an effective registration statement to cover the resale of
the Underlying Shares, or if such Underlying Shares may be sold
under Rule 144 or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following such time as such legend
is no longer required under this Section 4.1(d), it will, no later
than five Trading Days following the delivery by a Purchaser to the
Company or the Transfer Agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend
(such fifth Trading Day, the “
Legend Removal Date
”),
deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and
other legends (however, the Corporation shall use reasonable best
efforts to deliver such shares within three (3) Trading Days). The
Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on
transfer set forth in this Section 4. Certificates for Underlying
Shares subject to legend removal hereunder shall be transmitted by
the Transfer Agent to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company
System as directed by such Purchaser.
(e)
Legend
Removal Default
. In addition to such Purchaser’s other
available remedies, provided the conditions for legend removal set
forth in Section 4.1(d) exist, the Company shall pay to a
Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Underlying Shares (based on the higher
of the actual purchase price or VWAP of the Common Stock on the
date such Securities are submitted to the Transfer Agent) delivered
for removal of the restrictive legend and subject to Section
4.1(d), $10 per Trading Day for each Trading Day after the Legend
Removal Date (increasing to $20 per Trading Day after the fifth
Trading Day) until such certificate is delivered without a legend.
Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to
pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or
injunctive relief.
(f)
DWAC
.
In lieu of delivering physical certificates representing the
Unlegended Shares, upon request of a Purchaser, so long as the
certificates therefor do not bear a legend and the Purchaser is not
obligated to return such certificate for the placement of a legend
thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the
account of Purchaser’s prime broker with the Depository Trust
Company through its Deposit Withdrawal At Custodian system,
provided that the Company’s Common Stock is DTC eligible and
the Company’s transfer agent participates in the Deposit
Withdrawal at Custodian system. Such delivery must be made on or
before the Legend Removal Date.
(g)
Injunction
.
In the event a Purchaser shall request delivery of Unlegended
Shares as described in this Section 4.1 and the Company is required
to deliver such Unlegended Shares, the Company may not refuse to
deliver Unlegended Shares based on any claim that such Purchaser or
anyone associated or affiliated with such Purchaser has not
complied with Purchaser’s obligations under the Transaction
Documents, or for any other reason, unless, an injunction or
temporary restraining order from a court, on notice, restraining
and or enjoining delivery of such Unlegended Shares shall have been
sought and obtained by the Company and the Company has posted a
surety bond for the benefit of such Purchaser in the amount of the
greater of (i) 120% of the amount of the aggregate purchase price
of the Underlying Shares to be subject to the injunction or
temporary restraining order, or (ii) the VWAP of the Common Stock
on the trading day before the issue date of the injunction
multiplied by the number of Unlegended Shares to be subject to the
injunction, which bond shall remain in effect until the completion
of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Purchaser to the extent Purchaser obtains
judgment in Purchaser’s favor.
(h)
Buy-In
.
In addition to any other rights available to Purchaser,
if the Company fails to deliver to a
Purchaser Unlegended Shares as required pursuant to this Agreement
and after the Legend Removal Date the Purchaser, or a broker on the
Purchaser’s behalf, purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of
a sale by such Purchaser of the shares of Common Stock which the
Purchaser was entitled to receive in unlegended form from the
Company (a “
Buy-In
”),
then the Company shall promptly pay in cash to the Purchaser (in
addition to any remedies available to or elected by the Purchaser)
the amount, if any, by which (A) the Purchaser’s total
purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate
purchase price of the shares of Common Stock delivered to the
Company for reissuance as Unlegended Shares together with interest
thereon at a rate of 15% per annum accruing until such amount and
any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if a
Purchaser purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to $10,000 of
purchase price of Underlying Shares delivered to the Company for
reissuance as Unlegended Shares, the Company shall be required to
pay the Purchaser $1,000, plus interest, if any. The Purchaser
shall provide the Company written notice indicating the amounts
payable to the Purchaser in respect of the
Buy-In.
(i)
Plan
of Distribution
. Each Purchaser, severally and not jointly
with the other Purchasers, agrees with the Company that such
Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a
registration statement, they will be sold in compliance with the
plan of distribution set forth therein, and acknowledges that the
removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the
Company’s reliance upon this understanding.
4.2
Acknowledgment
of Dilution
. The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain
market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including, without
limitation, its obligation to issue the Underlying Shares pursuant
to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any
claim the Company may have against any Purchaser and regardless of
the dilutive effect that such issuance may have on the ownership of
the other stockholders of the Company.
4.3
Furnishing
of Information; Public Information
.
(a)
Until the earliest
of the time that (i) no Purchaser owns Securities or (ii) the
Warrants have expired, the Company covenants to file all periodic
reports with the Commission pursuant to the Exchange Act and
maintain the registration of the Common Stock under Section 12(b)
or 12(g) of the Exchange Act after such time as the Company
initially becomes subject to such requirements and to timely file
(or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act and
timely file all reports that would be required to be filed by an
issuer subject to Section 12(b) or 12(g) of the Exchange Act even
if the Company is not then subject to the reporting requirements of
the Exchange Act.
(b)
At any time
commencing on the Closing Date and ending at such time that all of
the Securities may be sold without the requirement for the Company
to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, if the Company
shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a “Public Information
Failure”) then, in addition to such Purchaser’s other
available remedies, the Company shall pay to a Purchaser, in cash,
as partial liquidated damages and not as a penalty, by reason of
any such delay in or impairment of its ability to sell the
Securities, an amount in cash equal to 2.0% of the aggregate
principal amount of Notes and accrued interest thereon, and
aggregate Exercise Price of Warrant Shares held by such Purchaser
on the day of a Public Information Failure and on every thirtieth
(30th) day (pro-rated for periods totaling less than thirty days)
thereafter until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public
information is no longer required for the Purchasers to transfer
the Underlying Shares pursuant to Rule 144. The payments to which a
Purchaser shall be entitled pursuant to this Section 4.3(b) are
referred to herein as “
Public Information Failure
Payments
.” Public Information Failure Payments shall
be paid on the earlier of (i) the last day of the calendar month
during which such Public Information Failure Payments are incurred
and (ii) the third (3rd) Business Day after the event or failure
giving rise to the Public Information Failure Payments is cured. In
the event the Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full. Nothing herein
shall limit such Purchaser’s right to pursue actual damages
for the Public Information Failure, and such Purchaser shall have
the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief.
4.4
Integration
.
The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities
or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the
closing of such other transaction or to effectuate such other
transaction unless shareholder approval is obtained before the
earlier of the closing of such subsequent transaction or
effectuation of such other transaction.
4.5
Conversion
and Exercise Procedures
. Each of the form of Notice of
Exercise included in the Warrants and the form of Notice of
Conversion included in the Notes set forth the totality of the
procedures required of the Purchasers in order to exercise the
Warrants or convert the Notes. No additional legal opinion, other
information or instructions shall be required of the Purchasers to
exercise their Warrants or convert their Notes. The Company shall
honor exercises of the Warrants and conversions of the Notes and
shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction
Documents.
4.6
Securities
Laws Disclosure; Publicity
. The Company shall on or before
the fourth Trading Day following the Closing Date, file a Current
Report on Form 8-K including the Transaction Documents and all of
the documents in connection with the Hang With Transaction as
exhibits thereto with the Commission (“
Form 8-K
”). A form of the
Form 8-K is annexed hereto as
Exhibit F
. Such
Exhibit F
will be identical to
the Form 8-K which will be filed with the Commission except for the
omission of signatures thereto by the Company. From and after the
filing of the Form 8-K, the Company represents to the Purchasers
that it shall have publicly disclosed all material, non-public
information delivered to any of the Purchasers by the Company or
any Subsidiary, or any of their respective officers, directors,
employees or agents in connection with the transactions
contemplated by the Transaction Documents including but not limited
to all of the terms of the Hang With Transaction. The Company and
each Purchaser shall consult with each other in issuing any press
releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any press release
nor otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall
not unreasonably be withheld or delayed, except if such disclosure
is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission
or any regulatory agency or Trading Market unless the name of such
Purchaser is already included in the body of the Transaction
Documents, without the prior written consent of such Purchaser,
except: (a) as required by federal securities law in connection
with the filing of final Transaction Documents with the Commission
and (b) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under
this clause (b). The Company may file a Form 10-Q in lieu of the
Form 8-K provided such filing contains the content required to be
included in the Form 8-K and the Form 10-Q is filed not later than
the Trading Day after the Closing Date.
4.7
Shareholder
Rights Plan
. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that
any Purchaser is an “Acquiring Person” under any
control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers.
4.8
Non-Public
Information
. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction
Documents, the Company covenants and agrees that neither it, nor
any other Person acting on its behalf, will provide any Purchaser
or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior
thereto such Purchaser shall have entered into a written agreement
with the Company regarding the confidentiality and use of such
information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company.
4.9
Use
of Proceeds
. Of the scheduled Closings listed on
Schedule 2.1
, a
portion of the gross proceeds of each Closing will be used by the
Company for its purchase of the Series A Convertible Participating
Preferred Stock of Hang With, Inc. for an aggregate purchase price
of up to $750,000 as set forth on
Schedule 4.9
. The Company will
use the net proceeds of the Closings following an aggregate of
$750,000 of payments to Hang With (up to $865,000 in the aggregate)
for working capital purposes. For the avoidance of doubt, if any of
the Closings by the Purchasers is for a lesser amount than the
Closing amount detailed on
Schedule 2.1
, the purchase of
the Series A Convertible Participating Preferred Stock of Hang
With, Inc. shall be pro rata as to the amount of the
Closing.
4.10
Indemnification
of Purchasers
. Subject to the provisions of this Section
4.10, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and
agents (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), each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or 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 such
controlling persons (each, a “
Purchaser Party
”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such
Purchaser Party may suffer or incur as a result of or relating to
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against
Purchaser Parties in any capacity, or any of them or their
respective Affiliates, by any stockholder of the Company who is not
an Affiliate of such Purchaser Party, with respect to any of the
transactions contemplated by the Transaction Documents (unless such
action is based upon a breach of such Purchaser Party’s
representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser Party
may have with any such stockholder or any violations by such
Purchaser Party of state or federal securities laws or any conduct
by such Purchaser Party which constitutes fraud, gross negligence,
willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have
the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of counsel, a material conflict
on any material issue between the position of the Company and the
position of such Purchaser Party, in which case the Company shall
be responsible for the reasonable fees and expenses of no more than
one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (y) for any settlement by a
Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or
(z) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party’s
breach of its material representations, warranties or covenants
under the Transaction Documents. The indemnification required by
this Section 4.10 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and
when bills are received or are incurred. The indemnity agreements
contained herein shall be in addition to any cause of action or
similar right of any Purchaser Party against the Company or others
and any liabilities the Company may be subject to pursuant to
law.
4.11
Reservation
and Listing of Securities
.
(a)
The Company shall
maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount
as may then be required to fulfill its obligations in full under
the Transaction Documents, but not less than the Required
Minimum.
(b)
If, on any date,
the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such
date, then the Board of Directors shall amend the Company’s
certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event
not later than the 60
th
day after such
date.
(c)
The Company shall
prior to the Closing, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with
such Trading Market an additional shares listing application
covering a number of shares of Common Stock at least equal to the
Required Minimum on the date of such application, (ii) take all
steps necessary to cause such shares of Common Stock to be approved
for listing or quotation on such Trading Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such
listing or quotation and (iv) maintain the listing or quotation of
such Common Stock on any date at least equal to the Required
Minimum on such date on such Trading Market or another Trading
Market.
The Company will take all
action necessary to continue the listing or quotation and trading
of its Common Stock on a Trading Market until the later of (i) at
least six (6) years after the Closing Date, and (ii) for so long as
the Notes or Warrants are outstanding, and will comply in all
respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.
In the event the aforedescribed listing is not continuously
maintained for six (6) years after the Closing Date and for so long
as Notes or Warrants are outstanding (a “
Listing Default
”), then
in addition to any other rights the Purchasers may have hereunder
or under applicable law, on the first day of a Listing Default and
on each monthly anniversary of each such Listing Default date (if
the applicable Listing Default shall not have been cured by such
date) until the applicable Listing Default is cured, the Company
shall pay to each Purchaser an amount in cash, as partial
liquidated damages and not as a penalty, equal to 2.0% of the
aggregate Subscription Amount of Notes, conversion price of
Conversion Shares and purchase price of Warrant Shares held by such
Purchaser or which may be acquired upon exercise of Warrants on the
day of a Listing Default and on every thirtieth day (pro-rated for
periods less than thirty days) thereafter until the date such
Listing Default is cured. If the Company fails to pay any
liquidated damages pursuant to this Section in a timely manner, the
Company will pay interest thereon at a rate of 1.5% per month
(pro-rated for partial months) to the Purchaser.
4.12
Form
D; Blue Sky Filings
. The Company agrees to timely file a
Form D with respect to the Securities as required under Regulation
D and to provide a copy thereof, promptly upon request of any
Purchaser. The Company shall take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption
for, or to qualify the Securities for, sale to the Purchasers at a
Closing under applicable securities or “Blue Sky” laws
of the states of the United States, and shall provide evidence of
such actions promptly upon request of any Purchaser.
4.13
Subsequent
Equity Sales
. From the date hereof until the Notes are no
longer outstanding, the Company will not, without the consent of a
Majority in Interest, enter into any Equity Line of Credit or
similar agreement, issue or agree to issue floating or Variable
Priced Equity Linked Instruments nor issue or agree to issue any of
the foregoing or equity with price reset rights (subject to
adjustment for stock splits, distributions, dividends,
recapitalizations and the like) (collectively, a
“
Variable Rate
Transaction
”). For purposes hereof,
“
Equity Line of
Credit
” shall include any transaction involving a
written agreement between the Company and an investor or
underwriter whereby the Company has the right to “put”
its securities to the investor or underwriter over an agreed period
of time and at an agreed price or price formula, and
“
Variable Priced
Equity Linked Instruments
” shall include: (A) any debt
or equity securities which are convertible into, exercisable or
exchangeable for, or carry the right to receive additional shares
of Common Stock or Common Stock Equivalents or any of the foregoing
at a price that can be reduced either (1) at any conversion,
exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at
any time after the initial issuance of such debt or equity
security, or (2) with a fixed conversion, exercise or exchange
price that is subject to being reset at some future date at any
time after the initial issuance of such debt or equity security due
to a change in the market price of the Company’s Common Stock
since date of initial issuance, or upon the issuance of any debt,
equity or Common Stock Equivalent, and (B) any amortizing
convertible security which amortizes prior to its maturity date,
where the Company is required or has the option to (or any investor
in such transaction has the option to require the Company to) make
such amortization payments in shares of Common Stock which are
valued at a price that is based upon and/or varies with the trading
prices of or quotations for Common Stock at any time after the
initial issuance of such debt or equity security (whether or not
such payments in stock are subject to certain equity conditions).
For purposes of determining the total consideration for a
convertible instrument (including a right to purchase equity of the
Company) issued, subject to an original issue or similar discount
or which principal amount is directly or indirectly increased after
issuance, the consideration will be deemed to be the actual net
cash amount received by the Company in consideration of the
original issuance of such convertible instrument. For so long as
the Notes or Warrants are outstanding, the Company will not,
without the consent of a Majority in Interest, issue any Common
Stock or Common Stock Equivalents to officers, directors, and
employees of the Company unless such issuance is an Exempt Issuance
or in the amounts and on the terms set forth on
Schedule 4.13
. For so long as
any Notes and Warrants are outstanding, the Company will not amend
the terms of any securities or Common Stock Equivalents or of any
agreement outstanding or in effect as of the date of this Agreement
pursuant to which same were or may be acquired without the consent
of a Majority in Interest, if the result of such amendment would be
at an effective price per share of Common Stock less than the
higher of the Conversion Price or Warrant Exercise Price in effect
at the time of such amendment. Except for Exempt Issuances for so
long as the Notes are outstanding, the Company will not issue any
Common Stock or Common Stock Equivalents, without the consent of a
Majority in Interest. The restrictions and limitations in this
Section 4.13 are in addition to and shall apply whether or not a
Purchaser exercises its rights pursuant to Section 4.17 and Section
4.23.
4.14
Equal
Treatment of Purchasers
. No consideration (including any
modification of any Transaction Document) shall be offered or paid
to any Person to amend or consent to a waiver or modification of
any provision of any of this Agreement unless the same
consideration is also offered on a ratable basis to all of the
parties to this Agreement. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by
the Company and negotiated separately by each Purchaser, and is
intended for the Company to treat the Purchasers as a class and
shall not in any way be construed as the Purchasers acting in
concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.
4.15
Capital
Changes
. Until the one (1) year anniversary of the Closing
Date, the Company shall not undertake a reverse or forward stock
split or reclassification of the Common Stock without ten (10) days
prior written notice to the Purchasers. In no event will the
Company reduce the par value of the Common Stock to an amount less
than the lesser of (i) the Per Share Purchase Price, and (ii) the
then in effect purchase price of a Warrant Share.
4.16
Certain
Transactions and Confidentiality
. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither
it, nor any Affiliate acting on such Purchaser’s behalf or
pursuant to any understanding with such Purchaser will execute any
purchases or sales, including Short Sales, of any of the
Company’s securities during the period commencing with the
execution of this Agreement and ending at such time that the
transactions contemplated by this Agreement are first publicly
announced pursuant to a press release or Form 8-K as described in
Section 4.6. Each Purchaser, severally and not jointly with
the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed
by the Company pursuant to a press release or Form 8-K as described
in Section 4.6, such Purchaser will maintain the confidentiality of
the existence and terms of this transaction and the information
included in the Transaction Documents and the Disclosure Schedules.
Further, each Purchaser severally and not jointly with the other
Purchasers covenants that neither it, nor any of its Affiliates
will engage in any Short Sale transactions at any time while it
beneficially owns any Securities. Notwithstanding the foregoing,
and notwithstanding anything contained in this Agreement to the
contrary, the Company expressly acknowledges and agrees that (i) no
Purchaser makes any representation, warranty or covenant hereby
that it will not engage in effecting transactions in any securities
of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced pursuant to a press
release or Form 8-K as described in Section 4.6, (ii) no Purchaser
shall be restricted or prohibited from effecting any transactions
in any securities of the Company in accordance with applicable
securities laws from and after the time that the transactions
contemplated by this Agreement are first publicly announced
pursuant to a press release or Form 8-K, and (iii) no Purchaser
shall have any duty of confidentiality to the Company or its
Subsidiaries after the filing of the Form 8-K.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets
and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other
portions of such Purchaser’s assets, the covenant set forth
above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision
to purchase the Securities covered by this Agreement.
4.17
Participation
in Future Financing
.
(a)
From the date
hereof and until the later of (i) eighteen (18) months after the
final Closing Date, or (ii) the Notes are no longer outstanding,
upon any proposed issuance by the Company or any of its
Subsidiaries of Common Stock, Common Stock Equivalents for cash
consideration, Indebtedness or a combination thereof, other than
(i) a rights offering to all holders of Common Stock (which may
include extending such rights offering to holders of Notes), or
(ii) an Exempt Issuance (each a “
Subsequent Financing
”),
the Purchasers shall have the right to participate in up to an
amount of the Subsequent Financing equal to 100% of the Subsequent
Financing (the “
Participation Maximum
”)
pro rata to each other in proportion to their Subscription Amounts
on the same terms, conditions and price provided for in the
Subsequent Financing, unless the Subsequent Financing is an
underwritten public offering, in which case the Company shall
notify each Purchaser of such public offering when it is lawful for
the Company to do so, but no Purchaser shall be entitled to
purchase any particular amount of such public offering without the
approval of the lead underwriter of such underwritten public
offering.
(b)
At least ten (10)
Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing (“
Pre-Notice
”), which
Pre-Notice shall ask such Purchaser if it wants to review the
details of such financing (such additional notice, a
“
Subsequent
Financing Notice
”). Upon the request of a Purchaser,
and only upon a request by such Purchaser, for a Subsequent
Financing Notice, the Company shall promptly, but no later than one
(1) Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The requesting Purchaser shall be deemed
to have acknowledged that the Subsequent Financing Notice may
contain material non-public information. The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of
such Subsequent Financing, the amount of proceeds intended to be
raised thereunder and the Person or Persons through or with whom
such Subsequent Financing is proposed to be effected and shall
include a term sheet or similar document relating thereto as an
attachment.
(c)
Any Purchaser
desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York
City time) on the tenth (10
th
) Trading Day after
all of the Purchasers have received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing,
the amount of such Purchaser’s participation, and
representing and warranting that such Purchaser has such funds
ready, willing, and available for investment on the terms set forth
in the Subsequent Financing Notice. If the Company receives no such
notice from a Purchaser as of such tenth (10
th
) Trading Day, such
Purchaser shall be deemed to have notified the Company that it does
not elect to participate.
(d)
If by 5:30 p.m.
(New York City time) on the tenth (10
th
) Trading Day after
all of the Purchasers have received the Pre-Notice, notifications
by the Purchasers of their willingness to participate in the
Subsequent Financing (or to cause their designees to participate)
is, in the aggregate, less than the total amount of the Subsequent
Financing, then the Company may affect the remaining portion of
such Subsequent Financing on the terms and with the Persons set
forth in the Subsequent Financing Notice and the Purchasers shall
simultaneously affect their portion of such Subsequent Financing as
set forth in their notifications to the Company consistent with the
terms set forth in the Subsequent Financing Notice.
(e)
If by 5:30 p.m.
(New York City time) on the fifteenth (15
th
) Trading Day after
all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to
purchase its Pro Rata Portion (as defined below) of the
Participation Maximum. “
Pro Rata Portion
” means
the ratio of (x) the principal amount of Notes purchased hereunder
by a Purchaser participating under this Section 4.17 and (y) the
sum of the aggregate principal amounts of Notes purchased hereunder
by all Purchasers participating under this Section
4.17.
(f)
The Company must
provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set
forth above in this Section 4.18, if the Subsequent Financing
subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such
Subsequent Financing Notice within sixty (60) Trading Days after
the date of the initial Subsequent Financing Notice.
(g)
The
Company and each Purchaser agree that if any Purchaser elects to
participate in the Subsequent Financing, the transaction documents
related to the Subsequent Financing shall not include any term or
provision whereby such Purchaser shall be required to agree to any
restrictions on trading as to any of the Securities purchased
hereunder (for avoidance of doubt, the securities purchased in the
Subsequent Financing shall not be considered securities purchased
hereunder) or be required to consent to any amendment to or
termination of, or grant any waiver, release or the like under or
in connection with, this Agreement, without the prior written
consent of such Purchaser.
(h)
Notwithstanding anything to the contrary in this
Section 4.17 and unless otherwise agreed to by such Purchaser, the
Company shall either confirm in writing to such Purchaser that the
transaction with respect to the Subsequent Financing has been
abandoned or shall publicly disclose its intention to issue the
securities in the Subsequent Financing, in either case in such a
manner such that such Purchaser will not be in possession of any
material, non-public information, by the seventeenth
(17
th
)
Business Day following delivery of the Subsequent Financing Notice.
If by such seventeenth (17
th
)
Business Day, no public disclosure regarding a transaction with
respect to the Subsequent Financing has been made, and no notice
regarding the abandonment of such transaction has been received by
such Purchaser, such transaction shall be deemed to have been
abandoned and such Purchaser shall not be deemed to be in
possession of any material, non-public information with respect to
the Company or any of its Subsidiaries.
4.18
Purchaser’s
Exercise Limitations
. The Company shall not effect exercise
of the rights granted in Sections 4.17 and 4.23 of this Agreement,
and a Purchaser shall not have the right to exercise any portion of
such rights granted in Sections 4.17 and 4.23 only to the extent
that after giving effect to such exercise, the Purchaser, would
beneficially own in excess of the Beneficial Ownership Limitation
(as defined in the Note), applied in the manner set forth in the
Note. In such event the right by Purchaser to benefit from such
rights or receive shares in excess of the Beneficial Ownership
Limitation shall be held in abeyance until such times as such
excess shares shall not exceed the Beneficial Ownership Limitation,
provided the Purchaser complies with the Purchaser’s other
obligations in connection with the exercise by Purchaser of its
rights pursuant to Sections 4.17 and 4.23.
4.19
Maintenance
of Property
. The Company shall and cause each Subsidiary to
keep all of its property, which is necessary or useful to the
conduct of its business, in good working order and condition,
ordinary wear and tear excepted.
4.20
Preservation
of Corporate Existence
. The Company shall preserve and
maintain its corporate existence, rights, privileges and franchises
in the jurisdiction of its incorporation, and qualify and remain
qualified, as a foreign corporation in each jurisdiction in which
such qualification is necessary in view of its business or
operations and where the failure to qualify or remain qualified
might reasonably have a Material Adverse Effect upon the financial
condition, business or operations of the Company taken as a
whole.
4.21
DTC
Program
. At all times that
Notes or Warrants are outstanding, the Company shall employ as the
transfer agent for its Common Stock and Underlying Shares a
participant in the Depository Trust Company Automated Securities
Transfer Program and cause the Common Stock and Underlying Shares
to be transferable pursuant to such program.
4.22
Reimbursement.
If any Purchaser becomes involved in any capacity in any Proceeding
by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder),
solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such
Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection
therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company
may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchasers who are actually named in such
action, proceeding or investigation, and partners, directors,
agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any
such Affiliate and any such Person. The Company also agrees that
neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf
of or in right of the Company solely as a result of acquiring the
Securities under this Agreement.
4.23
Most
Favored Nation Provision
. From the date hereof and for so
long as a Purchaser holds any Securities, in the event that the
Company issues or sells any Common Stock or Common Stock
Equivalents, if a Purchaser then holding outstanding Securities
reasonably believes that any of the terms and conditions
appurtenant to such issuance or sale are more favorable to such
investors than are the terms and conditions granted to the
Purchasers hereunder, upon notice to the Company by such Purchaser
within five (5) Trading Days after disclosure of such issuance or
sale, the Company shall amend the terms of this transaction as to
such Purchaser only so as to give such Purchaser the benefit of
such more favorable terms or conditions. This Section 4.23 shall
not apply with respect to an Exempt Issuance. The Company shall
provide each Purchaser with notice of any such issuance or sale not
later than ten (10) Trading Days before such issuance or
sale.
4.24
Indebtedness
.
For so long as a majority in original principal amount of the Notes
is outstanding, the Company will not incur any Indebtedness other
than Permitted Indebtedness, without the consent of the Majority in
Interest.
4.25
Further
Registration Statements.
From the date hereof until
twenty-four (24) months after the final Closing Date, the Company
will not, without the consent of a Majority in Interest, file with
the Commission or with state regulatory authorities any
registration statements, shares reserved for outside securities
counsel, or amend any already filed registration statement to
increase the amount of Common Stock registered therein, or reduce
the price of which such company securities are registered therein,
until the expiration of the “
Exclusion Period
,” which
shall be defined as the sooner of (i) the date all the Underlying
Shares have been registered in an effective registration statement
that has been effective for not less than six months, or (ii) until
all the Underlying Shares may be resold by the Subscribers pursuant
to a registration statement or Rule 144b(l)(i), with regard to
volume limitations for a period of not less than six months. The
Exclusion Period will be tolled or reinstated, as the case may be,
during the pendency of an Event of Default as defined in the
Note.
4.26
Notice
of Disqualification Events
. The Company will notify the
Purchasers in writing, prior to the Closing Date of (i) any
Disqualification Event relating to any Issuer Covered Person and
(ii) any event that would, with the passage of time, become a
Disqualification Event relating to any Issuer Covered Person not
otherwise disclosed herein or in the SEC Reports.
4.27
Duration
of Undertakings
. Unless otherwise stated in this Article IV,
all of the Company’s undertakings, obligations and
responsibilities set forth in Article IV of this Agreement shall
remain in effect for so long as any Securities remain
outstanding.
4.28
Consent
to Offering and Waiver of Rights.
Solely in connection with
this Offering, Alpha Capital Anstalt and Palladium Capital Advisors
LLC each consents to this Offering, waives the prohibitions against
the Company contained in Section 4.13 of the Securities Purchase
Agreement, the rights and protections granted to each of Alpha
Capital Anstalt and Palladium Capital Advisors LLC pursuant to
Section 4.21 of the Securities Purchase Agreement, Section 5(e) of
the Notes and Section 3 of the Warrants, each dated August 5, 2015,
January 27, 2016 and March 8, 2016, respectively, and the rights
and protections granted to each of Alpha Capital Anstalt and
Palladium Capital Advisors LLC pursuant to Section 5(e) of the
Notes as amended pursuant to Allonges and Section 3 of the Warrants
each dated May 17, 2016, May 22, 2016, June 3, 2016, June 16, 2016,
July 8, 2016, August 14, 2016, August 15, 2016 and September 12,
2016.
4.29
Consummation
of Hang With Transaction
. The Company undertakes to
consummate the Hang With Transaction, the terms of which, including
but not limited to those terms set forth on
Schedule 4.9
, may not be
modified or amended without the consent of a Majority in Interest
of the Purchasers. The Company further undertakes to enforce all of
its rights and to timely comply with its obligations and
responsibilities in connection with the Hang With Transaction and
as further described on
Schedule 4.9
.
4.30
Acknowledgement
by Company of Purchaser’s Inducement
. The Company
acknowledges that, as to the first three Closings, the inducement
for Purchasers is the timely consummation by the Company of the
Hang With Transaction as further set forth on
Schedule 4.9
.
ARTICLE
V.
MISCELLANEOUS
5.1
Termination
. This
Agreement may be terminated by any Purchaser only, as to such
Purchaser’s obligations hereunder and without any effect
whatsoever on the obligations between the Company and the other
Purchasers, by written notice given at any time to the Company and
Escrow Agent at any time until such Purchaser’s Subscription
Amount has been released from escrow to or for the benefit of the
Company or returned to such Purchaser;
provided
,
however
, that such termination
will not affect the right of any party to sue for any breach by any
other party (or parties). Until the Escrow Agent actually releases
a Purchaser’s Subscription Amount in connection with a
Closing, each Purchaser has the absolute right to demand back and
receive from the Escrow Agent such Purchaser’s Subscription
Amount.
5.2
Fees and Expenses
. Of the
scheduled Closings listed on
Schedule 2.1
, a portion of the
gross proceeds of each Closing will be used by the Company to pay
G&M for the legal fees in connection with G&M’s
representation of Alpha Capital Anstalt (and no other Purchasers
except pursuant to the Escrow Agreement) in the aggregate amount of
$25,000 as set forth on
Schedule 5.2
. Except as
expressly set forth in the Transaction Documents and on
Schedule 3.1(s)
,
each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
The Company shall pay all Transfer Agent fees (including, without
limitation, any fees required for same-day processing of any
instruction letter delivered by the Company and any conversion or
exercise notice delivered by a Purchaser), stamp taxes and other
taxes and duties levied in connection with the delivery of any
Securities to the Purchasers. The Company shall be responsible for
all wire fees incurred by the Escrow Agent for the receipt and
disbursement of Subscription Amounts. Such fees may be disbursed by
the Escrow Agent from any funds deliverable to or for the benefit
of the Company. All of the Purchasers acknowledge that they have
been advised to seek the advice of their own
attorneys.
5.3
Entire Agreement
. The
Transaction Documents, together with the exhibits and schedules
thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all
prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
5.4
Notices
.
All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, facsimile, or
electronic mail, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to
be received), or (b) upon receipt, when sent by electronic mail
(provided confirmation of transmission is electronically generated
and keep on file by the sending party), or (c) on the second
business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be: (i) if to Borrower, to:
Friendable, Inc.
,
125 East
Campbell Avenue, 2
nd
Floor, Campbell CA
95008, Attn: Robert Rositano, CEO, fax: (408) 547-0110, email:
robert@friendable.com, with a copy by fax or email only to: Lucosky
Brookman LLP, 101 Wood Avenue South, Woodbridge, NJ 08830, Attn:
Steven A. Lipstein, Esq., fax: (732) 395-4401, email:
slipstein@lucbro.com, and (ii) if to the Holder, to: the address
and fax number indicated on the front page of this Note, with an
additional copy by fax only to (which shall not constitute notice):
Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream,
New York 11581, fax: (212) 697-3575, email:
counslers@aol.com.
5.5
Amendments; Waivers
. No
provision of this Agreement may be waived, modified, supplemented
or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchasers holding at least a
majority in interest of the Securities then outstanding (the
“
Majority in
Interest
”), or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought.
Whenever the term “consent of the Purchasers” or a
similar term is employed herein, it shall mean the consent of a
Majority in Interest. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any
subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of
any such right.
5.6
Headings
. The headings herein
are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
5.7
Successors and Assigns
. This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company may
not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by
merger). Following a Closing, any Purchaser may assign any or all
of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”
5.8
No Third-Party Beneficiaries
.
This Agreement is intended for the benefit of the parties hereto
and their respective successors and permitted assigns and is not
for the benefit of, nor may any provision hereof be enforced by,
any other Person, except as otherwise set forth in Section
4.10.
5.9
Governing Law
. All questions
concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of
New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan 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 action, suit or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or
proceeding is improper or is an 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
Agreement 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 law. If either party shall
commence an action or proceeding to enforce any provisions of the
Transaction Documents, then, in addition to the obligations of the
Company under Section 4.10, the prevailing party in such action,
suit or proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of
such action or proceeding.
5.10
Survival
.
The representations and warranties contained herein shall survive
the Closing and the delivery of the Securities.
5.11
Execution
.
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 each other party, it being
understood that the 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.
5.12
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.
5.13
Rescission
and Withdrawal Right
. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions
of) any of the other Transaction Documents, whenever any Purchaser
exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related
obligations within the periods therein provided, then such
Purchaser may, at any time prior to the Company’s performance
of such obligations, rescind or withdraw, in its sole discretion
from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to
its future actions and rights;
provided
,
however
, that in the case of a
rescission of a conversion of a Note or exercise of a Warrant, the
applicable Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion or exercise
notice concurrently with the return to such Purchaser of the
aggregate Exercise Price paid to the Company for such shares and
the restoration of such Purchaser’s right to acquire such
shares pursuant to such Purchaser’s Warrant (including,
issuance of a replacement warrant certificate evidencing such
restored right).
5.14
Replacement
of Securities
. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof (in the case of mutilation), or in
lieu of and substitution therefor, a new certificate or instrument,
but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction. The applicant for a new
certificate or instrument under such circumstances shall also pay
any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement
Securities.
5.15
Remedies
.
In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific
performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agree to waive and not to assert
in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.16
Payment
Set Aside
. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such
payment or payments or the proceeds of such enforcement or exercise
or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by
or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
5.17
Usury
.
To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time
hereafter in force, in connection with any claim, action or
proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction
Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for
payments in the nature of interest shall not exceed the maximum
lawful rate authorized under applicable law (the
“
Maximum
Rate
”), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of
them, when aggregated with any other sums in the nature of interest
that the Company may be obligated to pay under the Transaction
Documents exceed such Maximum Rate. It is agreed that if the
maximum contract rate of interest allowed by law and applicable to
the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the
new maximum contract rate of interest allowed by law will be the
Maximum Rate applicable to the Transaction Documents from the
Closing Date thereof forward, unless such application is precluded
by applicable law. If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction
Documents, such excess shall be applied by such Purchaser to the
unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at such
Purchaser’s election.
5.18
Independent
Nature of Purchasers’ Obligations and Rights
. The
obligations of each Purchaser under any Transaction Document are
several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the
performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any
Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of the
other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by
its own separate legal counsel in its review and negotiation of the
Transaction Documents. For reasons of administrative convenience
only, each Purchaser and its respective counsel have chosen to
communicate with the Company through G&M. The Company has
elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by any of the
Purchasers. It is expressly understood and agreed that each
provision contained in this Agreement and in each other Transaction
Document is between the Company and a Purchaser, solely, and not
between the Company and the Purchasers collectively and not between
and among the Purchasers.
5.19
Liquidated
Damages
. The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction
Documents is a continuing obligation of the Company and shall not
terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument
or security pursuant to which such partial liquidated damages or
other amounts are due and payable shall have been
canceled.
5.20
Saturdays,
Sundays, Holidays, etc
. If the last or appointed day for the
taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then such action may be
taken or such right may be exercised on the next succeeding
Business Day.
5.21
Construction
.
The parties agree that each of them and/or their respective counsel
have reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the
Transaction Documents or any amendments thereto. In addition, each
and every reference to share prices and shares of Common Stock in
any Transaction Document shall be subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the
date of this Agreement.
5.22
WAIVER
OF JURY TRIAL
. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT
PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY
JURY.
5.23
Equitable
Adjustment
. Trading volume amounts, price/volume amounts,
the amount of Warrants, the amount of shares of Common Stock
identified in this Agreement, Conversion Price, Exercise Price,
Underlying Shares and similar figures in the Transaction Documents
shall be equitably adjusted (but without duplication) to offset the
effect of stock splits, similar events and as otherwise described
in this Agreement, Note and Warrants.
(Signature Pages Follow)
IN
WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated
above.
FRIENDABLE, INC.
|
Address for Notice:
125
East Campbell Avenue
Campbell,
CA 95008
Fax:
(408) 547-0110
|
By:
/s/Robert
Rositano
__________________________________________
Name:
Robert A. Rositano, Jr.
Title:
Chief Executive Officer
|
|
With a
copy to (which shall not constitute notice):
Lucosky
Brookman LLP
101
Wood Avenue South
Woodbridge,
NJ 08830
Attn:
Steven A. Lipstein, Esq.
Fax:
(732) 395-4401
|
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR
PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGE TO FRIENDABLE, INC.
SECURITIES PURCHASE
AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated
above.
Name of
Purchaser:
________________________________________________________
Signature of Authorized Signatory of
Purchaser
: __________________________________
Name of
Authorized Signatory:
____________________________________________________
Title
of Authorized Signatory:
_____________________________________________________
Email
Address of Authorized Signatory:
_____________________________________________
Facsimile Number of
Authorized Signatory:
__________________________________________
State
of Residence of Purchaser:
_________________________________________________
Address
for Notice to Purchaser:
Address
for Delivery of Securities to Purchaser (if not same as address for
notice):
Subscription
Amount:
US$________________
Note
principal amount:
___________________
Warrants:
___________________
EIN
Number, if applicable, will be provided under separate cover:
________________________
Date:
___________________________
[SIGNATURE
PAGES CONTINUE]
EXHIBITS AND SCHEDULES
Exhibit A
|
Form of Note
|
Exhibit B
|
Form of Warrant
|
Exhibit C
|
Escrow Agreement
|
Exhibit D
|
Form of Legal Opinion
|
Exhibit E
|
Form of Investor Questionnaire and
|
|
Rule 506 Bad Actor Disqualification Questionnaire
|
Exhibit F
|
Form of Form 8-K
|
Exhibit G
|
Term Sheet in connection with Hang With Transaction
|
Exhibit H
|
Hang With Agreements
|
Schedule
2.1
Schedule
2.2(a)(vii)
Schedule
3.1(a)
Schedule
3.1(g)
Schedule
3.1(i)
Schedule
3.1(s)
Schedule
3.1(u)
Schedule
3.1(y)
Schedule
3.1(z)
Schedule
3.1(cc)
Schedule
3.1(ll)
Schedule
3.1(rr)
Schedule
4.9
Schedule
4.13
Schedule
5.2
Exhibits and
Schedules Index
FRIENDABLE, INC. DISCLOSURE SCHEDULES
These
Disclosure Schedule are made and given pursuant to Section 3.1 of
the Securities Purchase
Agreement, dated as
of September 30, 2016 (the “Agreement”), between
Friendable, Inc., a Nevada
corporation (the
“Company”) and the Purchasers listed thereto. All
capitalized terms used but not defined
herein shall have
the meanings as defined in the Agreement, unless otherwise
provided. The section
numbers below
correspond to the section numbers of the representations and
warranties in the Agreement.
Nothing
in this Disclosure Schedule is intended to broaden the scope of any
representation or warranty
contained in the
Agreement or to create any covenant. Inclusion of any item in this
Disclosure Schedule
(1) does not
represent a determination that such item is material or establish a
standard of materiality, (2)
does not represent
a determination that such item did not arise in the ordinary course
of business, (3) does
not represent a
determination that the transactions contemplated by the Agreement
require the consent of
third parties, and
(4) shall not constitute, or deemed to be, an admission to any
third party concerning
such item. This
Disclosure Schedule may include brief descriptions or summaries of
certain agreements
and instruments,
copies of which are available upon reasonable request.
SCHEDULE 2.1
$1,615,000
to be funded as follows:
$465,000.00
on the initial Closing Date
$375,000.00
on November 3, 2016
$375,000.00
on December 5, 2016
$375,000.00
on January 4, 2017
SCHEDULE 2.2(a)(vii)
SCHEDULE 3.1(a)
iHoopkup
Social, Inc., a Delaware corporation, is a wholly owned subsidiary
of the Company.
SCHEDULE 3.1(g)
See
attached.
Schedule 3.1(g)
Capitalization
As of September 29, 2016 the Company's capitalization is as
follows:
Common
Stock
|
|
|
|
|
|
Total:
|
775,541,236
|
|
|
|
|
Preferred Stock
1
|
|
|
Copper
Creek
|
15,581
|
|
Robert
Rositano Jr
|
2,256
|
|
Dean
Rositano
|
2,256
|
|
Checkmate
Mobile, Inc.
|
503
|
|
Frank
Garcia
|
750
|
|
Integrity
|
275
|
|
Olvia
Santiago
|
150
|
|
Total:
|
21,771
|
b)
|
Warrants to purchase
common stock
|
|
Coventry
Enterprises
|
51,000,000
|
a),
2
|
Alpha
Capital
|
500,205,128
|
4
|
Palladium
|
5,130,629
|
4
|
Total:
|
556,335,757
|
|
Convertible Notes
|
|
|
Coventry
Enterprises
|
2,094,299
|
3
|
Alpha
Capital
|
1,930,000
|
4
|
Palladium
|
60,500
|
4
|
EMA
|
106,500
|
5
|
Total:
|
4,191,299
|
|
a)
Common Stock Purchase Warrant (the “Warrant”) which
entitles Coventry to subscribe for and purchase from the
Company, up to
15,000,000 shares of common stock of the Company at exercise prices
between $0.003 and $0.05 for
a period of five
years. The exercise price is subject to adjustments as provided in
the Warrant. Under certain
circumstances, the
Holder is also permitted a cashless exercise.
b) The
Series A Preferred Stock is convertible into nine (9) times the
number of common stock outstanding until the
closing of a
Qualified Financing (i.e. the sale and issuance of the
Company’s equity securities that results in gross
proceeds in excess
of $2,500,000). The number of shares of common stock issued on
conversion of preferred stock is
based on the ratio
of the number of shares of preferred stock converted to the total
number of shares of preferred
stock outstanding
at the date of conversion multiplied by nine (9) times the number
of common stock outstanding at
the date of
conversion.
Schedule 3.1(h)
SEC Reports; Financial Statements
[1]
Please see Annex A
of the Company’s Definitive Schedule 14C filed on April 30,
2014.
[2]
Please see the Company’s Form 10Q Quarterly
Report for the periods ended March 31, 2015, June 30, 2015,
September 30, 2015 and
March 31,
2016.
[3]
Please see the Company’s Form 10Q Quarterly
Report for the period ended March 31, 2015, and Form 8K’s
filed on January 22, 2015,
March 6, 2015,
March 27, 2015, April 3, 2015, June 9, 2015, June 26, 2015, August
11, 2015, May 13, 2016, June 3, 2016, June 23, 2016,
July
13, 2016, August 10, 2016, August 25, 2016, and September 16,
2016.
[4]
Please see the Company’s Form 8K's filed on
August 11, 2015, July 13, 2016, August 10, 2016, August 25, 2016,
and September 16, 2016
and Form 8K(A)
filed on September 1, 2015.
[5]
Please see the Company’s Form 8K filed
on April 22, 2016.
SCHEDULE 3.1(i)
None.
SCHEDULE 3.1(s)
The
Company is obligated to pay Palladium Capital Advisors, LLC upon
each Closing the following
compensation:
$
amount divided by conversion price x4%
First
Closing $360,000 divided by .0025 x4%= 5,760,000
shares.
SCHEDULE 3.1(u)
None.
SCHEDULE
3.1(y)
None.
SCHEDULE 3.1(z)
None.
SCHEDULE 3.1(cc)
Manning
Elliot LLP
Ryan
Ayre, CPA, CA, CPA (Washington)
Partner
Phone:
604-714-3672
Fax:
604-714-3669
SCHEDULE 3.1(ll)
None.
SCHEDULE 3.1(rr)
None.
SCHEDULE 4.9
$750,000
to be funded to Hang With as follows:
$225,000
on the initial Closing Date payment out of gross Subscription
Amount of $465,000
$175,000
following the November 2016 payment out of gross Subscription
Amount of $375,000
$175,000
following the December 2016 payment out of gross Subscription
Amount of $375,000
$175,000
following the January 2017 payment out of gross Subscription Amount
of $375,000
The
Company will use the net proceeds of the Closings following an
aggregate of $750,000 of payments to Hang With (up to $865,000 in
the aggregate) for working capital purposes.
SCHEDULE 4.13
On
November 22, 2011, the Board of Directors of Titan Iron Ore Corp.
(see Note 1) approved a stock option plan
(“
2011
Stock Option Plan
”), the purpose of which is to
enhance the Company’s stockholder value and financial
performance by
attracting, retaining and motivating the Company’s officers,
directors, key employees, consultants
and its affiliates
and to encourage stock ownership by such individuals by providing
them with a means to acquire a
proprietary
interest in the Company’s success through stock ownership.
Under the 2011 Stock Option Plan, officers,
directors,
employees and consultants who provide services to the Company may
be granted options to acquire
common shares of
the Company. The aggregate number of options authorized by the plan
shall not exceed 4,974
common shares of
the Company.
The
following table summarizes the options outstanding and exercisable
under the 2011 Stock Option Plan as of
December 31,
2015:
|
|
|
Expiry
Date
|
|
|
December 21, 2021
|
1,680
|
1,725
|
June
21, 2022
|
400
|
500
|
June
25, 2023
|
134
|
850
|
|
$
1,044
|
3,075
|
The
Board of Directors and the stockholders holding a majority of the
voting power approved a 2014 Equity
Incentive Plan (the
“
2014
Plan
”) on February 28, 2014, with a to be determined
effective date. The purpose of the
2014 Plan is to
assist the Company and its affiliates in attracting, retaining and
providing incentives to employees,
directors,
consultants and independent contractors who serve the Company and
its affiliates by offering them the
opportunity to
acquire or increase their proprietary interest in the Company and
to promote the identification of their
interests with
those of the stockholders of the Company. The 2014 Plan will also
be used to make grants to further
reward and
incentivize current employees and others.
There
are 120,679 shares of common stock reserved for issuance under the
2014 Plan. The Board shall have the
power and authority
to make grants of stock options to employees, directors,
consultants and independent
contractors who
serve the Company and its affiliates. Any stock options granted
under the 2014 Plan shall have an
exercise price
equal to or greater than the fair market value of the
Company’s shares of common stock. Unless
otherwise
determined by the Board of Directors, stock options shall vest over
a four year period with 25% being
vested after the
end of one (1) year of service and the remainder vesting equally
over a 36 month period. The Board
may award options
that may vest based upon the achievement of certain performance
milestones. As of December
31, 2015, no
options have been awarded under the 2014 Plan.
The following table summarizes the Company’s stock options
outstanding and exercisable:
|
|
Weighted Average Exercise Price
$
|
Weighted-Average Remaining Contractual Term (years)
|
Aggregate Intrinsic Value
$
|
Stock
options of the Company outstanding and exercisable at the
Merger
|
3,075
|
1,044
|
7.57
|
-
|
Outstanding,
December 31, 2015 and 2014
|
3,075
|
1,044
|
7.57
|
-
|
Exercisable,
December 31, 2015 and 2014
|
3,075
|
1,044
|
7.57
|
-
|
SCHEDULE 5.2
$25,000
to be funded as follows:
$10,000
following the initial Closing Date payment of $465,000
$5,000
following the November 2016 payment of $375,000
$5,000
following the December 2016 payment of $375,000
$5,000
following the January 2017 payment of $375,000
EXHIBIT E
ACCREDITED INVESTOR QUESTIONNAIRE
IN CONNECTION WITH INVESTMENT IN CONVERTIBLE NOTE
FRIENDABLE, INC.,
A NEVADA CORPORATION
PURSUANT TO SECURITIES PURCHASE AGREEMENT DATED SEPTEMBER ___,
2016
TO :
Palladium Capital
Advisors LLC
10
Rockefeller Plaza, Suite 909
INSTRUCTIONS
PLEASE
ANSWER ALL QUESTIONS. If the appropriate answer is
“None” or “Not Applicable”, so state.
Please print or type your answers to all questions. Attach
additional sheets if necessary to complete your answers to any
item.
Your
answers will be kept strictly confidential at all times. However,
Palladium Capital Advisors LLC (the “Company”) may
present this Questionnaire to such parties as it deems appropriate
in order to assure itself that the offer and sale of securities of
the Company will not result in a violation of the registration
provisions of the Securities Act of 1933, as amended, or a
violation of the securities laws of any state.
1. Please
provide the following information:
Name:
_______________________________________________________________________________________________________________________
Name of
additional purchaser:
____________________________________________________________________________________________________
(Please complete
information in Question 5)
Date of
birth, or if other than an individual, year of organization or
incorporation:
_____________________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
2. Residence
address, or if other than an individual, principal office
address:
_____________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________
Telephone
number:
_____________________________________________________________________________________________________________
Social
Security Number:
_________________________________________________________________________________________________________
Taxpayer
Identification Number:
___________________________________________________________________________________________________
3.
Business address:
_____________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
Business telephone
number:
_______________________________________________________________________________________________________
4.
Send mail
to: Residence
______ Business
_______
5. With
respect to tenants in common, joint tenants and tenants by the
entirety, complete only if information differs from that
above:
Residence address:
______________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
Telephone number:
_______________________________________________________________________________________________________________
Social
Security Number:
__________________________________________________________________________________________________________
Taxpayer
Identification Number:
____________________________________________________________________________________________________
Business address:
________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
Business telephone
number:
________________________________________________________________________________________________________
Send
Mail
to: Residence
_______ Business
_______
6. Please
describe your present or most recent business or occupation and
indicate such information as the nature of your employment, how
long you have been employed there, the principal business of your
employer, the principal activities under your management or
supervision and the scope (e.g. dollar volume, industry rank, etc.)
of such activities:
_______________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
7. Please
state whether you (i) are associated with or affiliated with a
member of the Financial Industry Regulatory Association, Inc.
(“FINRA”), (ii) are an owner of stock or other
securities of FINRA member (other than stock or other securities
purchased on the open market), or (iii) have made a subordinated
loan to any FINRA member:
If you
answered yes to any of (i) – (iii) above, please indicate the
applicable answer and briefly describe the facts
below:
______________________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________
8A. Applicable
to Individuals ONLY. Please answer the following questions
concerning your financial condition as an Accredited Investor
(within the meaning of Rule 501 of Regulation D). If the purchaser
is more than one individual, each individual must initial an answer
where the question indicates a “yes” or
“no” response and must answer any other question fully,
indicating to which individual such answer applies. If the
purchaser is purchasing jointly with his or her spouse, one answer
may be indicated for the couple as a whole:
8.1 Does
your net worth* (or joint net worth with your spouse) exceed
$1,000,000?
8.2 Did
you have an individual income** in excess of $200,000 or joint
income together with your spouse in excess of $300,000 in each of
the two most recent years and do you reasonably expect to reach the
same income level in the current year?
8.3 Are
you an executive officer of the Company?
* For
purposes hereof, net worth shall be deemed to include ALL of your
assets, liquid or illiquid MINUS any liabilities.
** For
purposes hereof, the term “income” is not limited to
“adjusted gross income” as that term is defined for
federal income tax purposes, but rather includes certain items of
income which are deducted in computing “adjusted gross
income”. For investors who are salaried employees, the gross
salary of such investor, minus any significant expenses personally
incurred by such investor in connection with earning the salary,
plus any income from any other source including unearned income, is
a fair measure of “income” for purposes hereof. For
investors who are self-employed, “income” is generally
construed to mean total revenues received during the calendar year
minus significant expenses incurred in connection with earning such
revenues.
8.B Applicable
to Corporations, Partnerships, Trusts, Limited Liability Companies
and other Entities ONLY:
The
purchaser is an Accredited Investor because the purchaser falls
within at least one of the following categories (Check all
appropriate lines):
___ (i) a bank
as defined in Section 3(a)(2) of the Act or a savings and loan
association or other institution as defined in Section 3(a)(5)(A)
of the Act whether acting in its individual or fiduciary
capacity;
___ (ii) a
broker-dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended;
___ (iii) an
insurance company as defined in Section 2(13) of the
Act;
___ (iv) an
investment company registered under the Investment Company Act of
1940, as amended (the “Investment Act”) or a business
development company as defined in Section 2(a)(48) of the
Investment Act;
___ (v) a
Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958, as amended;
___ (vi) a
plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, where
such plan has total assets in excess of $5,000,000;
___ (vii) an
employee benefit plan within the meaning of Title 1 of the Employee
Retirement Income Security Act of 1974, as amended (the
“Employee Act”), where the investment decision is made
by a plan fiduciary, as defined in Section 3(21) of the Employee
Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or an employee
benefit plan that has total assets in excess of $5,000,000, or a
self-directed plan the investment decisions of which are made
solely by persons that are Accredited Investors;
___ (viii) a
private business development company, as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, as
amended;
___ (ix) an
organization described in Section 501(c)(3) of the Internal Revenue
Code, a corporation, a Massachusetts or similar business trust, or
a partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000;
___ (x) a
trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose
purchase is directed by a “sophisticated” person, as
described in Rule 506(b)(2)(ii) promulgated under the Act, who has
such knowledge and experience in financial and business matters
that he or she is capable of evaluating the merits and risks of the
prospective investment;
___ (xi) an
entity in which all of the equity investors are persons or entities
described above (“Accredited Investors”). ALL EQUITY
OWNERS MUST COMPLETE “EXHIBIT A” ATTACHED
HERETO.
9.A Do
you have sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and
risks associated with investing in the Company?
ANSWER
QUESTION 9B ONLY IF THE ANSWER TO QUESTION 9A WAS
“NO.”
9.B If
the answer to Question 9A was “NO,” do you have a
financial or investment adviser (a) that is acting in the capacity
as a purchaser representative and (b) who has sufficient knowledge
and experience in financial and business matters so as to be
capable of evaluating the merits and risks associated with
investing in the Company?
If you
have a financial or investment adviser(s), please identify each
such person and indicate his or her business address and telephone
number in the space below. (Each such person must complete, and you
must review and acknowledge, a separate Purchaser Representative
Questionnaire which will be supplied at your request).
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
10. You
have the right, will be afforded an opportunity, and are encouraged
to investigate the Company and review relevant factors and
documents pertaining to the officers of the Company, and the
Company and its business and to ask questions of a qualified
representative of the Company regarding this investment and the
properties, operations, and methods of doing business of the
Company.
Have
you or has your purchaser representative, if any, conducted any
such investigation, sought such documents or asked questions of a
qualified representative of the Company regarding this investment
and the properties, operations, and methods of doing business of
the Company?
If so,
briefly describe:
________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
If so,
have you completed your investigation and/or received satisfactory
answers to your questions?
11. Do
you understand the nature of an investment in the Company and the
risks associated with such an investment?
12. Do
you understand that there is no guarantee of any financial return
on this investment and that you will be exposed to the risk of
losing your entire investment?
13. Do
you understand that this investment is not liquid?
14. Do
you have adequate means of providing for your current needs and
personal contingencies in view of the fact that this is not a
liquid investment?
15. Are
you aware of the Company’s business affairs and financial
condition, and have you acquired all such information about the
Company as you deem necessary and appropriate to enable you to
reach an informed and knowledgeable decision to acquire the
Interests?
16. Do
you have a “pre-existing relationship” with the Company
or any of the officers of the Company?
(For purposes
hereof, “pre-existing relationship” means any
relationship consisting of personal or business contacts of a
nature and duration such as would enable a reasonably prudent
investor to be aware of the character, business acumen, and general
business and financial circumstances of the person with whom such
relationship exists.)
If so,
please name the individual or other person with whom you have a
pre-existing relationship and describe the
relationship:
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
17.
Exceptions to the representations and warranties made in Section
3.2 of the Securities Purchase Agreement (if no exceptions, write
“none” – if left blank, the response will be
deemed to be “none”):
___________________________________________________
___________________________________________________________________________________________________________________________
Dated:
__________________, 2016
If
purchaser is one or more individuals (all individuals must
sign):
________________________________________________________________________________________________________________________________
(Type
or print name of prospective purchaser)
________________________________________________________________________________________________________________________________
Signature of
prospective purchaser
________________________________________________________________________________________________________________________________
Social
Security Number
________________________________________________________________________________________________________________________________
(Type
or print name of additional purchaser)
________________________________________________________________________________________________________________________________
Signature of
spouse, joint tenant, tenant in common or other signature, if
required
________________________________________________________________________________________________________________________________
Social
Security Number
Annex A
Definition
of Accredited Investor
The
securities will only be sold to investors who represent in writing
in the Securities Purchase Agreement that they are Accredited
Investors, as defined in Regulation D, Rule 501 under the Act which
definition is set forth below:
1. A
natural person whose net worth, or joint net worth with spouse, at
the time of purchase exceeds $1 million (excluding home);
or
2. A
natural person whose individual gross income exceeded $200,000 or
whose joint income with that person’s spouse exceeded
$300,000 in each of the last two years, and who reasonably expects
to exceed such income level in the current year; or
3. A
trust with total assets in excess of $5 million, not formed for the
specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person described in
Regulation D; or
4. A
director or executive officer of the Company; or
5. The
investor is an entity, all of the owners of which are Accredited
Investors; or
6. (a)
bank as defined in Section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in Section
3(a)(5)(A) of the Act, (b) any broker or dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934, (c) an
insurance Company as defined in Section 2(13) of the Act, (d) an
investment Company registered under the Investment Company Act of
1940 or a business development Company as defined in Section
2(a)(48) of such Act, (e) a Small Business Investment Company
licensed by the United States Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958,
(f) an employee benefit plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a
state or its political subdivisions, if such plan has total assets
in excess of $5 million, (g) an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Securities Act
of 1974, and the employee benefit plan has assets in excess of $5
million, or the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such act, that is either a bank,
savings and loan institution, insurance Company, or registered
investment advisor, or, if a self-directed plan, with an investment
decisions made solely by persons that are Accredited Investors, (h)
a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, or (i) an
organization described in Section 501(c)(3) of the Internal Revenue
code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
securities offered, with assets in excess of $5
million.
EXHIBIT
“A” TO ACCREDITED INVESTOR QUESTIONNAIRE
ACCREDITED
CORPORATIONS, PARTNERSHIPS, LIMITED LIABILITY COMPANIES, TRUSTS OR
OTHER ENTITIES INITIALING QUESTION 8B(xi) MUST PROVIDE THE
FOLLOWING INFORMATION.
I
hereby certify that set forth below is a complete list of all
equity owners in __________________ [NAME OF ENTITY], a
[TYPE OF
ENTITY] formed pursuant to the laws of the State of
. I also certify that
EACH SUCH OWNER HAS
INITIALED THE SPACE OPPOSITE HIS OR HER NAME
and that each
such owner understands that by initialing that space he or she is
representing that he or she is an accredited individual investor
satisfying the test for accredited individual investors indicated
under “Type of Accredited Investor.”
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signature
of authorized corporate officer, general partner or
trustee
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Name of Equity
Owner
Type
of Accredited Investor
1
1.
________________________________________________________________________________________________________________________________
2.
________________________________________________________________________________________________________________________________
3.
________________________________________________________________________________________________________________________________
4.
________________________________________________________________________________________________________________________________
5.
________________________________________________________________________________________________________________________________
6.
________________________________________________________________________________________________________________________________
7.
________________________________________________________________________________________________________________________________
8.
________________________________________________________________________________________________________________________________
9.
________________________________________________________________________________________________________________________________
10.
_______________________________________________________________________________________________________________________________
RULE 506 BAD ACTOR DISQUALIFICATION QUESTIONNAIRE
_______________________________________
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______________
___, 2016
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Name
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Friendable, Inc.
(the “Company”) is about to close a private placement
of convertible Notes and warrants pursuant to the terms of a
Securities Purchase Agreement. Under an SEC Rule effective
September 23, 2013, the Company is requesting each director and
executive officer to complete and execute this questionnaire.
Please answer yes or no to all questions listed below.
DEFINITION OF PROMOTERS
Under
the Securities Act of 1933 (the “Act”) Rule 405 defines
a promoter as any person—individual or legal
entity—that either alone or with others, directly or
indirectly takes initiative in founding the business or enterprise
of the issuer, or, in connection with such founding or
organization, directly or indirectly receives 10% or more of any
class of issuer securities or 10% or more of the proceeds from the
sale of any class of issuer securities (other than securities
received solely as underwriting commissions or solely in exchange
for property). The test considers activities “alone or
together with others, directly or indirectly”; therefore, the
result does not change if there are other legal entities (which may
themselves be promoters) in the chain between that person and the
issuer.
DEFINITION OF INVESTMENT MANAGERS AND PRINCIPALS OF POOLED
INVESTMENT FUND ISSUERS
For
issuers that are pooled investment funds, the rule covers
investment advisers and other investment managers of the fund; the
directors, general partners, managing members, executive officers
and other officers participating in the offering of such investment
managers; and the directors, executive officers and other officers
participating in the offering of the investment managers’
general partners or managing members.
DEFINITION OF COMPENSATED SOLICITORS
Persons
compensated for soliciting investors as well as their directors,
general partners, managing members, executive officers and officers
participating in the offering. This category covers any
persons compensated for soliciting investors but will typically
involve broker-dealers and other intermediaries.
DEFINITION OF DIRECTORS, GENERAL PARTNERS AND MANAGING MEMBERS OF
THE ISSUER
Members
of the Board of Directors (for issuers that are corporations),
general partners (for issuers that are partnerships) and managing
members (for issuers that are limited liability
companies).
DEFINITION OF EXECUTIVE OFFICERS AND PARTICIPATING OFFICERS OF THE
ISSUER
The
term “executive officer” means a company’s
president, any vice president in charge of a principal business
unit, division or function (such as sales, administration or
finance), any other officer who performs a policy-making function
or any other person who performs similar policy-making functions.
The term “officer” means a president, vice president,
secretary, treasurer or principal financial officer, comptroller or
principal accounting officer, as well as any person who routinely
performs corresponding functions. Participation in an
offering would have to be more than transitory or incidental
involvement, and could include activities such as participation or
involvement in due diligence activities, involvement in the
preparation of disclosure documents, and communication with the
issuer, prospective investors or other offering
participants.
DEFINITION OF 20% BENEFICIAL OWNERS OF THE ISSUER
Beneficial
owners of 20% or more of the issuer’s outstanding equity
securities, calculated on the basis of total voting power rather
than on the basis of ownership of any single class of
securities.
NOTE ON REFERENCES TO THE COMPANY
All
references to the Company made herein include its predecessors and
affiliated issuers.
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1.
Criminal
Convictions:
Within the past 10 years (or five years, in the
of case the Company), have you or the Company been convicted of any
felony or misdemeanor
(a) In
connection with the purchase or sale of a security
YES ___
NO ___
(b) Involving
the making of a false filing with the Securities and Exchange
Commission (the “SEC”)
YES ___
NO ___
(c) Arising
out of the conduct of the business of an underwriter, broker,
dealer, municipal securities dealer, investment adviser or paid
solicitor of purchasers of securities.
YES___
NO ___
2.
Court
injunctions and restraining orders:
Within the past five
years,
have you or the
Company been the subject of a court injunction or restraining
order
(a) In
connection with the purchase or sale of a security
YES ___
NO ___
(b) Involving
the making of a false filing with the SEC
YES ___
NO ___
(c) Arising
out of the conduct of the business of an underwriter, broker,
dealer, municipal securities dealer, investment adviser or paid
solicitor of purchasers of securities.
YES ___
NO ___
3.
Final
orders of certain state and federal regulators:
Have you or
the Company been the subject of any final orders of state
regulators of securities, insurance, banking, savings associations
or credit unions; federal banking agencies; the Commodity Futures
Trading Commission and the National Credit Union Administration
that
(a) Bar
you or the Company from associating with a regulated entity,
engaging in the business of securities, insurance or banking, or
engaging in savings association or credit union activities
or
YES ___
NO ___
(b) Are
based on a violation of a law or regulation that prohibits
fraudulent, manipulative, or deceptive conduct and were issued
within the last 10 years
YES ___
NO ___
4.
SEC
disciplinary orders: Are you or the Company currently the subject
of any
SEC disciplinary orders relating to brokers, dealers,
municipal securities dealers, investment companies, and investment
advisers and their associated persons under Section 15(b) or 15B(c)
of the Securities Exchange Act of 1934, or Section 203(e) or (f) of
the Investment Advisers Act that
(a)
Suspends or revokes your or the Company’s registration as a
broker, dealer, municipal securities dealer or investment
adviser
YES ___
NO ___
(1)
Places limitations on your or the Company’s activities,
functions or operations
YES ___
NO ___
(2)
Bars you or the Company from being associated with any entity or
from participating in the offering of any penny stock
YES ___
NO ___
5.
SEC
cease-and-desist orders: Within the last five years, have you or
the Company been the subject of
SEC orders to cease and
desist from committing or causing a violation or future violations
of
(a) The
scienter-based anti-fraud provisions of the federal securities
laws
YES ___
NO ___
(b)
Section 5 of the Act
YES ___
NO ___
6.
Suspension
or expulsion from membership in an SRO or from association with an
SRO member:
Have you or the Company been suspended or
expelled from membership in, or suspended or barred from
association with a member of, a securities self-regulatory
organization or “SRO” (
i.e.
, a registered national securities
exchange or national securities association, such as FINRA) for any
act or omission to act constituting conduct inconsistent with just
and equitable principles of trade.
7. SEC
stop orders:
(a)
Within the last five years, have you, as an officer or director of
an issuer, or the Company filed a registration statement or
Regulation A offering statement that was the subject of a SEC
refusal order, stop order or order suspending the Regulation A
exemption, or are you now the subject of an investigation or
proceeding to determine whether such an order should be
issued.
YES ___
NO ___
(b)
Within the last five years, have you or the Company been, or been
named as, an underwriter of securities under a registration
statement or Regulation A offering statement that was the subject
of a Commission refusal order, stop order or order suspending the
Regulation A exemption, or are you now the subject of an
investigation or proceeding to determine whether such an order
should be issued.
YES ___
NO ___
8.
U.S.
Postal Service false representation orders:
Within the last
five years have you or the Company been subject to a U. S Postal
Service false representation order, temporary restraining order or
preliminary injunction with respect to conduct alleged by the U.S.
Postal Service to constitute a scheme or device for obtaining money
or property through the mail by means of false
representations.
YES ___
NO ___
The
foregoing answers are true and correct in all respects. I
understand that a “yes” answer will disqualify the
issuer from relying on exemption under Rule 506 under the
Securities Act of 1933.
Dated: _______________,
201_
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___________________________________
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Signature
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NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
CONVERTIBLE HAS NOT 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 AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN
SECURED BY SUCH SECURITIES.
Original
Issue Date:
October 7,
2016
Principal Amount: $465,000.00
Original Conversion Price (subject to adjustment herein):
$0.0025
CONVERTIBLE NOTE
DUE APRIL 7, 2018
THIS
CONVERTIBLE NOTE is one of a series of duly authorized and validly
issued Notes of
FRIENDABLE,
INC.
, a Nevada corporation, (the “
Borrower
”), having its
principal place of business at 125 East Campbell Avenue,
2
nd
Floor,
Campbell CA 95008
,
due
April 7, 2018
(this note,
the “
Note
” and, collectively
with the other notes of such series, the “
Notes
”).
FOR
VALUE RECEIVED, Borrower promises to pay to [Recipient] or its
registered assigns (the “
Holder
”), with an address
at: [Recipient Address], or shall have paid pursuant to the terms
hereunder, the principal sum of
Four Hundred and Sixty-Five Thousand
Dollars
(
$465,000.00)
on
April 7, 2018
(the
“
Maturity
Date
”) or such earlier date as this Note is required
or permitted to be repaid as provided hereunder, and to pay
interest, if any, to the Holder on the aggregate unconverted and
then outstanding principal amount of this Note in accordance with
the provisions hereof.
This
Note is subject to the following additional
provisions:
Section
1
.
Definitions
.
For the purposes hereof, in addition to the terms defined elsewhere
in this Note, (a) capitalized terms not otherwise defined herein
shall have the meanings set forth in the Purchase Agreement and (b)
the following terms shall have the following meanings:
“
Alternate Consideration
”
shall have the meaning set forth in Section 5(d).
“
Bankruptcy Event
” means
any of the following events: (a) Borrower or any Subsidiary 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 Borrower or any Subsidiary thereof, (b)
there is commenced against Borrower or any Subsidiary thereof any
such case or proceeding that is not dismissed within 60 days after
commencement, (c) Borrower or any Subsidiary thereof is adjudicated
insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered, (d) Borrower or
any 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) Borrower or any Subsidiary thereof makes a general
assignment for the benefit of creditors, (f) Borrower or any
Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts
or (g) Borrower or any 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 required by law or other
governmental action to close.
“
Buy-In
” shall have the
meaning set forth in Section 4(c)(v).
“
Change of Control
Transaction
” means, other than by means of conversion
or exercise of the Notes and the Securities issued together with
the Notes, 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 Borrower,
by contract or otherwise) of in excess of 50% of the voting
securities of Borrower, (b) Borrower merges into or consolidates
with any other Person, or any Person merges into or consolidates
with Borrower and, after giving effect to such transaction, the
stockholders of Borrower immediately prior to such transaction own
less than 50% of the aggregate voting power of Borrower or the
successor entity of such transaction, (c) Borrower sells or
transfers all or substantially all of its assets to another Person
and the stockholders of Borrower immediately prior to such
transaction own less than 50% 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 Original Issue 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 Borrower of an
agreement to which Borrower is a party or by which it is bound,
providing for any of the events set forth in clauses (a) through
(d) above.
“
Closing Price
” means on
any particular date (a) the last reported closing bid price
per share of Common Stock on such date on the Trading Market (as
reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or
(b) if there is no such price on such date, then the closing bid
price on the Trading Market on the date nearest preceding such date
(as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)),
or (c) if the Common Stock is not then listed or quoted on a
Trading Market and if prices for the Common Stock are then reported
in the “pink sheets” published by OTC Pink Marketplace
(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) if the shares of Common Stock
are not then publicly traded the fair market value of a share of
Common Stock as determined by an independent appraiser selected in
good faith by the Holder and reasonably acceptable to Borrower, the
fees and expenses of which shall be paid by Borrower.
“
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.
“
Dilutive Issuance
” shall
have the meaning set forth in Section 5(e).
“
Equity Conditions
” means,
during the period in question,
(a)
Borrower shall have duly honored all conversions scheduled to occur
or occurring by virtue of one or more Notices of Conversion of the
applicable Holder on or prior to the dates so requested or
required, if any, (b) Borrower shall have paid all liquidated
damages and other amounts owing to the applicable Holder in respect
of this Note and the other Transaction Documents,
(c) (i)
there is an effective registration statement pursuant to which the
Holders are permitted to utilize the prospectus thereunder to
resell all of the Underlying Shares (and Borrower believes, in good
faith, that such effectiveness will continue uninterrupted for the
foreseeable future), or (ii) all of the Underlying Shares (and
shares issuable in lieu of cash payments of interest) may be resold
pursuant to Rule 144 without volume or manner-of-sale restrictions
or current public information requirements as confirmed by counsel
to Borrower in a written opinion letter to such effect, addressed
and acceptable to the Borrower’s Transfer Agent and the
affected Holders, (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 Borrower 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) an Event of Default has not
occurred, whether or not such Event of Default has been cured, (g)
there is no existing event which, with the passage of time or the
giving of notice, would constitute an Event of Default, (h) the
issuance of the shares in question to the applicable Holder would
not exceed the Beneficial Ownership Limitation,
(i) there has been no public announcement of a
pending or proposed Fundamental Transaction or Change of Control
Transaction that has not been consummated, and (j) the applicable
Holder is not in possession of any information provided by Borrower
that constitutes, or may constitute, material non-public
information.
“
Event of Default
” shall
have the meaning set forth in Section 8(a).
“
Fundamental Transaction
”
shall have the meaning set forth in Section 5(d).
“
Interest Payment Date
”
shall have the meaning set forth in Section 2(a).
“
Interest Share Amount
”
shall have meaning set forth in Section 2(a).
“
Mandatory Default Amount
”
means the sum of (a) the greater of (i) the outstanding principal
amount of this Note 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 and (b) all other amounts, costs, expenses and
liquidated damages due in respect of this Note.
“
New York Courts
” shall
have the meaning set forth in Section 9(d).
“
Note Register
” shall have
the meaning set forth in Section 2(c).
“
Notice of Conversion
”
shall have the meaning set forth in Section 4(a).
“
Optional Redemption
”
shall have the meaning set forth in Section 6.
“
Original Issue Date
”
means the date of the first issuance of the Notes, regardless of
any transfers of any Note and regardless of the number of
instruments which may be issued to evidence such
Notes.
“
Other Holders
” means
holders of Other Notes.
“
Other Notes
” means Notes
nearly identical to this Note issued to other Holders pursuant to
the Purchase Agreement.
“
Permitted Indebtedness
”
means (a) any liabilities for borrowed money or amounts owed not in
excess of $100,000 in the aggregate (other than trade accounts
payable incurred in the ordinary course of business), (b) 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) not affecting more than $100,000 in
the aggregate, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any
lease
payments not in excess of $100,000 due under
leases required to be capitalized in accordance with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
“
Permitted Lien
” means the
individual and collective reference to the following: (a) Liens for
taxes, assessments and other governmental charges or levies not yet
due or Liens for taxes, assessments and other governmental charges
or levies being contested in good faith and by appropriate
proceedings for which adequate reserves (in the good faith judgment
of the management of Borrower) have been established in accordance
with GAAP, (b) Liens imposed by law which were incurred in the
ordinary course of Borrower’s business, such as
carriers’, warehousemen’s and mechanics’ Liens,
statutory landlords’ Liens, and other similar Liens arising
in the ordinary course of Borrower’s business, and which (x)
do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use
thereof in the operation of the business of Borrower and its
consolidated Subsidiaries or (y) are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such Lien, and (c) Liens incurred
prior to the Closing Date in connection with Permitted Indebtedness
under clauses (a) and (b) thereunder, and Liens incurred in
connection with Permitted Indebtedness under clause (c) thereunder,
provided that such Liens are not secured by assets of Borrower or
its Subsidiaries other than the assets so acquired or
leased.
“
Purchase Agreement
” means
the Securities Purchase Agreement, dated as of October 7, 2016
among Borrower and the original Holders, as amended, modified or
supplemented from time to time in accordance with its
terms.
“
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(d).
“
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 MKT,
the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ
Global Select Market, the New York Stock Exchange, the OTC Bulletin
Board, the OTCQB, the OTCQX or the OTC Pink Marketplace (or any
successors to any of the foregoing).
“
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 any of the NASDAQ markets or exchanges is not a
Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board, (c) if the Common Stock is not then listed or
quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported on the OTCQX, OTCQB or OTC Pink
Marketplace maintained by the OTC Markets Group, Inc. (or a similar
organization or agency succeeding to its functions of reporting
prices), the volume weighted average price of the Common Stock on
the first such facility (or a similar organization or agency
succeeding to its functions of reporting prices), 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 Borrower, the fees and
expenses of which shall be paid by Borrower.
Section
2
.
Interest
.
a)
Interest
.
Simple interest payable on the interest bearing portion of this
Note shall accrue at the annual rate of seven percent (7%) and in
arrears on the six month anniversary of the Original Issue Date and
on the Maturity Date (each an “Interest Payment Date”)
(if any Interest Payment Date is not a Trading Day, the applicable
payment should be made on the next succeeding Trading Day).
Interest shall be payable in duly authorized, validly issued, fully
paid and non-assessable shares of Common Stock (the amount to be
paid in shares of Common Stock, the “
Interest Share Amount
”).
The Interest Share Amount will be determined by dividing the amount
of interest on the subject Interest Payment Date by the lesser of
(i) Conversion Price in effect on such date (ii) or the average of
the closing price for the Common Stock for the 5 Trading Days prior
to the Interest Payment Date as reported by Bloomberg L.P. on the
Trading Market on which the Common Stock is then listed or quoted.
The Holders shall have the same rights and remedies with respect to
the delivery of any such shares as if such shares were being issued
pursuant to Section 4. Borrower may not pay interest by delivery of
Common Stock without the consent of the Holder in the event that
the Equity Conditions are not in effect on each day from the
relevant Interest Payment Date through the date the Interest Share
Amount is delivered to the Holder. Borrower may not pay any
Interest Share Amount in excess of the Beneficial Ownership
Limitation when applicable, unless waived by Holder. Following the
occurrence and during the continuance of an Event of Default, then
from the first date of such occurrence, the annual interest rate on
this Note shall be eighteen percent (18%). Such interest shall be
due and payable on the Maturity Date, whether by acceleration or
otherwise.
b)
Payment
Grace Period
. The Borrower shall not have any grace period
to pay any monetary amounts due under this Note.
c)
Conversion
Privileges
. The Conversion Rights set forth in Section 4
shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the
occurrence of an Event of Default. This Note shall be payable in
full on the Maturity Date, unless previously converted into Common
Stock in accordance with Section 4 hereof.
d)
Application
of Payments
. Interest on this Note shall be calculated on
the basis of a 360-day year and the actual number of days elapsed.
Payments made in connection with this Note shall be applied first
to amounts due hereunder other than principal and interest,
thereafter to interest and finally to principal.
e)
Pari
Passu
. Except as otherwise set forth herein, all payments
made on this Note and the Other Notes and all actions taken by the
Borrower with respect to this Note and the Other Notes, shall be
made and taken
pari passu
with respect to this Note and the Other Notes. Notwithstanding
anything to the contrary contained herein or in the Transaction
Documents, it shall not be considered non-pari passu for a Holder
or Other Holder to elect to receive interest paid in shares of
Common Stock or for the Borrower to actually pay interest in shares
of Common Stock to such electing Holder or Other
Holder.
f)
Manner
and Place of Payment
. Principal and interest on this Note
and other payments in connection with this Note shall be payable at
the Holder’s offices as designated above in lawful money of
the United States of America in immediately available funds without
set-off, deduction or counterclaim. Upon assignment of the interest
of Holder in this Note, Borrower shall instead make its payment
pursuant to the assignee’s instructions upon receipt of
written notice thereof. Except as set forth herein, this Note may
not be prepaid or mandatorily converted without the consent of the
Holder.
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 Purchase
Agreement and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c)
Reliance on Note Register
.
Prior to due presentment for transfer to Borrower of this Note,
Borrower and any agent of Borrower 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 Borrower nor any such agent shall be affected by notice to
the contrary.
Section
4.
Conversion
.
a)
Voluntary Conversion
. At any
time after the Original Issue 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) hereof). The Holder shall effect
conversions by delivering to Borrower 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, 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. To effect conversions hereunder, the
Holder shall not be required to physically surrender this Note to
Borrower unless the entire principal amount of this Note has been
so converted. 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 Borrower shall
maintain records showing the principal amount(s) converted and the
date of such conversion(s). Borrower 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.
b)
Conversion Price
. The
conversion price for the principal and interest, if any, in
connection with voluntary conversions by the Holder shall be equal
to
$0.0025
, subject to
adjustment herein (the “
Conversion
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 plus
interest, if any, elected by the Holder to be converted by (y) the
Conversion Price.
ii.
Delivery
of Certificate Upon Conversion
. Not later than three (3)
Trading Days after each Conversion Date (the “
Share Delivery Date
”),
Borrower shall deliver, or cause to be delivered, to the Holder a
certificate or certificates representing 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 Purchase Agreement) representing
the number of Conversion Shares being acquired upon the conversion
of this Note. Borrower shall use its best efforts to deliver any
certificate or certificates required to be delivered by Borrower
under this Section 4(c) electronically through the Depository Trust
Company or another established clearing corporation performing
similar functions.
iii.
Failure
to Deliver Certificates
. If, in the case of any Notice of
Conversion, such certificate or certificates 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 Borrower
at any time on or before its receipt of such certificate or
certificates, to rescind such Conversion, in which event Borrower
shall promptly return to the Holder any original Note delivered to
Borrower and the Holder shall promptly return to Borrower the
Common Stock certificates issued to such Holder pursuant to the
rescinded Conversion Notice.
iv.
Obligation
Absolute; Partial Liquidated Damages
. Borrower’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 Borrower 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
Borrower to the Holder in connection with the issuance of such
Conversion Shares;
provided
,
however
, that such delivery
shall not operate as a waiver by Borrower of any such action
Borrower 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, Borrower 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 Borrower
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,
Borrower shall issue Conversion Shares or, if applicable, cash,
upon a properly noticed conversion. If Borrower fails for any
reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(c)(ii) by the Share Delivery Date, Borrower
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 being to accrue) for each
Trading Day after such Share Delivery Date until such certificates
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
Borrower’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.
v.
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion
. In addition to any other rights available to the
Holder, if Borrower fails for any reason to deliver to the Holder
such certificate or certificates 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 or
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 Borrower
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 Borrower 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, Borrower shall be required
to pay the Holder $1,000. The Holder shall provide Borrower written
notice indicating the amounts payable to the Holder in respect of
the Buy-In and, upon request of Borrower, 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
Borrower’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof.
vi.
Reservation
of Shares Issuable Upon Conversion
. Borrower 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 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 Purchase 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 interest
which has accrued and would accrue on such principal amount,
assuming such principal amount was not converted through the
Maturity Date. Borrower covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable.
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, Borrower 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 certificates for shares
of the Common Stock 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 certificates, provided that, Borrower 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
certificate upon conversion in a name other than that of the Holder
of this Note so converted and Borrower shall not be required to
issue or deliver such certificates unless or until the Person or
Persons requesting the issuance thereof shall have paid to Borrower
the amount of such tax or shall have established to the
satisfaction of Borrower that such tax has been paid. Borrower
shall pay all Transfer Agent fees required for same-day processing
of any Notice of Conversion.
d)
Holder’s
Conversion Limitations
. Borrower 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 Persons acting as a group together with the
Holder or any of the Holder’s Affiliates) 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 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 and (ii) exercise or
conversion of the unexercised or unconverted portion of any other
securities of Borrower 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. 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 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) 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 Borrower each time it
delivers a Notice of Conversion that such Notice of Conversion has
not violated the restrictions set forth in this paragraph and
Borrower 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) Borrower’s
most recent periodic or annual report filed with the Commission, as
the case may be, (ii) a more recent public announcement by
Borrower, or (iii) a more recent written notice by Borrower or
Borrower’s transfer agent setting forth the number of shares
of Common Stock outstanding. Upon the written or oral request
of a Holder, Borrower shall within two Trading Days 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 Borrower, 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 9.99% 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 may decrease the Beneficial
Ownership Limitation at any time and the Holder, upon not less than
61 days’ prior notice to Borrower, and may increase the
Beneficial Ownership Limitation 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 such increase will not be effective until the 61
st
day after such
notice is delivered to Borrower. 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.
Section 5
.
Certain
Adjustments
.
a)
Stock Dividends and Stock
Splits
. If Borrower, 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 Borrower upon conversion of 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 Borrower, 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 Borrower) 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)
Subsequent Rights Offerings
.
In addition to any adjustments
pursuant to Section 5(a) above, if at any time Borrower 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, 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).
c)
Pro
Rata Distributions
. During such time as this Note is
outstanding, if Borrower shall declare or make any dividend whether
or not permitted, or makes any 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 exercise of this Note (without regard to any
limitations on exercise 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
, 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).
d)
Fundamental Transaction
. If, at
any time while this Note is outstanding, (i) Borrower, directly or
indirectly, in one or more related transactions effects any merger
or consolidation of Borrower with or into another Person, (ii)
Borrower, 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 Borrower 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) Borrower, 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, (v) Borrower, 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 Borrower, 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 Borrower 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.
Borrower shall cause any successor entity in a Fundamental
Transaction in which Borrower is not the survivor (the
“
Successor
Entity
”) to assume in writing all of the obligations
of Borrower under this Note and the other Transaction Documents (as
defined in the Purchase Agreement) in accordance with the
provisions of this Section 5(d) 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 Borrower and shall assume all of the obligations
of Borrower under this Note and the other Transaction Documents
with the same effect as if such Successor Entity had been named as
Borrower herein.
e)
Adjustment
Upon Issuance of Shares of Common Stock
. If and whenever on
or after the date hereof, the Company issues or sells, or in
accordance with this Section 5 is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the
Company, but excluding any Exempt Issuance issued or sold or deemed
to have been issued or sold) for a consideration per share (the
“
New Issuance
Price
”) less than a price equal to the Conversion
Price in effect immediately prior to such issue or sale or deemed
issuance or sale (such Conversion Price then in effect is referred
to as the “
Applicable Price
”) (the
foregoing a “
Dilutive Issuance
”), then
immediately after such Dilutive Issuance, the Conversion Price then
in effect shall be reduced to the New Issuance Price. For all
purposes of the foregoing (including, without limitation,
determining the adjusted Conversion Price and consideration per
share under this Section 5(e)), the following shall be
applicable:
(i)
Issuance of Options
. If the
Company in any manner grants or sells any Options (other than
Options that qualify as Exempt Issuances) and the lowest price per
share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the granting or sale
of such Option for such price per share. For purposes of this
Section 5(e)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such
Options or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option” shall
be equal to (1) the lower of (x) the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale
of such Option, upon exercise of such Option and upon conversion,
exercise or exchange of any Convertible Security issuable upon
exercise of such Option and (y) the lowest exercise price set forth
in such Option for which one share of Common Stock is issuable upon
the exercise of any such Options or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of
any such Option minus (2) the sum of all amounts paid or payable to
the holder of such Option (or any other Person) upon the granting
or sale of such Option, upon exercise of such Option and upon
conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option plus the value of any other
consideration received or receivable by, or benefit conferred on,
the holder of such Option (or any other Person). Except as
contemplated below, no further adjustment of the Conversion Price
shall be made upon the actual issuance of such shares of Common
Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such shares of Common Stock
upon conversion, exercise or exchange of such Convertible
Securities.
(ii)
Issuance
of Convertible Securities
. If the Company in any manner
issues or sells any Convertible Securities (other than Convertible
Securities that qualify as Exempt Issuances) and the lowest price
per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this Section
5(e)(ii), the “lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange
thereof” shall be equal to (1) the lower of (x) the sum of
the lowest amounts of consideration (if any) received or receivable
by the Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security and (y) the
lowest conversion price set forth in such Convertible Security for
which one share of Common Stock is issuable upon conversion,
exercise or exchange thereof minus (2) the sum of all amounts paid
or payable to the holder of such Convertible Security (or any other
Person) upon the issuance or sale of such Convertible Security plus
the value of any other consideration received or receivable by, or
benefit conferred on, the holder of such Convertible Security (or
any other Person). Except as contemplated below, no further
adjustment of the Conversion Price shall be made upon the actual
issuance of such shares of Common Stock upon conversion, exercise
or exchange of such Convertible Securities, and if any such issue
or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Note has been or is to be made
pursuant to other provisions of this Section 5(e), except as
contemplated below, no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.
(iii)
Change
in Option Price or Rate of Conversion
. If the purchase or
exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise
or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at
any time, the Conversion Price in effect at the time of such
increase or decrease shall be adjusted to the Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased
conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 5(e)(iii), if the
terms of any Option or Convertible Security that was outstanding as
of the date of issuance of this Note are increased or decreased in
the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the shares of Common Stock
deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 5(e) shall be made
if such adjustment would result in an increase of the Conversion
Price then in effect.
(iv)
Calculation
of Consideration Received
. If any Option and/or Convertible
Security and/or Adjustment Right is issued in connection with the
issuance or sale or deemed issuance or sale of any other securities
of the Company (as determined by the Holder, the
“
Primary
Security
”, and such Option and/or Convertible Security
and/or Adjustment Right, the “
Secondary Securities
”),
together comprising one integrated transaction, the consideration
per share of Common Stock with respect to such Primary Security
shall be deemed to be equal to the difference of (x) the lowest
price per share for which one share of Common Stock was issued in
such integrated transaction (or was deemed to be issued pursuant to
Section 5(e)(i) or 5(e)(ii) above, as applicable) solely with
respect to such Primary Security, minus (y) with respect to such
Secondary Securities, the fair market value of such Secondary
Securities as agreed to by the Company and Holder and absent such
agreement by an independent, reputable appraiser jointly selected
by the Company and the Holder. The determination of such appraiser
shall be final and binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the
Company.
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 Borrower) 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, Borrower
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) Borrower shall declare a
dividend (or any other distribution in whatever form) on the Common
Stock, (B) Borrower shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) Borrower 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 Borrower shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger
to which Borrower is a party, any sale or transfer of all or
substantially all of the assets of Borrower, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property or (E)
Borrower shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of Borrower, then, in each case, Borrower 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 Borrower or any of the
Subsidiaries, Borrower 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.
Section
6
.
Optional
Redemption
. Commencing on the original Issue Date of this
Note, t
he Borrower will have the
option of prepaying the outstanding Principal amount of this Note
(“
Optional
Redemption
”), in whole or
in part, by paying to the Holder a sum of money in cash equal to
one hundred and twenty-five percent (125%) of the Principal amount
to be redeemed, together with accrued but unpaid interest thereon
and any and all other sums due, accrued or payable to the Holder
arising under this Note through the Redemption Payment Date, as
defined below (the “
Redemption
Amount
”).
Borrower’s election to exercise its right to prepay must be
by notice in writing (“
Notice of
Redemption
”). The Notice
of Redemption shall specify the date for such Optional Redemption
(the “
Redemption Payment
Date
”), which date shall
be a date certain not sooner than thirty (30) Trading Days after
the date of the Notice of Redemption (the
“
Redemption
Period
”). A Notice of
Redemption,
if given, may be given on the first Trading Day
following ten (10) consecutive Trading Days (the
“
Lookback
Period
”) during which all of the Equity Conditions
have been in effect.
A Notice of
Redemption shall not be effective with respect to any portion of
the Principal Amount or interest for which the Holder has
previously delivered an election to convert, or for conversions
initiated or made by the Holder during the Redemption Period. A
Notice of Redemption may be given only in connection with an amount
of Common Stock that would not exceed the Beneficial Ownership
Limitation. On the Redemption Payment Date, the Redemption Amount,
less any portion of the Redemption Amount against which the Holder
has permissibly exercised its conversion rights, shall be paid in
good funds to the Holder. If during the Redemption Period, Borrower
announces or engages in a Fundamental Transaction, the Holder may
elect, at Holder’s option, to exercise its rights under
Section 5(d) herein. In the event the Borrower fails to pay the
Redemption Amount on the Redemption Payment Date as set forth
herein, then (i) such Notice of Redemption will be null and void,
and (ii) Borrower will have no right to deliver another Notice of
Redemption. In the event the Equity Conditions cease to be in
effect prior to the payment of the Redemption Amount, the Holder
may cancel the Notice of Redemption.
Section
7
.
Negative
Covenants
. As long as any portion of this Note remains
outstanding, unless the holders of at least 51% in principal amount
of the then outstanding Notes shall have otherwise given prior
written consent, Borrower shall not, and shall not permit any of
the Subsidiaries to, directly or indirectly:
a)
other
than Permitted Indebtedness, enter into, create, incur, assume,
guarantee or suffer to exist any indebtedness for borrowed money of
any kind, including, but not limited to, a guarantee, on or with
respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits
therefrom;
b)
other
than Permitted Liens, enter into, create, incur, assume or suffer
to exist any Liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom;
c)
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;
d) 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 the Conversion Shares or Warrant Shares as permitted or
required under the Transaction Documents;
e) redeem,
defease, repurchase, repay or make any payments in respect of, by
the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private
transactions or otherwise), all or any portion of any Indebtedness
(other than the Notes if on a pro-rata basis), whether by way of
payment in respect of principal of (or premium, if any) or interest
on, such Indebtedness, the foregoing restriction shall also apply
to Permitted Indebtedness from and after the occurrence of an Event
of Default
;
f) 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
;
g) issue
any Common Stock or Common Stock Equivalents except as permitted
pursuant to the Purchase Agreement;
h) enter
into any transaction with any Affiliate of Borrower 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
Borrower (even if less than a quorum otherwise required for board
approval); or
i) 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 or interest amount of
this Note or (B) 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 a
default under clause (B) above, is not cured within 3 Trading Days
after Borrower has become or should have become aware of such
default;
ii.
Borrower
shall fail to observe or perform any other covenant or agreement
contained in the Notes (other than a breach by Borrower of its
obligations to deliver shares of Common Stock to the Holder upon
conversion, which breach is addressed in clause (ix) below) 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
Borrower and (B) 10 Trading Days after Borrower 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 Borrower
or any Subsidiary is obligated (and not covered by clause (vi)
below), which in the case of subsection (B) would reasonably be
expected to have a Material Adverse Effect;
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. Borrower
or any Subsidiary shall be subject to a Bankruptcy
Event;
vi. Borrower
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 $50,000, 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. Borrower
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 30% of its assets in one transaction or a series of
related transactions (whether or not such sale would constitute a
Change of Control Transaction);
viii. Borrower
does not meet the current public information requirements under
Rule 144;
ix.
Borrower shall fail for any reason to deliver certificates to
a Holder prior to the fifth Trading Day after a Conversion Date
pursuant to Section 4(c) or Borrower shall provide at any time
notice to the Holder, including by way of public announcement, of
Borrower’s intention to not honor requests for conversions of
any Notes in accordance with the terms hereof;
x.
any Person shall breach any agreement delivered to the
initial Holders pursuant to Section 2.2 of the Purchase
Agreement;
xi.
any monetary judgment, writ or similar final process shall be
entered or filed against Borrower, 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 90 calendar days;
xii. any
dissolution, liquidation or winding up by Borrower or a material
Subsidiary of a substantial portion of their business;
xiii. cessation
of operations by Borrower or a material Subsidiary;
xiv. the
failure by Borrower or any material Subsidiary to maintain any
material intellectual property rights, personal, real property,
equipment, leases or other assets which are necessary to conduct
its business (whether now or in the future) and such breach is not
cured with twenty (20) days after written notice to the Borrower
from the Holder;
xv. an
event resulting in the Common Stock no longer being listed or
quoted on a Trading Market, or notification from a Trading Market
that the Borrower is not in compliance with the conditions for such
continued quotation and such non-compliance continues for twenty
(20) days following such notification;
xvi. a
Commission or judicial stop trade order or suspension from the
Borrower’s Principal Trading Market;
xvii.
the restatement after the date hereof of any financial statements
filed by the Borrower with the Commission for any date or period
from two years prior to the Original Issue Date and until this Note
is no longer outstanding, if the result of such restatement would,
by comparison to the unrestated financial statements, have
constituted a Material Adverse Effect. For the avoidance of doubt,
any restatement related to new accounting pronouncements shall not
constitute a default under this Section;
xviii.
the Borrower effectuates a reverse split of its Common Stock
without ten (10) days prior written notice to the
Holder;
xix. a
failure by Borrower to notify Holder of any material event of which
Borrower is obligated to notify Holder pursuant to the terms of
this Note or any other Transaction Document;
xx. a
default by the Borrower of a material term, covenant, warranty or
undertaking of any other agreement to which the Borrower and Holder
are parties, or the occurrence of an event of default under any
such other agreement to which Borrower and Holder are parties which
is not cured after any required notice and/or cure
period;
xxi. t
he
occurrence of an Event of Default under any Other
Note;
xxii.
any material provision of any Transaction Document shall at any
time for any reason (other than pursuant to the express terms
thereof) cease to be valid and binding on or enforceable against
the Borrower, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by
Borrower or any governmental authority having jurisdiction over
Borrower or Holder, seeking to establish the invalidity or
unenforceability thereof, or Borrower shall deny in writing that it
has any liability or obligation purported to be created under any
Transaction Document;
xxiii.
the failure by Borrower to comply with its obligations under the
terms of the Hang With Transaction pursuant to the Transaction
Documents and the Hang With Agreements (for the avoidance of doubt,
the mere existence of a dispute between the Borrower and Hang With,
Inc. as to whether Hang With, Inc. has complied with its
obligations under the terms of the Hang With Transaction shall not,
in and of itself, constitute an Event of Default); or
xxiv.
any default, failure or breach by Borrower relating to the Hang
With Transaction as further described in the Transaction Documents
and in the Hang With Agreements (for the avoidance of doubt, the
mere existence of a dispute between the Borrower and Hang With,
Inc. as to whether Hang With, Inc. has defaulted, failed, or
breached its obligations related to the Hang With Transaction shall
not, in and of itself, constitute an Event of
Default).
In the
event more than one grace, cure or notice period is applicable to
an Event of Default, then the shortest grace, cure or notice period
shall be applicable thereto.
b)
Remedies Upon Event of Default,
Fundamental Transaction and Change of Control Transaction
.
If any Event of Default or a Fundamental Transaction or a Change of
Control Transaction occurs, the outstanding principal amount of
this Note, 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 on the Maturity Date and also
five (5) days after the occurrence of any Event of Default interest
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
Borrower. In connection with such acceleration described herein,
the Holder need not provide, and Borrower 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.
Section
9
.
Miscellaneous
.
a)
Notices
.
All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, facsimile, or
electronic mail, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to
be received), or (b) upon receipt, when sent by electronic mail
(provided confirmation of transmission is electronically generated
and keep on file by the sending party), or (c) on the second
business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be: (i) if to Borrower, to:
Friendable, Inc.
,
125 East
Campbell Avenue, 2
nd
Floor, Campbell CA
95008, Attn: Robert Rositano, CEO, fax: (408) 547-0110, email:
robert@ihookupsocial.com, with a copy by fax or email only to:
Lucosky Brookman LLP, 101 Wood Avenue South, Woodbridge, NJ 08830,
Attn: Steven A. Lipstein, Esq., fax: (732) 395-4401, email:
slipstein@lucbro.com, and (ii) if to the Holder, to: the address
and fax number indicated on the front page of this Note, with an
additional copy by fax only to (which shall not constitute notice):
Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream,
New York 11581, fax: (212) 697-3575, email:
counslers@aol.com.
b)
Absolute Obligation
. Except as
expressly provided herein, no provision of this Note shall alter or
impair the obligation of Borrower, 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 Borrower. 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, Borrower 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
Borrower.
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 New
York, 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 City of New York,
Borough of Manhattan (the “
New York Courts
”). Each
party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York 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 New York Courts, or such New York 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.
This
Note shall be deemed an unconditional obligation of Borrower for
the payment of money and, without limitation to any other remedies
of Holder, may be enforced against Borrower by summary proceeding
pursuant to New York Civil Procedure Law and Rules Section 3213 or
any similar rule or statute in the jurisdiction where enforcement
is sought. For purposes of such rule or statute, any other document
or agreement to which Holder and Borrower are parties or which
Borrower delivered to Holder, which may be convenient or necessary
to determine Holder’s rights hereunder or Borrower’s
obligations to Holder are deemed a part of this Note, whether or
not such other document or agreement was delivered together
herewith or was executed apart from this Note.
e)
Waiver
. Any waiver by Borrower
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 Borrower 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. Any waiver by
Borrower or the Holder must be in writing.
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.
g)
Usury
. 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. Borrower
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 Borrower
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 Borrower (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.
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.
j)
Amendment
.
Unless otherwise provided for hereunder, this Note may not be
modified or amended or the provisions hereof waived without the
written consent of Borrower
and the
Holder
.
k)
Facsimile Signature
. In the
event that the Borrower’s signature is delivered by facsimile
transmission, PDF, electronic signature or other similar electronic
means, such signature shall create a valid and binding obligation
of the Borrower with the same force and effect as if such signature
page were an original thereof.
*********************
(Signature Pages Follow)
IN WITNESS WHEREOF
, Borrower has caused
this Note to be signed in its name by an authorized officer as of
the 7th day of October, 2016.
|
FRIENDABLE,
INC.
|
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By:
|
/s/ Robert Rositano
|
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Name:
Robert Rositano
|
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Title:
CEO
|
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WITNESS:
______________________________________
ANNEX A
NOTICE OF CONVERSION
The
undersigned hereby elects to convert principal under the
Convertible Note Due April 7, 2018 of Friendable, Inc., a Nevada
corporation (the “
Company
”), into shares of
common stock (the “
Common Stock
”), of
Borrower 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
Borrower 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 Borrower 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: ____________________________
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Principal
Amount of Note to be Converted: $__________________
|
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Accrued
Interest to be Converted: $______________
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Number
of shares of Common Stock to be issued: ______________
|
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Signature:
_________________________________________
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Name:
____________________________________________
|
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Address
for Delivery of Common Stock Certificates: __________
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_____________________________________________________
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_____________________________________________________
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Or
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DWAC
Instructions: _________________________________
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Broker
No:_____________
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Account
No: _______________
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NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS
EXERCISABLE 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 AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
FRIENDABLE,
INC.
Warrant Shares: 186,000,000
|
Initial Exercise Date: October 7, 2016
|
Warrant
No: 10-2016-001
THIS
COMMON STOCK PURCHASE WARRANT (the “
Warrant
”) certifies that,
for value received, [Recipient] its registered assigns (the
“
Holder
”), with an address
at: [Recipient Address], is entitled, upon the terms and subject to
the limitations on exercise and the conditions hereinafter set
forth, at any time on or after the date hereof (the
“
Initial Exercise
Date
”) and on or prior to the close of business on the
five (5) year anniversary of the Initial Exercise Date (the
“
Termination
Date
”) but not thereafter, to subscribe for and
purchase from
Friendable,
Inc.
, a Nevada corporation (the “
Company
”), up to
186,000,000
shares (as subject to adjustment hereunder, the “
Warrant Shares
”) of
Common Stock. The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b).
Section
1
.
Definitions
.
Capitalized terms used and not otherwise defined herein shall have
the meanings set forth in that certain Securities Purchase
Agreement (the “
Purchase Agreement
”),
dated October 7, 2016, among the Company and the purchasers
signatory thereto.
Section
2
.
Exercise
.
Exercise of the purchase rights represented by this Warrant may be
made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by
delivery to the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered
Holder at the address of the Holder appearing on the books of the
Company) of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto. Within two (2) Trading Days following
the date of exercise as aforesaid, the Holder shall deliver the
aggregate Exercise Price for the shares specified in the applicable
Notice of Exercise by wire transfer or cashier’s check drawn
on a United States bank unless the cashless exercise procedure
specified in Section 2(c) below is specified in the applicable
Notice of Exercise. Notwithstanding anything herein to the contrary
(although the Holder may surrender the Warrant to, and receive a
replacement Warrant from, the Company), the Holder shall not be
required to physically surrender this Warrant to the Company until
the Holder has purchased all of the Warrant Shares available
hereunder and the Warrant has been exercised in full, in which
case, the Holder shall surrender this Warrant to the Company for
cancellation within three (3) Trading Days of the date the final
Notice of Exercise is delivered to the Company. Partial exercises
of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect
of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant
Shares purchased. The Holder and the Company shall maintain records
showing the number of Warrant Shares purchased and the date of such
purchases. The Company shall deliver any objection to any Notice of
Exercise Form within one (1) Trading Day of delivery of such
notice.
The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the
purchase of a portion of the Warrant Shares hereunder, the number
of Warrant Shares available for purchase hereunder at any given
time may be less than the amount stated on the face
hereof.
a)
Exercise Price
. The initial
exercise price per share of the Common Stock under this Warrant
shall be
$0.0030
, subject to
adjustment hereunder (the “
Exercise
Price
”).
b)
Cashless Exercise
. If at any
time commencing 180 days after the Initial Exercise Date, there is
no effective Registration Statement registering, or no current
prospectus available for the resale of the Warrant Shares by the
Holder, then this Warrant may also be exercised at the
Holder’s election, in whole or in part, at such time by means
of a “cashless exercise” in which the Holder shall be
entitled to receive a number of Warrant Shares equal to the
quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A) = the
VWAP on the Trading Day immediately preceding the date on which
Holder elects to exercise this Warrant by means of a
“cashless exercise,” as set forth in the applicable
Notice of Exercise;
(B) =
the Exercise Price of this Warrant, as adjusted hereunder;
and
(X) =
the number of Warrant Shares that would be issuable upon exercise
of this Warrant in accordance with the terms of this Warrant if
such exercise were by means of a cash exercise rather than a
cashless exercise.
Notwithstanding
anything herein to the contrary, on the Termination Date, unless
the Holder notifies the Company otherwise, if there is no effective
Registration Statement registering, or no current prospectus
available for, the resale of the Warrant Shares by the Holder, then
this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).
c)
Mechanics of
Exercise
.
i.
Delivery of Certificates
Upon Exercise
. Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by
crediting the account of the Holder’s prime broker with The
Depository Trust Company through its Deposit or Withdrawal at
Custodian system (“
DWAC
”) if the Company is
then a participant in such system and either (A) there is an
effective registration statement permitting the issuance of the
Warrant Shares to or resale of the Warrant Shares by the Holder or
(B) this Warrant is being exercised via cashless exercise and Rule
144 is available, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise by the date that
is three (3) Trading Days after the latest of (A) the delivery to
the Company of the Notice of Exercise, (B) surrender of this
Warrant (if required) and (C) payment of the aggregate Exercise
Price as set forth above (including by cashless exercise, if
permitted) (such date, the “
Warrant Share Delivery
Date
”). The Warrant Shares shall be deemed to have
been issued, and Holder or any other person so designated to be
named therein shall be deemed to have become a holder of record of
such shares for all purposes, as of the date the Warrant has been
exercised, with payment to the Company of the Exercise Price (or by
cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(d)(vi) prior to the
issuance of such shares, having been paid.
The Company understands that a delay in the
delivery of the Warrant Shares after the Warrant Share Delivery
Date could result in economic loss to the Holder. As compensation
to the Holder for such loss, the Company agrees to pay (as
liquidated damages and not as a penalty) to the Holder for late
issuance of Warrant Shares upon exercise of this Warrant the
proportionate amount of $10 per Trading Day (increasing to $20 per
Trading Day after the fifth (5
th
)
Trading Day) after the Warrant Share Delivery Date for each $1,000
of Exercise Price of Warrant Shares for which this Warrant is
exercised which are not timely delivered. The Company shall pay any
payments incurred under this Section in immediately available funds
upon demand. Furthermore, in addition to any other remedies which
may be available to the Holder, in the event that the Company fails
for any reason to effect delivery of the Warrant Shares by the
Warrant Share Delivery Date, the Holder may revoke all or part of
the relevant Warrant exercise by delivery of a notice to such
effect to the Company, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to
the exercise of the relevant portion of this Warrant, except that
the liquidated damages described above shall be payable through the
date notice of revocation or rescission is given to the
Company.
ii.
Delivery of New Warrants Upon
Exercise
. If this Warrant shall have been exercised in part,
the Company shall, at the request of a Holder and upon surrender of
this Warrant certificate, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver to
the Holder a new Warrant evidencing the rights of the Holder to
purchase the unpurchased Warrant Shares called for by this Warrant,
which new Warrant shall in all other respects be identical with
this Warrant.
iii.
Rescission
Rights
. If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to Section 2(d)(i) by the
Warrant Share Delivery Date, then the Holder will have the right,
at any time prior to issuance of such Warrant Shares, to rescind
such exercise.
iv.
Compensation for Buy-In on Failure to
Timely Deliver Certificates Upon Exercise
. In addition to
any other rights available to the Holder, if the Company fails to
cause the Transfer Agent to transmit to the Holder a certificate or
the certificates representing the Warrant Shares pursuant to an
exercise on or before the Warrant Share Delivery Date, and if after
such date the Holder is required by its broker 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 Warrant
Shares which the Holder anticipated receiving upon such exercise (a
“
Buy-In
”), then the
Company shall (A) pay in cash to the Holder the amount, if any, by
which (x) the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (1) the
number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (2)
the price at which the sell order giving rise to such purchase
obligation was executed, and (B) at the option of the Holder,
either reinstate the portion of the Warrant and equivalent number
of Warrant Shares for which such exercise was not honored (in which
case such exercise shall be deemed rescinded) or deliver to the
Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and
delivery obligations hereunder. 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 exercise of shares of
Common Stock with an aggregate sale price giving rise to such
purchase obligation 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 certificates representing
shares of Common Stock upon exercise of the Warrant as required
pursuant to the terms hereof.
v.
No Fractional Shares or Scrip
.
No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. As to any fraction of
a share which the Holder would otherwise be entitled to purchase
upon such exercise, 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 Exercise Price or round up
to the next whole share.
vi.
Charges, Taxes and Expenses
.
Issuance of certificates for Warrant Shares shall be made without
charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate,
all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder or in
such name or names as may be directed by the Holder;
provided
,
however
, that in the event
certificates for Warrant Shares are to be issued in a name other
than the name of the Holder, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder and the Company may require, as
a condition thereto, the payment of a sum sufficient to reimburse
it for any transfer tax incidental thereto. The Company shall pay
all Transfer Agent fees required for same-day processing of any
Notice of Exercise.
vii.
Closing
of Books
. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.
d)
Holder’s Exercise
Limitations
. The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 2 or otherwise, to the
extent that after giving effect to such issuance after exercise as
set forth on the applicable Notice of Exercise, 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), 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 shall
include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which
would be issuable upon (i) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by the Holder or any of
its Affiliates and (ii) exercise or conversion of the unexercised
or nonconverted portion of any other securities of the Company
(including, without limitation, any other Common Stock Equivalents)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any
of its Affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(e), beneficial ownership
shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder,
it being acknowledged by the Holder that the Company is not
representing to the Holder that such calculation is in compliance
with Section 13(d) of the Exchange Act and the Holder is solely
responsible for any schedules required to be filed in accordance
therewith. To the extent that the limitation contained in this
Section 2(e) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant
is exercisable shall be in the sole discretion of the Holder, and
the submission of a Notice of Exercise shall be deemed to be the
Holder’s determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject to the Beneficial Ownership
Limitation, 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 2(e), in determining the number of outstanding shares
of Common Stock, a Holder may rely on the number of outstanding
shares of Common Stock as reflected in (A) the Company’s most
recent periodic or annual report filed with the Commission, as the
case may be, (B) a more recent public announcement by the Company
or (C) a more recent written notice by the Company or the 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 two Trading Days 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
Warrant, 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 9.99% of the number of
shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon
exercise of this Warrant. The Holder may, upon not less than 61
days’ prior notice to the Company, increase the Beneficial
Ownership Limitation provisions of this Section 2(e), 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
exercise of this Warrant held by the Holder and the provisions of
this Section 2(e) shall continue to apply. Any such increase will
not be effective until the 61
st
day after such
notice is delivered to the Company. The provisions of this
paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this Section 2(e) to
correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.
Section
3
.
Certain
Adjustments
.
a)
Stock Dividends and Splits
. If
the Company, at any time while this Warrant is outstanding: (i)
pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or
equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Company upon exercise of this Warrant or
pursuant to any of the other Transaction Documents), (ii)
subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares,
or (iv) issues by reclassification of shares of the Common Stock
any shares of capital stock of the Company, then in each case the
Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event, and the
number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted such that the aggregate Exercise Price of
this Warrant shall remain unchanged. Any adjustment made pursuant
to this Section 3(a) 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)
Subsequent Equity Sales
. If the
Company or any Subsidiary thereof, as applicable, at any time while
this Warrant is outstanding, shall sell or grant any option to
purchase, or sell or grant any right to reprice, or otherwise issue
(or announce any offer, sale, grant or any option to purchase or
other disposition) any Common Stock or Common Stock Equivalents, at
an effective price per share less than the Exercise Price then in
effect, excluding Exempt Issuances as defined in the Purchase
Agreement (such lower price, the “
Base Share Price
” and
such issuances collectively, a “
Dilutive Issuance
”) (it
being understood and agreed that if the holder of the Common Stock
or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in
connection with such issuance, be entitled to receive shares of
Common Stock at an effective price per share that is less than the
Exercise Price, such issuance shall be deemed to have occurred for
less than the Exercise Price on such date of the Dilutive Issuance
at such effective price), then simultaneously with the consummation
of each Dilutive Issuance the Exercise Price shall be reduced and
only reduced to equal the Base Share Price and the number of
Warrant Shares issuable hereunder shall be increased such that the
aggregate Exercise Price payable hereunder, after taking into
account the decrease in the Exercise Price, shall be equal to the
aggregate Exercise Price prior to such adjustment. Such adjustment
shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no
adjustments shall be made, paid or issued under this Section 3(b)
in respect of an Exempt Issuance. The Company shall notify the
Holder, in writing, no later than the Trading Day following the
issuance or deemed issuance of any Common Stock or Common Stock
Equivalents subject to this Section 3(b), indicating therein the
applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice, the
“
Dilutive Issuance
Notice
”). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to
this Section 3(b), upon the occurrence of any Dilutive Issuance,
the Holder is entitled to receive a number of Warrant Shares based
upon the Base Share Price regardless of whether the Holder
accurately refers to the Base Share Price in the Notice of
Exercise. If the Company enters into a Variable Rate Transaction,
despite the prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion or exercise price at
which such securities may be converted or exercised.
Notwithstanding the foregoing, the issuance of any Common Stock or
Common Stock Equivalents pursuant to the Purchase Agreement shall
not be deemed a Dilutive Issuance.
c)
Subsequent Rights Offerings
.
In addition to any adjustments
pursuant to Section 3(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 exercise of this Warrant
(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, 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).
d)
Pro Rata Distributions
. If the
Company, at any time while this Warrant is outstanding, shall
distribute to all holders of Common Stock (and not to the Holder)
evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock (which shall be subject to
Section 3(c)), then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately
prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP on
such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of
the Common Stock as determined by the Board of Directors in good
faith. In either case the adjustments shall be described in a
statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned
above.
e)
Fundamental Transaction
. If, at
any time while this Warrant 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 or group of Persons whereby such
other Person or group 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 exercise of
this Warrant, the Holder shall have the right to receive, for each
Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental
Transaction, at the option of the Holder (without regard to any
limitation in Section 2(e) on the exercise of this Warrant) 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 Warrant is
exercisable immediately prior to such Fundamental Transaction
(without regard to any limitation in Section 2(e) on the exercise
of this Warrant). For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted
to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall
apportion the Exercise 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 exercise of this Warrant following such
Fundamental Transaction. Notwithstanding anything to the contrary,
in the event of a Fundamental Transaction that is (1) an all cash
transaction, (2) a “Rule 13e-3 transaction” as defined
in Rule 13e-3 under the Exchange Act, or (3) a Fundamental
Transaction involving a person or entity not traded on a national
securities exchange or trading market (with such exchange or market
including, without limitation, the Nasdaq Global Select Market, the
Nasdaq Global Market, or the Nasdaq Capital Market, The New York
Stock Exchange, Inc., the NYSE or Amex), the Company or any
Successor Entity (as defined below) shall, at the Holder’s
option, exercisable concurrently with the consummation of the
Fundamental Transaction,
purchase this
Warrant from the Holder by paying to the Holder the higher of
(i)
an amount of cash equal to the Black Scholes Value of
the remaining unexercised portion of this Warrant on the date of
the consummation of such Fundamental Transaction, or (ii) the
positive difference between the cash per share paid in such
Fundamental Transaction minus the then in effect Exercise Price.
“
Black Scholes
Value
” means the value of the unexercised portion of
this Warrant based on the Black and Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg, L.P.
(“
Bloomberg
”) determined as
of the day of consummation of the applicable Fundamental
Transaction for pricing purposes and reflecting (A) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period
equal to the time between the date of the public announcement of
the applicable Fundamental Transaction and the Termination Date,
(B) an expected volatility equal to the greater of 100% and the 100
day volatility obtained from the HVT function on Bloomberg as of
the Trading Day immediately following the public announcement of
the applicable Fundamental Transaction, (C) the underlying price
per share used in such calculation shall be the sum of the price
per share being offered in cash, if any, plus the value of any
non-cash consideration, if any, being offered in such Fundamental
Transaction and (D) a remaining option time equal to the time
between the date of the public announcement of the applicable
Fundamental Transaction and the Termination Date. 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
Warrant and the other Transaction Documents in accordance with the
provisions of this Section 3(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,
deliver to the Holder in exchange for this Warrant a security of
the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant which
is exercisable 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 exercise
of this Warrant (without regard to any limitations on the exercise
of this Warrant) prior to such Fundamental Transaction, and with an
exercise price which applies the exercise 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 exercise price being for
the purpose of protecting the economic value of this Warrant
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 Warrant 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 Warrant and the other
Transaction Documents with the same effect as if such Successor
Entity had been named as the Company herein.
f)
Calculations
. All calculations
under this Section 3 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 3, 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 treasury shares, if
any) issued and outstanding.
g)
Notice to Holder
.
i.
Adjustment to Exercise Price
.
Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a
notice setting forth the Exercise Price after such adjustment and
any resulting adjustment to the number of Warrant Shares and
setting forth a brief statement of the facts requiring such
adjustment.
ii.
Notice to Allow Exercise 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 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, 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, to the extent that such information
constitutes material non-public information (as determined in good
faith by the Company) the Company shall follow the procedure
described in Section 13 of the Subscription Agreement and shall
deliver to the Holder at its last address as it shall appear upon
the Warrant Register of the Company, at least 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 mail such notice or any
defect therein or in the mailing 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
exercise this Warrant during the period commencing on the date of
such notice to the effective date of the event triggering such
notice except as may otherwise be expressly set forth
herein.
Section
4
.
Transfer
of Warrant
.
a)
Transferability
. Subject to
compliance with any applicable securities laws and the provisions
of the Purchase Agreement, this Warrant and all rights hereunder
(including, without limitation, any registration rights) are
transferable, in whole or in part, upon surrender of this Warrant
at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in
the form attached hereto duly executed by the Holder or its agent
or attorney and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees, as
applicable, and in the denomination or denominations specified in
such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. The Warrant, if
properly assigned in accordance herewith, may be exercised by a new
holder for the purchase of Warrant Shares without having a new
Warrant issued.
b)
New Warrants
. This Warrant may
be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants
are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with
such notice. All Warrants issued on transfers or exchanges shall be
dated the initial issuance date of this Warrant and shall be
identical with this Warrant except as to the number of Warrant
Shares issuable pursuant thereto.
c)
Warrant Register
. The Company
shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “
Warrant Register
”), in
the name of the record Holder hereof from time to time. The Company
may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent
actual notice to the contrary.
Section
5
.
Miscellaneous
.
a)
Notices
.
All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, facsimile, or
electronic mail, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to
be received), or (b) upon receipt, when sent by electronic mail
(provided confirmation of transmission is electronically generated
and keep on file by the sending party), or (c) on the second
business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be: (i) if to the Company, to:
Friendable, Inc.
,
125 East
Campbell Avenue, 2
nd
Floor, Campbell CA
95008, Attn: Robert Rositano, CEO, fax: (408) 547-0110, email:
robert@ihookupsocial.com, with a copy by fax or email only to:
Lucosky Brookman LLP, 101 Wood Avenue South, Woodbridge, NJ 08830,
Attn: Steven A. Lipstein, Esq., fax: (732) 395-4401, email:
slipstein@lucbro.com, and (ii) if to the Holder, to: the address
and fax number indicated on the front page of this Warrant, with an
additional copy by fax only to (which shall not constitute notice):
Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream,
New York 11581, fax: (212) 697-3575, email:
counslers@aol.com.
b)
No Rights as Stockholder Until
Exercise
. This Warrant does not entitle the Holder to any
voting rights, dividends or other rights as a stockholder of the
Company prior to the exercise hereof as set forth in Section
2(d)(i).
c)
Loss, Theft, Destruction or Mutilation
of Warrant
. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not
include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in
lieu of such Warrant or stock certificate.
d)
Saturdays, Sundays, Holidays,
etc
. If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein
shall not be a Trading Day, then, such action may be taken or such
right may be exercised on the next succeeding Trading
Day.
e)
Authorized Shares
.
The
Company covenants that, during the period the Warrant is
outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase
rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of the purchase rights under
this Warrant. The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be issued
as provided herein without violation of any applicable law or
regulation, or of any requirements of the Trading Market upon which
the Common Stock may be listed. The Company covenants that all
Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of
the purchase rights represented by this Warrant and payment for
such Warrant Shares in accordance herewith, be duly authorized,
validly issued, fully paid and non-assessable and free from all
taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
Except
and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will
(i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to
such increase in par value, (ii) take all such action as may be
necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant and (iii) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may
be, necessary to enable the Company to perform its obligations
under this Warrant.
Before
taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from
any public regulatory body or bodies having jurisdiction
thereof.
f)
Jurisdiction
. All questions
concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
g)
Restrictions
. The Holder
acknowledges that the Warrant Shares acquired upon the exercise of
this Warrant, if not registered, or unless exercised in a cashless
exercise when Rule 144 is available, and the Holder does not
utilize cashless exercise, will have restrictions upon resale
imposed by state and federal securities laws.
h)
Non-waiver and Expenses
. No
course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such
right or otherwise prejudice the Holder’s rights, powers or
remedies. Without limiting any other provision of this Warrant or
the Purchase Agreement, if the Company willfully and knowingly
fails to comply with any provision of this Warrant, which results
in any material damages to the Holder, the Company shall pay to the
Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys’
fees, including those of appellate proceedings, incurred by the
Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies
hereunder.
i)
Notices
. Any notice, request or
other document required or permitted to be given or delivered to
the Holder by the Company shall be delivered in accordance with the
notice provisions of the Purchase Agreement.
j)
Limitation of Liability
. No
provision hereof, in the absence of any affirmative action by the
Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of the Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the
Company.
k)
Remedies
. The Holder, in
addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this
Warrant and hereby agrees to waive and not to assert the defense in
any action for specific performance that a remedy at law would be
adequate.
l)
Successors and Assigns
. Subject
to applicable securities laws, this Warrant and the rights and
obligations evidenced hereby shall inure to the benefit of and be
binding upon the successors and permitted assigns of the Company
and the successors and permitted assigns of Holder. The provisions
of this Warrant are intended to be for the benefit of any Holder
from time to time of this Warrant and shall be enforceable by the
Holder or holder of Warrant Shares.
m)
Amendment
. This Warrant may be
modified or amended or the provisions hereof waived with the
written consent of the Company
and the
Holders of not less than a majority of the outstanding Warrants
issued pursuant to the Purchase Agreement
.
n)
Severability
. Wherever
possible, each provision of this Warrant shall be interpreted in
such manner as to be effective and valid under applicable law, but
if any provision of this Warrant shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this
Warrant.
o)
Headings
. The headings used in
this Warrant are for the convenience of reference only and shall
not, for any purpose, be deemed a part of this
Warrant.
********************
(Signature Page Follows)
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized as of the date first above
indicated.
|
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By:
|
/s/ Robert Rositano
|
|
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Name:
Robert A. Rositano Jr.
|
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Title:
CEO
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NOTICE OF EXERCISE
TO: FRIENDABLE,
INC.
(1)
The undersigned
hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.
(2)
Payment shall take
the form of (check applicable box):
[ ] in
lawful money of the United States; or
[ ] [if
permitted] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number
of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).
(3)
Please issue a
certificate or certificates representing said Warrant Shares in the
name of the undersigned or in such other name as is specified
below:
_______________________________
(4)
After giving effect
to this Notice of Exercise, the undersigned will not have exceeded
the Beneficial Ownership Limitation.
The
Warrant Shares shall be delivered to the following DWAC Account
Number or by physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
[SIGNATURE OF
HOLDER]
Name of
Investing Entity:
________________________________________________________________________
Signature of Authorized Signatory of Investing
Entity
:
_________________________________________________
Name of
Authorized Signatory:
___________________________________________________________________
Title
of Authorized Signatory:
____________________________________________________________________
Date:
________________________________________________________________________________________
ASSIGNMENT FORM
(To
assign the foregoing warrant, execute
this
form and supply required information.
Do not
use this form to exercise the warrant.)
FRIENDABLE
,
INC.
FOR
VALUE RECEIVED, [____] all of or [_______] shares of the foregoing
Warrant and all rights evidenced thereby are hereby assigned
to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated:
______________, _______
Holder’s
Signature:
_____________________________
Holder’s
Address:
_____________________________
_____________________________
Signature
Guaranteed:
___________________________________________
NOTE:
The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or
enlargement or any change whatsoever, and must be guaranteed by a
bank or trust company. Officers of corporations and those acting in
a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant.
HANG WITH, INC.
SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK
PURCHASE AGREEMENT
This
Series A Convertible Participating Preferred Stock Purchase
Agreement
(the
“
Agreement
”) is entered into as of this 7th day of
October, 2016, by and among
Hang
With, Inc.,
a Nevada
corporation (the “
Company
”), and
Friendable,
Inc.,
a Nevada corporation (the
“
Purchaser
”).
Recitals
Whereas,
the Company has authorized the sale
and issuance of an aggregate of up to Five Million (5,000,000)
shares of its Series A Convertible Participating Preferred Stock
with par value of $0.001 per share (the “
Preferred
Stock
”);
Whereas,
Purchaser desires to purchase 330,397
shares of Preferred Stock (the “
Shares
”) at a price per share of $2.27 for an
aggregate purchase price of $750,000 on the terms and conditions
set forth herein; and
Whereas,
the Company desires to issue and sell
the Shares to the Purchaser on the terms and conditions set forth
herein.
Now,
Therefore,
in consideration of
the foregoing recitals and the mutual promises hereinafter set
forth, the parties hereto agree as follows:
Section 1.
Agreement to Sell and Purchase.
1.1
Authorization
of Shares.
On or prior to the
first Closing (as defined in
Section 2
below), the Company shall have
authorized (i) the sale and issuance to Purchaser of the
Shares and (ii) the issuance of such shares of common stock of
the Company, $.001 par value (the “
Common Stock
”), to be issued upon conversion of the
Shares (the “
Conversion
Shares
”). The Shares and
the Conversion Shares shall have the rights, preferences,
privileges and restrictions set forth in the Amended and Restated
Articles of Incorporation of the Company filed with the Nevada
Secretary of State on October 14, 2014 (the
“
Articles
”).
1.2
Sale
and Purchase.
Subject to the
terms and conditions hereof, the Company hereby agrees to issue and
sell to Purchaser, and Purchaser agrees to purchase from the
Company, an aggregate of 330,397 Shares at a purchase price of
$2.27 per share for an aggregate purchase price of $750,000. The
Purchaser paying the $750,000 aggregate purchase price to the
Company is conditional upon investors purchasing the
Purchaser’s securities for an aggregate purchase price of
$1,615,000 pursuant to a securities purchase agreement of even date
herewith entered into between the Purchaser and such investors. In
addition, as detailed in
Section
2.2
, the Company will issue one
hundred thousand (100,000) shares of Common Stock to the Purchaser
at the first Closing.
Section 2.
Closing, Delivery and Payment.
2.1
Closing.
The three closing of the sale and
purchase of the Shares as well as the issuance of one hundred
thousand (100,000) shares of Common Stock to the Purchaser (each, a
“
Closing
”) shall take place at such times and places
as the Company and Purchaser may mutually agree (each such date is
hereinafter referred to as a “
Closing
Date
”).
2.2
Delivery.
(a)
At
the first Closing, on the date hereof, subject to the terms and
conditions hereof, the Company will deliver to the Purchaser a
certificate made out in the name of Purchaser (or trust or entity
controlled by Purchaser as directed by Purchaser) for an aggregate
total of 99,118 shares of Preferred Stock and Purchaser shall pay
the Company, by check or wire transfer made payable to the order of
the Company the sum of Two Hundred Twenty Five Thousand Dollars
($225,000). In addition, the Company will issue one hundred
thousand (100,000) shares of Common Stock to the Purchaser at the
first Closing as compensation as part of the software license and
software development agreements that the Purchaser plans on
entering into with the Company (the “
Compensation
Stock
”). For the
avoidance of doubt, the issuance of the Compensation Stock is in
addition to the 154,185 shares of Preferred Stock to be issued at
the first Closing.
(b)
At
the second Closing, which will take place, subject to the terms and
conditions hereof, after the Purchaser receives financing
sufficient to pay the Company, by check or wire transfer made
payable to the order of the Company the sum of One Hundred Seventy
Five Thousand Dollars ($175,000) but in no event earlier than
November 3, 2016, the Company will deliver to the Purchaser a
certificate made out in the name of Purchaser (or trust or entity
controlled by Purchaser as directed by Purchaser) for an aggregate
total of 77,093 shares of Preferred Stock and Purchaser shall pay
the Company, by check or wire transfer made payable to the order of
the Company the sum of One Hundred Seventy Five Thousand Dollars
($175,000).
(c)
At
the third Closing, which will take place, subject to the terms and
conditions hereof, after the Purchaser receives financing
sufficient to pay the Company, by check or wire transfer made
payable to the order of the Company the sum of One Hundred Seventy
Five Thousand Dollars ($175,000) but in no event earlier than
December 5, 2016, the Company will deliver to the Purchaser a
certificate made out in the name of Purchaser (or trust or entity
controlled by Purchaser as directed by Purchaser) for an aggregate
total of 77,093 shares of Preferred Stock and Purchaser shall pay
the Company, by check or wire transfer made payable to the order of
the Company the sum of One Hundred Seventy Five Thousand Dollars
($175,000).
(c)
At
the fourth Closing, which will take place, subject to the terms and
conditions hereof, after the Purchaser receives financing
sufficient to pay the Company, by check or wire transfer made
payable to the order of the Company the sum of One Hundred Seventy
Five Thousand Dollars ($175,000) but in no event earlier than
January 4, 2017, the Company will deliver to the Purchaser a
certificate made out in the name of Purchaser (or trust or entity
controlled by Purchaser as directed by Purchaser) for an aggregate
total of 77,093 shares of Preferred Stock and Purchaser shall pay
the Company, by check or wire transfer made payable to the order of
the Company the sum of One Hundred Seventy Five Thousand Dollars
($175,000).
Section 3.
Representations and Warranties of the
Company.
Except
as set forth on any Schedule of Exceptions delivered to the
Purchaser, the Company hereby represents and warrants to Purchaser
as follows:
3.1
Organization,
Good Standing and Qualification.
The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Nevada. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute
and deliver this Agreement, to issue and sell the Shares and the
Conversion Shares and to issue the Compensation Stock and to carry
out the provisions of this Agreement and the Articles and to carry
on its business as presently conducted and as presently proposed to
be conducted. The Company is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its activities and of its
properties (both owned and leased) make such qualifications
necessary, except for those jurisdictions in which failure to do so
would not have a material adverse effect on the Company or its
business.
3.2
Capitalization;
Voting Rights.
(a)
The
authorized capital stock of the Company, immediately prior to the
first Closing, will consist of (a) seventy five million
(75,000,000) shares of Common Stock, thirteen million four hundred
nineteen thousand nine hundred sixteen (13,419,916) shares of which
are issued and outstanding, three million eight hundred
seventy-three thousand eight hundred fifty three
(3,873,853) shares of which are currently reserved for
issuance pursuant to outstanding option agreements, and one million
one hundred twenty-six thousand one hundred forty seven (1,126,147)
shares of which will be reserved in the future for issuance to key
employees, consultants and others affiliated with the Company
pursuant to stock grant, stock purchase and/or option plans or any
other stock incentive program, arrangement or agreement approved by
the Company’s Board of Directors and (b) twenty million
(20,000,000) shares of Preferred Stock, five million (5,000,000) of
which are designated Series A Convertible Participating Preferred
Stock, two hundred sixty four thousand three hundred sixteen
(264,316) of which are issued and outstanding. All issued and
outstanding shares of the Company’s Common Stock
(i) have been duly authorized and validly issued,
(ii) are fully paid and nonassessable and (iii) were
issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
(b)
Under the Company’s
2013
Equity Compensation Plan and 2014 Equity Compensation Plan
(collectively, the
“
Plans
”): (i) there are 3,873,853 options
currently outstanding, and (ii) 1,126,147 shares of Common Stock
remain available for future issuances to officers, directors,
employees and consultants of the Company. The Company has not made
any representations regarding equity incentives to any officer,
employee, director or consultant that are inconsistent with any
share amounts and terms set forth in the Company’s board
minutes.
(c)
Other
than (i) the
3,873,853
options
currently outstanding, (ii) the
1,126,147
shares reserved for issuance
under the Plans, (iii) two Promissory Notes for a total of $200,000
plus interest convertible into shares of Common Stock at a price
per share of $1.50, and (iv) the conversion privileges of the
Series A
Preferred
Stock, and
except as may be granted pursuant to, or referred to in, this
Agreement, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or agreements of any
kind for the purchase or acquisition from the Company of any of its
securities.
(d)
The
rights, preferences, privileges and restrictions of the Shares
and the Compensation Stock
are
as stated in the Articles. The Conversion Shares have been duly and
validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Articles, the Shares, the
Conversion Shares,
and the
Compensation Stock
will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances other
than (i) liens and encumbrances created by or imposed upon the
Purchaser; and (ii) any right of first refusal set forth in the
Company’s Bylaws; provided, however, that the Shares, the
Conversion Shares,
and the
Compensation Stock
may be subject to restrictions on
transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer
is proposed. The sale of the Shares and the subsequent conversion
of the Shares into Conversion Shares and the issuance of
the Compensation Stock
are not
and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied
with.
(e)
No
stock options, stock appreciation rights or other equity-based
awards issued or granted by the Company are subject to the
requirements of Section 409A of the Internal Revenue Code of
1986, as amended (the “
Code
”). Each “nonqualified
deferred compensation plan” (as such term is defined under
Section 409A(d)(1) of the Code and the guidance thereunder) under
which the Company makes, is obligated to make or promises to make,
payments (each, a “
409A
Plan
”) complies in all material respects with the
requirements of Section 409A of the Code and the guidance
thereunder. No payment to be made under any 409A Plan is, or to the
knowledge of the Company will be, subject to the penalties of
Section 409A(a)(1) of the Code.
3.3
Authorization;
Binding Obligations.
All
corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization of this
Agreement, the performance of all obligations of the Company
hereunder and thereunder at each Closing and the authorization,
sale, issuance and delivery of the Shares and issuance of the
Compensation Stock
pursuant
hereto and the Conversion Shares pursuant to the Articles has been
taken or will be taken prior to each Closing. The Agreement, when
executed and delivered, will be valid and binding obligations of
the Company enforceable in accordance with their terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting
enforcement of creditors’ rights; and (ii) as limited by
general principles of equity that restrict the availability of
specific performance, injunctive relief or other equitable
remedies. The sale of the Shares and the subsequent conversion of
the Shares into Conversion Shares and the issuance of the
Compensation Stock are not and will not be subject to any
preemptive rights or rights of first refusal that have not been
properly waived or complied with.
3.4
Subsidiaries.
The Company does not own or control
any equity security or other interest of any other corporation,
partnership, limited liability company or other business entity.
The Company is not a participant in any joint venture, partnership,
limited liability company or similar arrangement. Since its
inception, the Company has not consolidated or merged with,
acquired all or substantially all of the assets of, or acquired the
stock of or any interest in any corporation, partnership, limited
liability company or other business entity.
3.5
Liabilities
.
The Company has no material liabilities and, to the best of its
knowledge, no material contingent liabilities, except current
liabilities incurred in the ordinary course of business that have
not been, either in any individual case or in the aggregate,
materially adverse.
3.6
Agreements;
Action
.
(a)
Except
for agreements explicitly contemplated hereby, there are no
agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates or any
affiliate thereof.
(b)
There
are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the
Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or
payments to, the Company (other than obligations of, or payments
to, the Company arising in the ordinary course of business), or
(ii) the license of any patent, copyright, trade secret or
other proprietary right to or from the Company (other than licenses
arising from the purchase of “off the shelf” or other
standard products), or (iii) provisions restricting or
affecting the development, manufacture or distribution of the
Company’s products or services, or (iv) indemnification
by the Company with respect to infringements of proprietary
rights.
(c)
The
Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or any other liabilities (other
than with respect to dividend obligations, distributions,
indebtedness and other obligations incurred in the ordinary course
of business), (iii) made any loans or advances to any person,
other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than in the ordinary course of
business.
3.7
Obligations
to Related Parties.
There are
no obligations of the Company to officers, directors, stockholders,
or employees of the Company other than (a) for payment of
salary for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the
Company). No officer, director or, to the best of the
Company’s knowledge,
key employees,
stockholders, or any member of their immediate
families, are indebted to the Company or have any direct or
indirect ownership interest in any firm or corporation with which
the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the
Company, except that officers, directors and/or stockholders of the
Company may own stock in publicly traded companies which may
compete with the Company. No such officer, director or stockholder,
or any member of their immediate families is, directly or
indirectly, interested in any material contract with the Company
(other than such contracts as relate to any such person’s
ownership of capital stock or other securities of the Company). The
Company is not a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation.
3.8
Title
to Properties and Assets; Liens, Etc.
The Company has good and marketable title to its
properties and assets, and good title to its leasehold estates, in
each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than (i) those resulting from taxes which have not
yet become delinquent, (ii) minor liens and encumbrances which do
not materially detract from the value of the property subject
thereto or materially impair the operations of the Company and
(iii) those that have otherwise arisen in the ordinary course of
business. All facilities, machinery, equipment, fixtures, vehicles
and other properties owned, leased or used by the Company are in
good operating condition and repair and are reasonably fit and
usable for the purposes for which they are being used. The Company
is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.
3.9
Patents
and Trademarks.
(a)
The
Company owns the trademark rights to the names "Hang With" and
“Hang W/” (the "
Trademarks
") and owns
or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade
secrets, information and other proprietary rights and processes
necessary for its business as now conducted and as proposed to be
conducted
(the "
Intellectual
Property Rights
")
, without any
known infringement of the rights of others.
(b)
There
are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party
to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such
licenses or agreements arising from the purchase of “off the
shelf” or standard products.
(c)
The
Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed,
would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of
any other person or entity.
(d)
The
Company is not aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments or any
nature) or other agreement, or subject to any judgment, decree or
order of any court or administrative agency, that would interfere
with their duties to the Company’s business by the employees
of the Company, nor the conduct of the Company’s business as
proposed, will, to the Company’s knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument
under which any employee is now obligated.
(e)
The
Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been
assigned to the Company.
To the Company's knowledge, the
Company has taken all necessary and appropriate steps to maintain
and protect the Company's Trademark and Intellectual Property
Rights.
(f)
To
the best of Company’s knowledge, the owners of any
Intellectual Property Rights licensed, optioned or assigned to the
Company have taken all necessary and appropriate steps to maintain
and protect the Intellectual Property Rights that are subject to
such licenses, options or assignments. To the best of
Company’s knowledge, no Person other than the Company has
used, disclosed or appropriated the Company’s Trademark or
Intellectual Property Rights except for the benefit of the
Company.
(g)
The
Company has not entered into any agreement granting any third party
the right to bring infringement actions with respect to, or
otherwise to enforce rights with respect to, the Company's
Trademarks or Intellectual Property Rights. The Company has not
entered into any agreement to indemnify any other person against
any charge of infringement of any third party intellectual property
right or the Company's Trademarks or Intellectual Property Rights
including, without limitation, in-licensed Intellectual Property
Rights.
(h)
To
the Company’s knowledge, there have been no claims made
against the Company asserting the invalidity, misuse or
unenforceability of the Company's Trademarks or Intellectual
Property Rights, and to the best of Company’s knowledge,
there are no valid grounds for the same. The Company has not
received any notices of, and is not aware of any facts which
indicate a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to the Company's
Trademarks or Intellectual Property Rights (including, without
limitation, any demand or request that the Company license any
rights from a third party).
3.10
Compliance with
Other Instruments.
The Company
is not in violation or default of any term of its Articles of
Incorporation or Bylaws, or of any provision of any mortgage,
indenture, contract, agreement, instrument or contract to which it
is party or by which it is bound or of any judgment, decree, order,
writ or, to its knowledge, any statute, rule or regulation
applicable to the Company which would materially and adversely
affect the business, assets, liabilities, financial condition,
operations or prospects of the Company. The execution, delivery,
and performance of and compliance with this Agreement and the
related agreements, and the issuance and sale of the Shares and the
issuance of the Compensation Stock
pursuant hereto and of the Conversion Shares
pursuant to the Articles, will not, with or without the passage of
time or giving of notice, result in any such material violation, or
be in conflict with or constitute a default under any such term, or
result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or
the suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or
properties.
3.11
Litigation.
There is no action, suit, proceeding
or investigation pending or to the Company’s knowledge
currently threatened against the Company that questions the
validity of this Agreement or the right of the Company to enter
into any of such agreements, or to consummate the transactions
contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in
the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity
ownership of the Company, nor is the Company aware that there is
any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of any of the
Company’s employees, their use in connection with the
Company’s business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company
intends to initiate.
3.12
Tax Returns and
Payments.
The Company has
timely filed all tax returns (federal, state and local) required to
be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and to the Company’s
knowledge all other taxes due and payable by the Company on or
before each Closing have been paid or will be paid prior to the
time they become delinquent. The Company has not been advised
(i) that any of its returns, federal, state or other, have
been or are being audited as of the date hereof, or (ii) of
any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability
of any tax to be imposed upon its properties or assets as of the
date of this Agreement that is not adequately provided
for.
3.13
Employees.
The Company has no collective
bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to the Company’s
knowledge, threatened with respect to the Company. No employee has
any agreement or contract, written or verbal, regarding his
employment. To the Company’s knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted,
is in violation of any term of any employment contract, proprietary
information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by
the Company; and to the Company’s knowledge the continued
employment by the Company of its present employees, and the
performance of the Company’s contracts with its independent
contractors, will not result in any such violation. The Company has
not received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to
continued employment by the Company or to any material compensation
following termination of employment with the Company. The Company
is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate
the employment of any officer, key employee or group of key
employees.
3.14
Obligations of Management.
Except for the Company’s chief financial officer who is paid
on an hourly basis and used when needed, each officer and key
employee of the Company is currently devoting substantially all of
his or her business time to the conduct of the business of the
Company and/or to its parent company. Except for the
Company’s chief financial officer, the Company is not aware
that any officer or key employee of the Company is planning to work
less than full time at the Company and/or its parent/affiliate
company in the future. No officer or key employee is currently
working or, to the Company’s knowledge, plans to work for a
competitive enterprise, whether or not such officer or key employee
is or will be compensated by such enterprise.
3.15
No Excluded Works
or Inventions.
No current
employee, officer or consultant of the Company has excluded works
or inventions made prior to his or her employment with the Company
from his or her assignment of inventions pursuant to such employee,
officer or consultant’s agreement. The Company, after
reasonable investigation, is not aware that any of its employees,
officers or consultants is in violation thereof and the Company
will use its best efforts to prevent any such
violation.
3.16
Registration
Rights.
The Company is
presently not under any obligation, and has not granted any rights,
to register any of the Company’s presently outstanding
securities or any of its securities that may hereafter be
issued.
To the Company’s knowledge, no stockholder of
the Company has entered into any agreement with respect to the
voting of equity securities of the Company.
3.17
Compliance with Laws;
Permits.
The Company is not in
violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its
business or the ownership of its properties which violation would
materially and adversely affect the business, assets, liabilities,
financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of the
Shares or the Conversion Shares or the Compensation Stock, except
such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after each Closing, as
will be filed in a timely manner. The Company has all franchises,
permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of
which could materially and adversely affect the business,
properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be
conducted.
3.18
Environmental and
Safety Laws.
The Company is not
in violation of any applicable statute, law or regulation relating
to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law or
regulation.
3.19
Offering
Valid.
Assuming the accuracy of
the representations and warranties of the Purchaser contained
in
Section 4.2
hereof, the offer, sale and issuance
of the Shares, the issuance of the Compensation Stock, and the
Conversion Shares will be exempt from the registration requirements
of the Securities Act of 1933, as amended (the
“
Securities
Act
”), and will have been
registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit
any offers to sell or has offered to sell or will offer to sell all
or any part of the Shares or the Compensation Stock to any person
or persons so as to bring the sale of such Shares and the issuance
of the Compensation Stock
by
the Company within the registration provisions of the Securities
Act or any state securities laws.
3.21
Information.
The Company has provided the Purchaser
with all information requested by the Purchaser in connection with
his decision to purchase the Shares. To the Company’s
knowledge, neither this Agreement nor the exhibits hereto (if any)
contain any untrue statement of a material fact nor, to the
Company’s knowledge, omit to state a material fact necessary
in order to make the statements contained herein not
misleading.
Section 4.
Representations and Warranties of the
Purchaser
Purchaser
hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this
Agreement):
4.1
Requisite
Power and Authority.
Purchaser
has all necessary power and authority under all applicable
provisions of law to execute and deliver this Agreement and to
carry out their provisions. All actions on the part of the
Purchaser required for the lawful execution and delivery of this
Agreement has been or will be effectively taken prior to each
Closing. Upon execution and delivery, this Agreement will be valid
and binding obligations of Purchaser, enforceable in accordance
with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’
rights, and (ii) as limited by general principles of equity
that restrict the availability of specific performance, injunctive
relief or other equitable remedies.
4.2
Investment
Representations.
Purchaser
understands that neither the Shares nor the Conversion Shares nor
the Compensation Stock have been registered under the Securities
Act. Purchaser also understands that the Shares are being offered
and sold and the Compensation Stock is being issued pursuant to an
exemption from registration contained in the Securities Act based
in part upon Purchaser’s representations contained in the
Agreement. Purchaser hereby represents and warrants as
follows:
(a)
Purchaser
Bears Economic Risk.
Purchaser
has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of
its investment in the Company and has the capacity to protect its
own interests. Purchaser must bear the economic risk of this
investment indefinitely unless the Shares (or the Conversion
Shares) or the Compensation Stock
are registered pursuant to the Securities Act, or
an exemption from registration is available. Purchaser understands
that the Company has no present intention of registering the
Shares, the Conversion Shares, the Compensation Stock, or any
shares of its Common Stock. Purchaser also understands that there
is no assurance that any exemption from registration under the
Securities Act will be available and that, even if available, such
exemption may not allow Purchaser to transfer all or any portion of
the Shares or the Conversion Shares or the Compensation
Stock
under the circumstances,
in the amounts or at the times Purchaser might
propose.
(b)
Acquisition
for Own Account.
Purchaser is
acquiring the Shares and the Conversion Shares and the Compensation
Stock for Purchaser’s own account for investment only, and
not with a view towards their distribution.
(c)
Purchaser
Can Protect Its Interest.
Purchaser represents that by reason of its, or of
its management’s or advisor’s, business or financial
experience, Purchaser has the capacity to protect its own interests
in connection with the transactions contemplated in this Agreement.
Further, Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the
Agreement.
(d)
Accredited
Investor.
Purchaser represents
that it is an accredited investor within the meaning of Regulation
D under the Securities Act.
(e)
Rule
144.
Purchaser acknowledges and
agrees that the Shares and the Compensation Stock, and, if issued,
the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption
from such registration is available. Purchaser has been advised or
is aware of the provisions of Rule 144 promulgated under the
Securities Act, which permits limited resale of shares purchased in
a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of
certain current public information about the Company, the resale
occurring not less than six months after a party has purchased and
paid for the security to be sold, the sale being through an
unsolicited “broker’s transaction” or in
transactions directly with a market maker (as said term is defined
under the Securities Exchange Act of 1934, as amended) and the
number of shares being sold during any three-month period not
exceeding specified limitations.
(f)
Company
Information
. Such Purchaser has had an opportunity to
discuss the Company’s business, management and financial
affairs with directors, officers and management of the Company and
believes that such Purchaser has received all of the information
such Purchaser considers necessary or appropriate for deciding
whether to purchase the Shares. Such Purchaser has also had the
opportunity to ask questions of, and receive answers from, the
Company and its management regarding the terms and conditions of
this investment
.
(g)
Legends
.
It is understood that the certificates evidencing the Preferred
Stock (and the Conversion Stock) may bear a legend similar to
following
:
“THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER, THE TRANSFER QUALIFIES FOR AN EXEMPTION FROM OR
EXEMPTION TO THE REGISTRATION PROVISIONS
THEREOF”
Section 5.
Conditions to Closing; Covenants.
5.1
Conditions
to Purchaser’s Obligations at each Closing.
Purchaser’s obligations to
purchase the Shares at each Closing are subject to the
satisfaction, at or prior to each Closing, of the following
conditions:
(a)
Representations
and Warranties True.
The
representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material
respects as of each Closing Date.
(b)
Performance
of Obligations.
The Company
shall have performed and complied with all agreements and
conditions herein required to be performed or complied with by the
Company on or before each Closing, and the Articles shall continue
to be in full force and effect as of each Closing
Date.
(c)
Legal
Investment.
On each Closing
Date, the sale and issuance of the Shares and the proposed issuance
of the Conversion Shares and the issuance of the Compensation Stock
shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
(d)
Consents,
Permits, and Waivers.
The
Company shall have obtained any and all consents, permits and
waivers necessary or appropriate for consummation of the
transactions contemplated by the Agreement (except for such as may
be properly obtained subsequent to each
Closing).
(e)
Proceedings.
All corporate and other proceedings in
connection with the transactions contemplated at each Closing
hereby shall be reasonably satisfactory in substance and form to
the Purchaser and their counsel.
(f)
Secretary’s
Certificate
.
Purchaser shall have received from the Company’s Secretary a
certificate having attached thereto (i) the Company’s
Articles as in effect at the time of each Closing, (ii) the
Company’s Bylaws as in effect at the time of each Closing,
(iii) resolutions approved by the Board of Directors
authorizing the transactions contemplated hereby, (iv) a true and
correct list of the members of the Company’s Board of
Directors and a true an correct list of the Company’s
officers, (v) resolutions approved by the Company’s
stockholders authorizing the filing of the Articles; (vi) a
pre-closing and post-closing capitalization table, and
(vii) good standing certificates (including tax good standing)
with respect to the Company from the applicable authority(ies) in
Nevada and any other jurisdiction in which the Company is qualified
to do business, dated a recent date before each
Closing
.
5.2
Conditions
to Obligations of the Company.
The Company’s obligation to issue and sell
the Shares at each Closing and issue the Compensation Stock at the
first Closing is subject to the satisfaction, on or prior to such
Closing, of the following conditions:
(a)
Representations
and Warranties True.
The
representations and warranties made by the Purchaser in Section 4
hereof shall be true and correct in all material respects at the
date of each Closing, with the same force and effect as if they had
been made on and as of said date.
(b)
Performance
of Obligations.
The Purchaser
shall have performed and complied with all agreements and
conditions herein required to be performed or complied with by the
Purchaser on or before each Closing.
(c)
Consents,
Permits, and Waivers.
The
Company shall have obtained any and all consents, permits and
waivers necessary or appropriate for consummation of the
transactions contemplated by the Agreement (except for such as may
be properly obtained subsequent to each
Closing).
Section 6.
Affirmative Covenants of the Company.
The
Company agrees with the Purchaser as follows:
(a)
Financial
Information
.
The
Company
will deliver to the Purchaser,
within one hundred and eighty (180) days after the end of each
fiscal year, annual unaudited financial statements.
(b)
Rights
of Inspection.
Subject to the
execution of a confidentiality agreement, and in addition to any
rights provided to a shareholder under Nevada law, Purchaser shall
have the right, no more than two (2) times each fiscal year, to
visit and inspect any of the properties of the Company and the
books and records of the Company (on at least 48 hours’ prior
written notice to the Company) and to discuss its affairs, finances
and accounts with its officers, at such reasonable times during
normal business hours as may be reasonably
requested.
(c)
Confidentiality.
Any information provided to Purchaser
under this
Section 6
,
as well as the terms and conditions of this Agreement itself, shall
be deemed to be confidential information of the Company, and
Purchaser shall not disclose such information to any third parties.
Notwithstanding the foregoing, if Purchaser is ordered by a court,
administrative agency, or other governmental body of competent
jurisdiction to disclose any such information, or if Purchaser is
served or otherwise becomes aware of a motion or similar request
that such an order is to be issued, then Purchaser will not be
liable to the Company for disclosure of the information required by
such order if Purchaser shall (a) promptly notify the Company
of the motion or order by the most expeditious means possible; and
(b) join or agree to (or at a minimum shall not oppose) a motion or
similar request by the Company for an order protecting the
confidentiality of the information covered by such order. In
addition, the Board of Directors, in its sole discretion, may
determine that certain information to be delivered hereunder is
competitively sensitive information and may refuse to deliver such
information to Purchaser if Purchaser is deemed by the Board to be
a competitor or potential competitor of the
Company.
(d)
Termination
.
The rights and
obligations of Purchaser under this
Section 6
shall terminate upon
the earlier to occur of (i) the transfer of all of the Shares and
the Compensation Stock
owned by
Purchaser; and (ii) the consummation by the Company of an initial
public offering of its Common Stock.
(e)
Anti-Dilution
Protection
.
For the avoidance of doubt, the Purchaser shall
have all of the anti-dilution protection included in Section B.5 of
Article FOURTH of the Articles.
Section 7.
Miscellaneous.
7.1
Governing
Law.
This Agreement shall be
governed in all respects by the laws of the State of California
without regard to principles of conflict of
laws.
7.2
Survival.
The representations, warranties,
covenants and agreements made herein shall survive any
investigation made by any Purchaser and the closing of the
transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant hereto in connection with
the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.
7.3
Successors
and Assigns.
Except as
otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person
who shall be a holder of the Shares or the Compensation Stock from
time to time.
7.4
Entire
Agreement.
This Agreement, and
any Exhibits and Schedules hereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof
and no party shall be liable or bound to any other in any manner by
any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
7.5
Severability.
In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
7.6
Amendment
and Waiver.
(a)
This
Agreement may be amended or modified only upon the written consent
of the Company and holders of at least a majority of the Preferred
Stock (treated as if converted and including any Conversion Shares
into which the Shares have been converted that have not been sold
to the public).
(b)
The
obligations of the Company and the rights of the holders of the
Shares and the Conversion Shares under the Agreement may be waived
only with the written consent of the holders of at least a majority
of the Preferred Stock (treated as if converted and including any
Conversion Shares into which the Shares have been converted that
have not been sold to the public).
7.7
Delays
or Omissions.
It is agreed that
no delay or omission to exercise any right, power or remedy
accruing to any party, upon any breach, default or noncompliance by
another party under this Agreement or the Articles, shall impair
any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or
approval of any kind of character on any Purchaser’s part of
any breach, default or noncompliance under this Agreement or under
the Articles or any waiver on such party’s part of any
provisions or conditions of the Agreement or the Articles must be
in writing and shall be effective only to the extent specifically
set forth in such writing. All remedies, either under this
Agreement or the Articles, by law, or otherwise afforded to any
party, shall be cumulative and not alternative.
7.8
Notices.
All notices required or permitted
hereunder shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified;
(ii) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next
business day; (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid; or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent
to the Company and to Purchaser at the addresses as set forth on
the signature page hereof or at such other address as the Company
or Purchaser may designate by ten (10) days advance written notice
to the other parties hereto.
7.9
Titles
and Subtitles.
The titles of
the sections and subsections of the Agreement are for convenience
of reference only and are not to be considered in construing this
Agreement.
7.10
Counterparts.
This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all
of which together shall constitute one
instrument.
7.11
Broker’s
Fees.
Each party hereto
represents and warrants that no agent, broker, investment banker,
person or firm acting on behalf of or under the authority of such
party hereto is or will be entitled to any broker’s or
finder’s fee or any other commission directly or indirectly
in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this
Section 7.11
being untrue.
7.12
Expenses.
Each party hereto shall pay their own
costs and expenses that they incur with respect to the negotiation,
execution, delivery and performance of the
Agreement.
7.13
Exculpation.
Purchaser acknowledges that it is not
relying upon any person, firm, or corporation, other than the
Company and its officers and directors, in making its investment or
decision to invest in the Company. Each Purchaser agrees that no
Purchaser nor the respective controlling persons, officers,
directors, partners, agents, or employees of any Purchaser shall be
liable for any action heretofore or hereafter taken or omitted to
be taken by any of them in connection with the Shares, Conversion
Shares, and the Compensation Stock.
7.14
Indemnification.
The
Company hereby agrees to defend, indemnify, and hold harmless
Purchaser and each of Purchaser’s employees, agents,
attorneys, representatives, and affiliates, harmless from and
against any and all losses, liabilities, claims, demands,
judgments, costs and expenses (including attorneys’ fees and
actual costs and expenses) arising out of or related to: (i) the
breach or failure of the Company's obligations, representations,
warranties and/or covenants under this Agreement; or (ii) the
Company's negligence, recklessness, or willful misconduct in
connection with or relating to the performance of any of its
services.
[REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]
In
Witness Whereof,
the parties
hereto have executed the
Series
A Convertible Participating Preferred Stock Purchase
Agreement
as of the date set
forth in the first paragraph hereof.
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COMPANY:
Hang With, Inc.
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Address:
Attn: Andrew Maltin
7
Studebaker
Irvine,
CA 92618
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By:
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/s/ Andrew Maltin
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Name: Andrew Maltin
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Title: CEO
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PURCHASER:
FRIENDABLE, INC.
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By:
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/s/ Robert Rositano
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Name:
Robert Rositano
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1821
S Bascom Ave., Suite 353
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Campbell,
CA 95008
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