UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
Date of
Report (Date of Earliest Event Reported): November 27,
2019
EXACTUS, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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001-38190
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27-1085858
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(State
or other jurisdiction of incorporation or
organization)
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(Commission
File Number)
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(I.R.S.
Employer Identification No.)
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80 NE
4th Avenue, Suite 28
Delray
Beach, FL 33483
(Address
of principal executive offices (zip code))
(804)
205-5036
(Registrant’s
telephone number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
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Title of each class
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Trading symbol(s)
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Name of exchange on which registered
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N/A
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N/A
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N/A
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction
A.2):
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☐
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Written
communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
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☐
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
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☐
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
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☐
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of
1934 (§240.12b-2 of this chapter).
Emerging
growth company ☐
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
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Item 1.01
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Entry into a Material Definitive Agreement.
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Issuance of Convertible Notes and Warrants
On November 27, 2019, Exactus, Inc. (the “Company”)
entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with a single institutional investor (the
“Purchaser”), pursuant to which the Company agreed to
sell to Purchaser in a series of 3 closings up to $1,944,444 in
aggregate principal amount of the Company’s senior secured
convertible promissory notes (the “Notes”) and warrants
to purchase shares of the Company’s Common Stock (the
“Warrants”). On November 27, 2019 (the “Initial
Closing Date”), the Company issued a Note, convertible into
5,663,014 shares of Common Stock, in the principal amount of
$833,333, and a Warrant to purchase 275,612 shares of Common Stock.
The second closing, subject to the closing conditions in the
Purchase Agreement, is expected to occur on the third business day
after the date of the filing of a registration statement on Form
S-1 (or another appropriate form in accordance with the
Registration Rights Agreement, as described below), on which date
the Purchaser is expected to purchase $277,778 in aggregate
principal amount of Notes and Warrants to purchase shares of Common
Stock for $250,000. The third closing, subject to the closing
conditions in the Purchase Agreement, is expected to occur on the
date the registration statement on Form S-1 (or another appropriate
form in accordance with the Registration Rights Agreement, as
described below) is declared effective by the Securities and
Exchange Commission (the “SEC”). On the third closing,
the Purchaser is expected to purchase $833,333.33 in aggregate
principal amount of Notes and Warrants to purchase shares of Common
Stock for $750,000.
The Notes, which are convertible into Common Stock at any time at
the discretion of the Purchaser at a conversion price of $0.50 per
share of Common Stock, will be issued at a 10% original issue
discount and bear an interest rate of 8%. The Notes mature one year
after their issuance unless accelerated due to an event of default.
The Notes are redeemable, in whole or in part, at any time at the
discretion of the Company. At the Initial Closing Date, the Company
received net proceeds, after the original issue discount and the
Purchaser’s counsel fees, of $730,000.
The Notes contain standard and customary events of default
including, but not limited to, failure to make payments when due,
failure to observe or perform covenants or agreements contained in
the Notes, the breach of any material representation or warranty
contain therein, the bankruptcy or insolvency of the Company, the
suspension of trading of Common Stock, the Company’s failure
to file required reports with the SEC, and a change of control of
the Company. If any event of default occurs, subject to any cure
period, the full principal amount, together with interest
(including default interest of 18% per annum) and other amounts
owing in respect thereof to the date of acceleration shall become,
at the Purchaser’s election, immediately due and payable in
cash.
The Notes are fully and unconditionally guaranteed on a senior
secured basis by the direct and indirect subsidiaries of the
Company (collectively, the “Guarantors”, and such
guarantees, the “guarantees”) pursuant to a Subsidiary
Guarantee. The Notes and the guarantees are secured by a perfected,
first priority security interest in all assets of the Company and
the Guarantors pursuant to a Security Agreement and Intellectual
Property Security Agreement.
The Warrants are exercisable at an exercise price of $0.756 per
share of Common Stock at any time before the close of business on
the day two years after their issuance and contain cashless
exercise provisions.
The Notes, Warrants, and shares of Common Stock issuable upon
conversion of the Notes and upon exercise of such Warrants (the
“Underlying Securities”), have not been registered
under the Securities Act of 1933, as amended (the “Securities
Act”) and were issued and sold to an accredited investor in
reliance upon the exemption from registration contained in
Regulation D promulgated under the Securities Act. The Notes,
Warrants and Underlying Securities may not be offered or sold in
the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act. On the
Initial Closing Date, the Company also issued a Warrant to its
advisor equal to 8% of the aggregate number of shares of
Common Stock issued by the Company upon conversion off$833,333.33
in principal amount of Notes at an exercise price of $.8316 per
share of Common Stock.
Registration Rights Agreement
On November 27, 2019, in connection with the sale and issuance of
the Notes and Warrants, the Company entered into a Registration
Rights Agreements (the “Registration Rights Agreement”)
with the Purchaser. Under the terms of the Registration Rights
Agreement, the Company has agreed to file a resale registration
statement with the SEC and to use commercially reasonable efforts
to cause such registration statement to be declared effective
within certain time frames. In addition, the Registration Rights
Agreement provides the Purchaser with piggyback registration
rights. Under certain circumstances, if the Company fails to meet
its obligations under the Registration Rights Agreement, it would
be required to pay liquidated damages.
The foregoing descriptions of the Purchase Agreement, the Notes,
the Warrants, the Subsidiary Guarantee, the Security Agreement, the
Intellectual Property Security Agreement, and the Registration
Rights Agreement do not purport to be complete and are qualified in
their entirety by reference to the full text of the Purchase
Agreement, the Form of Note, the Form of Warrant, the Subsidiary
Guarantee, the Security Agreement, the Intellectual Property
Security Agreement, the Warrant to Purchase Common Stock,
and the Registration Rights
Agreement, which are filed as Exhibits 10.1, 10.2, 10.3, 10.4,
10.5, 10.6, 10.7, and 10.8, respectively, hereto and are
incorporated herein by reference.
Item 2.03. Creation of a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement of a
Registrant.
The
disclosure provided under Item 1.01 is hereby incorporated by
reference into this Item 2.03.
Item 3.02. Unregistered Sales of Equity Securities.
The
information set forth under Item 1.01 is incorporated by reference
into this Item 3.02.
On
December 4, 2019, the Company released the press release furnished
herewith as Exhibit 99.1.
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Item 9.01
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Financial Statements and Exhibits.
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Exhibits
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Securities
Purchase Agreement, by and between Exactus, Inc. and 3i, LP, dated
November 27, 2019 *
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Form of
8% Convertible Promissory Note*
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Form of
Warrant*
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Subsidiary
Guarantee, executed by Exactus, Inc. and its subsidiaries named
therein, dated November 27, 2019*
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Security
Agreement, by and among Exactus, Inc., its subsidiaries named
therein, and 3i, LP, dated November 27, 2019 *
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Intellectual
Property Security Agreement, by and between Exactus, Inc. and 3i,
LP, dated November 27, 2019 *
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Warrant
to Purchase Common Stock, issued to Alliance Global Partners on
November 27, 2019 *
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Registration
Rights Agreement, by and between Exactus, Inc. and 3i, LP, dated
November 27, 2019 *
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Press
Release, issued December 4, 2019*
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* Filed
herewith
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
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Date:
December 4, 2019
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EXACTUS,
INC.
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By:
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/s/ Ken
Puzder
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Name:
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Ken
Puzder
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Title:
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Chief
Financial Officer
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Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES
PURCHASE AGREEMENT (this “Agreement”)
is dated as of
November 27, 2019, between Exactus, Inc., a Nevada corporation (the
“Company”),
and the purchasers identified on the signature pages hereto
(including each successors and assigns, the
“Purchaser”
or in the aggregate, 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/or Rule
506 promulgated thereunder, the Company desires to issue and sell
to the Purchasers, and the Purchasers, desire to purchase from the
Company, Securities of the Company as more fully described in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained
in this Agreement, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the
Company and 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 Transaction Documents (as
defined herein), and (b) the following terms have the meanings set
forth in this Section 1.1:
“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.
“BHCA”
shall have the meaning ascribed to such term in Section
3.1(ii).
“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 the Federal
Reserve Bank of New York is not open for business.
“Closing”
means, as applicable, the closing that occurs on the Initial
Closing Date, Second Closing Date and Third Closing Date of the
purchase and sale of the Securities pursuant to Section
2.2.
“Closing
Date” means the
Trading Day on which all of the Transaction Documents have been
executed and delivered by the applicable parties thereto in
connection with the applicable Closing (i.e.,
the Initial Closing, Second Closing or Third Closing), and all
conditions precedent to (i) each Purchaser’s obligation to
pay the Subscription Amount as to the applicable Closing and (ii)
the Company’s obligations to deliver the Securities as to the
applicable Closing have been satisfied or
waived.
“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, unit 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.
“Conversion
Shares” shall have the
meaning ascribed to such term in the Notes.
“Covered Person” shall have the meaning ascribed to
such term in Section 3.1(qq).
“Disclosure
Schedules” shall have the
meaning ascribed to such term in Section 3.1.
“Disqualification Events” shall have the meaning
ascribed to such term in Section 3.1(qq).
“Evaluation
Date” shall have the
meaning ascribed to such term in Section
3.1(q).
“Exchange
Act” means the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
“Exempt
Issuance” means
the issuance of (i) Common Stock by the Company pursuant to the
terms and conditions of this Agreement, (ii) the issuance of (a)
Conversion Shares upon conversion of the Notes or any other Notes
issued under this Agreement in accordance with the terms of such
Notes, which for the avoidance of doubt, includes any adjustment to
the conversion price prior to conversion hereof or thereof, and (b)
Warrant Shares upon exercise of the Warrants in accordance with the
terms of the Warrants, which for the avoidance of doubt, includes
any adjustment to the Exercise Price prior to exercise thereof,
(iii) the issue of shares of Common Stock or options to employees,
officers, directors, consultants, advisors or contractors of the
Company pursuant to any stock or option plan duly adopted for any
such purpose, by a majority of the non-employee members of the
Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, provided, in no event shall the
aggregate amount of such issuances to employees, officers,
directors, consultants, advisors or contractors of the Company
during the period commencing on the Closing Date and ending on the
date no Notes are outstanding, exceed five percent (5%) of the
outstanding shares of Common Stock
(as adjusted for stock splits, stock dividends, stock combinations,
recapitalizations or other similar transactions following the
Closing Date), (iv) issuance of securities in connection with
strategic license agreements, mergers, acquisitions, purchases or
leases of assets and other partnering arrangements so long as such
issuances are not primarily for the purpose of raising capital and
(v) the issuance of Common Stock upon the exercise or exchange of
or conversion of any Common Stock Equivalents issued and
outstanding on the date of this Agreement pursuant to terms and
conditions applicable to such Common Stock Equivalents in effect as
of the date of this Agreement and disclosed in filings of the
Company with the Commission prior to the date of this Agreement,
provided that such
Common Stock Equivalents have not been amended since the date of
this Agreement to increase the number of such Common Stock
Equivalents or shares of Common Stock issuable upon the exercise or
exchange of or conversion of such Common Stock Equivalents, or to
decrease the Exercise Price, exchange price or conversion price of
such Common Stock Equivalents (other than Common Stock Equivalents
issued and outstanding on the date of this Agreement, subject to
exchange prices or conversion prices adjustable pursuant to
anti-dilution protection or in connection with stock splits or
combinations) or to extend the term of such Common Stock
Equivalents.
“Exercise
Price” shall have the
meaning ascribed to such term in the Warrants.
“FCPA”
means the Foreign Corrupt Practices Act of 1977, as
amended.
“Federal
Reserve” shall have the
meaning ascribed to such term in Section
3.1(ii).
“Fixed
Conversion Price” shall have the
meaning ascribed to such term in the Notes.
“GAAP”
shall have the meaning ascribed to such term in Section
3.1(h).
“Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in
excess of $250,000 (other than trade accounts payable incurred in
the ordinary course of business), (y) all guaranties, endorsements
and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the
Company’s consolidated balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business; and (z) the present value of any lease payments
in excess of $500,000 due under leases required to be capitalized
in accordance with GAAP.
“Initial
Closing” shall mean the
date of execution of this Agreement.
“Initial
Closing Date” shall mean the
date of the Initial Closing.
“Initial
Notes” shall have the
meaning ascribed to such term in Section
2.1(a).
“Initial
Subscription Amount” shall have the
meaning ascribed to such term in Section
2.1(a).
“Initial
Warrants” shall have the
meaning ascribed to such term in Section
2.1(a).
“Intellectual
Property Rights” shall have the
meaning ascribed to such term in Section
3.1(o).
“Intellectual
Property Security Agreement” means that
certain Intellectual Property
Security Agreement required to be delivered pursuant to
Section
2.3 of this Agreement, in the
form attached hereto as Exhibit
C-1.
“Legend
Removal Date” shall have the
meaning ascribed to such term in Section
4.1(c).
“Liens”
means a lien, charge, pledge, security interest, encumbrance, right
of first refusal, preemptive right or other
restriction.
“Material
Adverse Effect” shall have the
meaning assigned to such term in Section
3.1(b).
“Material
Permit” 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(nn).
“Notes”
means the 8% Senior Secured Convertible Notes due, subject to the
terms therein, Twelve (12) months from the date of issuance, issued
by the Company to the Purchaser hereunder, in the form of
Exhibit A attached hereto, and
shall include the Initial Notes, Second Notes and the Third
Notes.
“Perfection
Certificate” means
the Perfection Certificate , in the form of Exhibit
F attached
hereto.
“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.
“Principal
Amount” means, as to
the Purchaser, the amount set forth below the Purchaser’s
signature block on the signature pages hereto next to the heading
“Principal Amount,” in United States Dollars, which
shall equal the Purchaser’s Subscription
Amount.
“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.
“Prohibited
Short Sales” shall have the
meaning ascribed to such term in Section 4.12.
“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 4.9.
“Registration
Rights Agreement” means
the Registration Rights Agreement , in the form of Exhibit
B attached
hereto.
“Required
Approvals” shall have the
meaning ascribed to such term in Section
3.1(e).
“Required
Minimum” means, as of
any date, (i) 300% of the maximum aggregate number of shares of
Common Stock (including all Conversion Shares) then issued or
potentially issuable in the future. upon conversion in full
of the Notes, and (ii) 100% of the maximum aggregate number of
shares of Common Stock (including all Warrant Shares), then issued
or potentially issuable upon exercise in full of the Warrants or
otherwise in any Transaction Document, ignoring any conversion or
exercise limits set forth in the Notes and the Warrants, and
assuming (a) no conversions or redemptions of any principal amount
of and/or any other payments due under the Notes from the Original
Issue Date (as defined in the Notes) through the Trading Day
immediately preceding the Maturity Date (as defined in the Notes),
(b) no exercise of the Warrants until the Trading Day immediately
preceding the Termination Date (as defined in the Warrants), (c) on
the Maturity Date and Termination Date, the Notes are fully
converted and the Warrants are fully exercised, respectively, and
(d) (A) the Notes convert into Common Stock at the Amortization
Conversion Rate (as defined in the Notes) as of a determination
date, and (B) the Warrants exercise into Warrant Shares at the
Exercise Price (as defined in the Warrants) as of any determination
date.
“Rule
144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
“Second
Closing” means the third
Business Day after the date of the filing of a registration
statement on Form S-1 (or another appropriate form in accordance
with the Registration Rights Agreement) in accordance with the
terms of the Registration Rights Agreement.
“Second
Closing Date” shall mean the
date of the Second Closing.
“Second
Notes” shall have the
meaning ascribed to such term in Section
2.1(b).
“Second
Subscription Amount” shall have the
meaning ascribed to such term in Section
2.1(b).
“Second
Warrants” shall have the
meaning ascribed to such term in Section
2.1(b).
“SEC Reports” shall have the
meaning ascribed to such term in Section
3.1(h).
“Securities”
means the Notes, the Warrants, the Conversion Shares, and the
Warrant Shares.
“Securities
Act” means the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Security Agreement” means
the Security Agreement dated on or about the date hereof by and
among the Company, the direct and indirect Subsidiaries of the
Company , and the Purchaser as hereinafter amended and/or
supplemented altogether with all exhibits, schedules and annexes to
such Security Agreement, pursuant to which all Liabilities and
Indebtedness of the Company to the Purchaser under the Transaction
Documents are secured by the Collateral which security interest in
the Collateral shall be perfected by the Lenders UCC-1, filed with
the Secretary of State of the State of Nevada, to the extent
perfectable by the filing of a UCC-1 Financing Statement, or if
applicable, a UCC-3 Financing Statement Amendment and such other
documents and instruments related thereto, which Security Agreement
is annexed hereto as Exhibit C.
“Shell
Company” means an entity
that fits within the definition of “shell company”
under Section 12b-2 of the Exchange Act and Rule
144.
“Short
Sales” means all
“short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act.
“Solicitor”
shall have the meaning ascribed to such term in Section
3.1(qq).
“Subscription
Amount” means, as to
the Purchaser, the aggregate amount to be paid for the Notes
purchased hereunder as specified below the 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, and shall include the Initial
Subscription Amount, the Second Subscription Amount and the Third
Subscription Amount.
“Subsidiary”
means any subsidiary of the Company as set forth on
Schedule 3.1(a) and shall, where
applicable, also include any direct or indirect subsidiary of the
Company formed or acquired after the date
hereof.
“Subsidiary
Guarantee” means that
certain Subsidiary Guarantee required to be delivered pursuant to
Section
2.3 of this Agreement, in the
form attached hereto as Exhibit
C-2.
“Third
Closing” means the date
on which the date the
registration statement on Form S-1 (or another appropriate form in
accordance with the Registration Rights Agreement) filed in
accordance with the terms of the Registration Rights Agreement is
declared effective.
“Third
Closing Date” shall mean the
date of the Third Closing.
“Third
Notes” shall have the
meaning ascribed to such term in Section
2.1(c).
“Third
Subscription Amount” shall have the
meaning ascribed to such term in Section
2.1(c).
“Third
Warrants” shall have the
meaning ascribed to such term in Section
2.1(c).
“Trading
Day” means a day on
which the principal Trading Market is open for
trading.
“Trading
Market” means any of
the following markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the NYSE
American; the Nasdaq Capital Market; the Nasdaq Global Market; the
Nasdaq Global Select Market; the New York Stock Exchange; OTCQX and
OTCQB.
“Transaction
Documents” means this
Agreement, the Notes, the Warrants, the Security Agreement, the
Intellectual Property Security Agreement, the Registration Rights
Agreement, the Subsidiary Guarantees, the Perfection Certificate,
the Transfer Agent Instruction Letter, all other security
related instruments, agreements, documents and filings and all exhibits and
schedules thereto and hereto and any other documents or agreements
executed in connection with the transactions contemplated
hereunder.
“Transfer
Agent” means, V Stock
Transfer, the current transfer agent of the Company, with a mailing
address of 18 Lafayette Place, Woodmere, New York 11598 and a phone
number of _(212) 828-8436, attention: Yoel Goldfeder, and any
successor transfer agent of the Company.
“Transfer
Agent Instruction Letter” means the
letter from the Company to the Transfer Agent which instructs the
Transfer Agent to issue the Conversion Shares and the Warrant
Shares pursuant to the Transaction Documents, in the form of
Exhibit D attached
hereto.
“Variable
Rate Transaction” shall have the meaning ascribed to
such term in Section 4.11(a).
“Warrants”
means the warrants to purchase 275,612 shares of Common
Stock in the form attached as
Exhibit
E to this Agreement, and shall
include the Initial Warrants, Second Warrants and Third
Warrants.
“Warrant
Shares” shall have the
meaning ascribed to such term in the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Purchase.
(a) On the Initial Closing Date, subject to Section 2.2 and upon
the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this
Agreement by the applicable parties hereto, the Purchasers for such
amount set forth opposite each such Purchaser’s name in
column (3) of the Initial Closing Date Schedule of Purchasers will
purchase, severally and not jointly, an aggregate of Seven Hundred
Fifty Thousand Dollars ($750,000) in Subscription Amount (the
“Initial
Subscription Amount”) corresponding
to an aggregate of Eight Hundred and Thirty Three Thousand Three
Hundred Thirty Three and 33/100 Dollars ($833,333.33) in Principal
Amount of Notes (the “Initial
Notes”) and Warrants
to purchase 275,612 Warrant Shares (the “Initial
Warrants”).
(b) On
the Second Closing Date, subject to Section 2.2 and upon the terms
and subject to the conditions set forth herein and provided that no
Event of Defaults under any Note exists, the Purchasers for such
amount set forth opposite each such Purchaser’s name in
column (3) of the Second Closing Date Schedule of Purchasers will
purchase, severally and not jointly, an aggregate of Two Hundred
Fifty Thousand Dollars ($250,000.00) in Subscription Amount (the
“Second
Subscription Amount”) corresponding
to an aggregate of Two Hundred and Seventy Seven Thousand Seven
Hundred Seventy Seven and 77/100 Dollars ($277,777.77) in Principal
Amount of Notes (the “Second
Notes”) and Warrants
to purchase 91,871 Warrant Shares (the “Second
Warrants”).
(c) On
the Third Closing Date, subject to Section 2.2 and upon the terms
and subject to the conditions set forth herein and provided that no
Event of Defaults under any Note exists, the Purchasers for such
amount set forth opposite each such Purchaser’s name in
column (3) of the Third Closing Date Schedule of Purchasers will
purchase, severally and not jointly, an aggregate of Seven Hundred
Fifty Thousand Dollars ($750,000) in Subscription Amount (the
“Third
Subscription Amount”) corresponding
to an aggregate of Eight Hundred and Thirty Three Thousand Three
Hundred Thirty Three and 33/100 Dollars ($833,333.33) in Principal
Amount of Notes (the “Third
Notes”) and Warrants
to purchase 275,612 Warrant Shares (the “Third
Warrants”).
2.2 Closing.
On each 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 applicable parties hereto, the
Company agrees to sell, and each Purchaser, agrees to purchase,
such Purchaser’s Closing Subscription Amount as set forth on
the signature page hereto executed by such Purchaser. At the
closing (i) on the Initial Closing Date, each such Purchaser shall
deliver to the Company, via wire transfer to an account designated
by the Company, immediately available funds equal to such
Purchaser’s Initial Subscription Amount as set forth on the
signature page hereto executed by such Purchaser, and the Company
shall deliver to such Purchaser the Initial Notes and Initial
Warrants, as determined pursuant to Section 2.3(a), and the Company
and such Purchaser shall deliver the other items set forth in
Section 2.3 deliverable at the Closing; (ii) on the Second Closing
Date, each such Purchaser shall deliver to the Company, via wire
transfer to an account designated by the Company, immediately
available funds equal to such Purchaser’s Second Subscription
Amount as set forth on the signature page hereto executed by such
Purchaser, and the Company shall deliver to such Purchaser the
Second Notes and Second Warrants, as determined pursuant to Section
2.3(a), and the Company and such Purchaser shall deliver the other
items set forth in Section 2.3 deliverable at the Closing; and
(iii) on the Third Closing Date, each such Purchaser shall deliver
to the Company, via wire transfer to an account designated by the
Company, immediately available funds equal to such
Purchaser’s Third Subscription Amount as set forth on the
signature page hereto executed by such Purchaser, and the Company
shall deliver to such Purchaser the Third Notes and Third Warrants,
as determined pursuant to Section 2.3(a), and the Company and such
Purchaser shall deliver the other items set forth in Section 2.3
deliverable at the Closing . Upon satisfaction of the covenants and
conditions set forth in Sections 2.3 and 2.4 for the Closing, the
Closing may by agreement be undertaken remotely by electronic
exchange of Closing documentation.
2.3 Deliveries.
(a) On
or prior to each Closing Date (except as noted), the Company shall
deliver or cause to be delivered to each Purchaser the
following(items (i),(ii) and (vi)(vii)(viii)and (x) to be delivered
only with respect to the closing on the Initial Closing
Date):
(i) this
Agreement duly executed by the Company;
(ii) the
Registration Rights Agreement duly executed by the
Company;
(iii)
a Note (the Initial
Note on the Initial Closing Date, the Second Note on the Second
Closing Date and the Third Note on the Third Closing Date) with the
applicable Principal Amount equal to the respective amounts
set forth opposite such Purchaser’s name in column (2) on the
Schedule of Purchasers, registered in the
name of the Purchaser;
(iv)
such aggregate number of Warrants
(the
Initial Warrants on the Initial Closing Date, the Second Warrants
on the Second Closing Date and the Third Warrants on the Third
Closing Date) as is set forth
across from such Purchaser’s name in column (4) of the
Schedule of Purchasers being purchased by such Purchaser at the
Closing pursuant to this Agreement.
(v)
a form of opinion from Company counsel in form and substance
satisfactory to Purchaser;
(vi)
the Security
Agreement, duly executed by the Company and UCC-1s;
(vii)
the Intellectual Property Security Agreement and Subsidiary
Guarantee, each duly executed by the Company and each Subsidiary of
the Company, as applicable;
(viii)
if and as applicable, UCC-3 filings terminating all UCC-1 financing
statements other than the UCC financing statement that references
the Purchaser as the secured parties;
(ix)
perfection certificate
executed by the Company, which has been previously provided
to Purchaser;
(x)
the Subsidiary
Guarantee executed by each Subsidiary and Intellectual Property
Security Agreement, each duly executed by the Purchaser and each
Subsidiary; and
(xi)
an officer’s
certificate in form and substance satisfactory to the
Purchaser;
(xii)
a secretary’s
certificate in form and substance satisfactory to the Purchaser,
including a Certified copy of the Certificate of Incorporation,
Certificate of Designation all as certified by the Secretary of
State of the State of Nevada; and
(xiii)
the Transfer Agent Instruction Letter duly executed by the Company
and the Transfer Agent.
(b) On
or prior to each Closing Date unless otherwise indicated, the
Purchaser shall deliver or cause to be delivered to the Company, as
applicable, the following (items (i), (iii) and (iv) to be
delivered only with respect to the Initial
Closing):
(i)
this Agreement duly executed by the Purchaser;
(ii)
the Purchaser’s Subscription Amount as to the Closing by wire
transfer to the account specified in writing by the
Company;
(iii)
the Security
Agreement, duly executed by the Purchaser; and
(iv)
the Registration Rights Agreement duly
executed by the Purchaser .
2.4 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with each
Closing are subject to the following conditions being
met:
(i)
the accuracy in all material respects as at each Closing Date of
the representations and warranties of the Purchaser 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 Purchaser required
to be performed at or prior to each Closing Date shall have been
performed; and
(iii)
the delivery by the Purchaser of the items set forth in Section
2.3(b) of this Agreement.
(b) The
respective obligations of each Purchaser hereunder in connection
with each the Closing are subject to the following conditions being
met:
(i)
the accuracy in all material respects when made as to each Closing
Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);
(ii)
all obligations, covenants and agreements of the Company required
to be performed at or prior to the Closing Date shall have been
performed;
(iii)
the delivery by the Company of the items set forth in Section
2.3(a) of this Agreement;
(iv)
there is no existing Event of Default (as defined in the Notes) and
no existing event which, with the passage of time or the giving of
notice, would constitute an Event of Default;
(v)
there is no breach of an obligations, covenants and agreements
under the Transaction Documents and no existing event which, with
the passage of time or the giving of notice, would constitute a
breach under the Transaction Documents;
(vi)
there shall have been no Material Adverse Effect with respect to
the Company since the date hereof;
(vii)
from the date hereof to the 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 the Purchaser, and without
regard to any factors unique to the Purchaser, makes it
impracticable or inadvisable to purchase the Securities at the
Closing;
(viii)
the
Company meets the current public information requirements under
Rule 144 in respect of the Conversion Shares or Warrant Shares and
any other shares of Common Stock issuable under the Notes or the
Warrants;
(ix)
the Company has
filed with the Commission any required reports under Section 13 or
15(d) of the Exchange Act such that it is in compliance with Rule
144(c)(1) (or Rule 144(i)(2), if applicable), including, without
limitation, any reports that the Commission requires the Company to
amend and/or re-submit; and
(x)
the Company has satisfied any other material conditions contained
herein or the other Transaction Documents, including, without
limitation those set forth in Section 2.3 herein.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations
and Warranties of the Company. Except as set forth
in the Disclosure Schedules, which Disclosure Schedules shall be
deemed a part hereof and shall qualify any representation or
otherwise made herein to the extent of the disclosure contained in
the corresponding section of the Disclosure Schedules, the
Company (which for purposes of this Section means the
Company and all of its Subsidiaries) hereby makes the
following representations and warranties to the Purchaser as of
each Closing Date:
(a) Subsidiaries.
All of the direct and indirect subsidiaries of the Company are set
forth on
Schedule 3.1(a). The Company owns,
directly or indirectly, all or a majority 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. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of
them in the Transaction Documents shall be
disregarded.
(b) Organization
and Qualification. The Company and each
of the Subsidiaries 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 the Subsidiaries 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, could not have or 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, prospects or condition (financial or otherwise)
of the Company and the Subsidiaries, 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.
The Notes and Warrants are
duly authorized and their issuance has been authorized , 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 and the security interest
provided for in the Transaction Documents. The Conversion Shares
and Warrant Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company
other than restrictions on transfer provided for in the Transaction
Documents.
(d) No
Conflicts. The execution,
delivery and performance by the Company of this Agreement and the
other Transaction Documents to which it is a party, the issuance
and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not,
except as set forth on
Schedule 3.1(d): (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 (except Liens in favor of the Purchaser) upon any of
the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary 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 each of clauses (ii) and (iii), such as could not
have or 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 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
Sections 4.3 and 4.14 of this Agreement; and (ii) the filing of
Form D with the Commission and such filings as are required to be
made under applicable state securities laws (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 provided
for in the Transaction Documents. The Conversion Shares and the
Warrant Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company
other than restrictions on transfer provided for in the Transaction
Documents. The Company has reserved from its duly authorized
capital stock a number of shares of Common Stock for issuance of
the Conversion Shares and Warrant Shares at least equal to 100% of
the Required Minimum on the date hereof.
(g) Capitalization.
The capitalization of the Company is as set forth on
Schedule 3.1(g), which
Schedule 3.1(g) shall also include the
number of shares of Common Stock owned beneficially, and of record,
by Affiliates of the Company as of the date hereof. The Company has
not issued capital stock since its most recently filed periodic
report under the Exchange Act except as set forth on
Schedule 3.1(g), except the issuance
of shares of Common Stock to employees pursuant to the
Company’s incentive plans and except pursuant to the
conversion and/or exercise of Common Stock Equivalents outstanding
as of the date of the most recently filed periodic report under the
Exchange Act 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 as set forth on
Schedule 3.1(g). There are no outstanding options, 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
Purchaser) 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 except as set forth on
Schedule 3.1(g). All of the outstanding
shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable, have been issued in
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.
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. None of the Company’s or
any Subsidiary’s capital stock is subject to preemptive
rights or any other similar rights or any Liens suffered or
permitted by the Company or any Subsidiary. There are no (i)
outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing
material Indebtedness of the Company or any of its Subsidiaries or
by which the Company or any of its Subsidiaries is or may become
bound; (ii) financing statements securing obligations in any
amounts filed in connection with the Company or any of its
Subsidiaries; (iii) agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the Securities Act (except
pursuant to this Agreement); (iv) outstanding securities or
instruments of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (v) securities or
instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities. Neither the
Company nor any Subsidiary has any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan
or agreement; and neither the Company nor any of its Subsidiaries
have any liabilities or obligations required to be disclosed in the
SEC Reports which are not so disclosed in the SEC Reports, other
than those incurred in the ordinary course of the Company’s
or its Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or could not have a
Material Adverse Effect. The Company has furnished to the
Purchasers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the
date hereof, and the Company’s bylaws, as amended and as in
effect on the date hereof.
(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 Section 13(a) or 15(d)
thereof in a timely manner, for the two (2) 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, being collectively referred to herein as the
“SEC
Reports”). 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 applied on a consistent basis during the
periods involved (“GAAP”),
except as may be otherwise specified in such financial statements
or the notes thereto and except that unaudited financial statements
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,
year-end audit adjustments.
(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 filed prior to the date hereof and except as set forth
in
Schedule 3.1(i): (i) there has been no
event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect; (ii)
the Company has not incurred any 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, 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 federal
securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least (1) Trading Day
prior to the date that this representation is
made.
(j) Litigation.
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 except as set forth in
Schedule 3.1(j), or against or
affecting the Company’s current or former officers or
directors in their capacity as such, 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, and 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.
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 that is likely to lead to action that can reasonably
be expected to result in a Material Adverse Effect. 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, which could
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 material
compliance with all U.S. federal, state, local and foreign laws and
regulations known to it relating to employment and employment
practices, terms and conditions of employment and wages and hours,
except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(l) Compliance.
Neither the Company nor any Subsidiary, except as set forth
on
Schedule 3.1(l): (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 could not have or reasonably be expected to result
in a Material Adverse Effect.
(m) Regulatory
Permits. The Company and the
Subsidiaries 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, except where the
failure to possess such permits could not reasonably be expected to
result in a Material Adverse Effect (“Material
Permit”), and neither
the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any
Material Permit. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, any certificate of designation,
preferences or rights of any other outstanding series of preferred
stock of the Company or any of its Subsidiaries or Bylaws or their
organizational charter, certificate of formation or certificate of
incorporation or bylaws, respectively. Neither the Company nor any
of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to
the Company or any of its Subsidiaries, and neither the Company nor
any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except in all cases for possible violations
which could not, individually or in the aggregate, have a Material
Adverse Effect. Without limiting the generality of the foregoing,
the Company is not in violation of any of the rules, regulations or
requirements of the Trading Market and has no knowledge of any
facts or circumstances that could reasonably lead to delisting or
suspension of the Common Stock by the Trading Market in the
foreseeable future. Since 2013, (i) the Common Stock has been
listed or designated for quotation on the Trading Market, (ii)
trading in the Common Stock has not been suspended by the
Commission or the Trading Market, and (iii) the Company has
received no communication, written or oral, from the Commission or
the Trading Market regarding the suspension or delisting of the
Common Stock from the Trading Market. The Company and each of its
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate regulatory authorities necessary to
conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not
have, individually or in the aggregate, a Material Adverse Effect,
and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(n) Title
to Assets. The Company and the
Subsidiaries have good and marketable title in fee simple to all
real property 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 the Subsidiaries, in each case free and clear of
all Liens, except as set forth in
Schedule 3.1(n) and except for (i)
Liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made
of such property by the Company and the Subsidiaries and (ii) Liens
for the payment of federal, state or other taxes, for which
appropriate reserves have been made therefor 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 the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance.
(o) Intellectual
Property. The Company and the
Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks,
trade names, trade secrets, inventions, copyrights, licenses and
other intellectual property rights and similar rights as necessary
or required for use in connection with their respective businesses
as presently conducted and which the failure to so have could have
a Material Adverse Effect (collectively, the
“Intellectual
Property Rights”). As used
herein, the businesses of the Company and Subsidiaries as presently
conducted means the business of hemp and hemp derived CBD. None of,
and neither the Company nor any Subsidiary has received a notice
(written or otherwise) that any of, the Intellectual Property
Rights has expired, terminated or been abandoned, or is expected to
expire or terminate or be abandoned, within two (2) years from the
date of this Agreement. Neither the Company nor any Subsidiary has
received, since the date of the latest audited financial statements
included within the SEC Reports, a written notice of a claim or
otherwise has any knowledge that the Intellectual Property Rights
violate or infringe upon the rights of any Person, except as could
not have or reasonably be expected to not have a Material Adverse
Effect. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property
Rights except as disclosed in
Schedule 3.1(o). The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(p) Transactions
with Affiliates and Employees. Except as set forth
on
Schedule 3.1(p), 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 $120,000 other than for: (i)
payment of salary or consulting fees for services rendered; (ii)
reimbursement for expenses incurred on behalf of the Company; and
(iii) other employee benefits.
(q) Sarbanes-Oxley;
Internal Accounting Controls. The Company and the
Subsidiaries are in 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 the Subsidiaries 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 the Subsidiaries have established disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and the Subsidiaries 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 the Subsidiaries as of
the end of the period covered by the most recently filed periodic
report under the Exchange Act (such date, the
“Evaluation
Date”) and determined
that such controls and procedures were ineffective. 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)
that have materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting of
the Company and its Subsidiaries.
(r) Certain
Fees. Other than as set
forth on
Schedule 3.1(r), no brokerage or
finder’s fees or commissions are or will be payable by the
Company or any Subsidiaries 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 Purchaser shall have no obligation with
respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions
contemplated by the Transaction Documents.
(s) Private
Placement. Assuming the accuracy
of each Purchaser’s 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 Purchaser as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations
of the Trading Market.
(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. Other than pursuant
to this Agreement, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities
of the Company or any Subsidiaries.
(v) Listing
and Maintenance Requirements. The Common Stock is
registered pursuant to 12(g) of the Exchange Act, and the Company
has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received
any notification that the Commission is contemplating terminating
such registration. Other than as set forth on
Schedule 3.1(v), the Company has not,
in the twelve (12) 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. The Company is, and has no reason to believe that
it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance
requirements.
(w) Application
of Takeover Protections. The Company and the
Board of Directors have taken all necessary action, if any, 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 Articles of Incorporation (or similar charter
documents) or the laws of its state of incorporation that is or
could become applicable to the Purchaser as a result of the
Purchaser 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 Purchaser’s ownership of the
Securities.
(x) Disclosure.
Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf
has provided the Purchaser or its agents or counsel with any
information that it believes constitutes or might constitute
material, non-public information. The Company understands and
confirms that the Purchaser 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 Purchaser regarding the Company and its
Subsidiaries, their respective businesses and the transactions
contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct in all material respects 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. Assuming the accuracy
of the Purchaser’s 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 this 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) 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 Purchaser and certain other “accredited
investors” within the meaning of Rule 501 under the
Securities Act.
(aa) 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.
(bb) Accountants.
The Company’s accounting firm is set forth on
Schedule 3.1(bb) of the Disclosure
Schedules. To the knowledge and belief of the Company, such
accounting firm is a registered public accounting firm as required
by the Exchange Act.
(cc) No
Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the
Company and the Company is current with respect to any fees owed to
its accountants and lawyers which could affect the Company’s
ability to perform any of its obligations under any of the
Transaction Documents.
(dd) Acknowledgment
Regarding Purchaser’s Purchase of
Securities. The Company
acknowledges and agrees that the Purchaser 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 the Purchaser is not 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 the
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 Purchaser’s
purchase of the Securities. The Company further represents to the
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) 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, other
than, in the case of clauses (ii) and (iii), compensation paid to
the Company’s placement agent in connection with the
placement of the Securities.
(ff) Stock
Option Plans. 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.
(gg) 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 or
any Subsidiary is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”).
(hh) U.S.
Real Property Holding Corporation. The Company is not
and has never been a U.S. real property holding corporation within
the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company shall so certify upon Purchaser’s
request.
(ii) Bank
Holding Company Act. Neither the Company
nor any of its Subsidiaries or Affiliates is subject to the Bank
Holding Company Act of 1956, as amended (the
“BHCA”)
and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal
Reserve”). Neither the
Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the
outstanding shares of any class of voting securities or twenty-five
percent or more of the total equity of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.
Neither the Company nor any of its Subsidiaries or Affiliates
exercises a controlling influence over the management or policies
of a bank or any entity that is subject to the BHCA and to
regulation by the Federal Reserve.
(jj) Conduct
of Business. The Company has all requisite corporate power and
authority, and has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental
regulatory officials and bodies that it needs as of the date hereof
to conduct its business purpose as described in its SEC Reports,
except for the absence of which would not reasonably be expected to
result in a Material Adverse Effect. The Company believes that the
transaction of its business, including sales of its hemp-derived
products are in compliance with all applicable regulations since
all of its products that contain hemp, contain less than 0.3% THC
content and are sold only in states in the United States that have
not prohibited the sale of hemp products. No regulatory authority
has indicated that it will prohibit the trading of the
Company’s securities based upon its sale of CBD products nor
will the Purchaser be prohibited from depositing, clearing or
settling the Conversion Shares or Warrant Shares, including through
DTC or otherwise, on account of the Company’s sale of CBD
products or transaction of its business.
(kk) 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 (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 know of no basis for
any such claim.
(ll) Indebtedness.
The Company on the date hereof, has no Indebtedness other than as
set forth in Schedule
3.1(n). As of the Closing Date, except for the senior
Indebtedness as set forth and identified in Schedule 3.1(n), no
Indebtedness or other claim against the Company is senior to or
pari passu with 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). Neither the Company nor any of its (i) is a party to any
contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract,
agreement or instrument could reasonably be expected to result in a
Material Adverse Effect, (ii) is in violation of any term of, or in
default under, any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would
not result, individually or in the aggregate, in a Material Adverse
Effect, or (iii) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company’s officers, has or is expected
to have a Material Adverse Effect. For purposes of this
Agreement.
(mm) Acknowledgment
Regarding Purchaser’s Purchase of Securities. The
Company acknowledges and agrees that each Purchaser is acting
solely in the capacity of an arm’s length purchaser with
respect to the Transaction Documents and the transactions
contemplated hereby and thereby. and that no Purchaser is (i) an
officer or director of the Company or any of its Subsidiaries, (ii)
to its knowledge, an Affiliate of the Company or any of its
Subsidiaries, or (iii) to its knowledge, a “beneficial
owner” of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the Exchange Act. The Company
further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company or any of its Subsidiaries (or
in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby, and any
advice given by a Purchaser or any of its representatives or agents
in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such
Purchaser’s purchase of the Securities. The Company further
represents to each Purchaser that the Company’s decision to
enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its
representatives.
(nn) 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.
(oo) Subsidiary
Rights. The Company has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive
dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or any
Subsidiary.
(pp) Shell
Company Status. The Company is not
presently and has not been an issuer identified as a
“Shell
Company” except as set
forth in
Schedule 3.1(pp).
(qq) No
“Bad Actor” Disqualification. The Company has
exercised reasonable care, in accordance with Commission rules and
guidance, and has conducted a factual inquiry, the nature and scope
of which reflect reasonable care under the relevant facts and
circumstances, to determine whether any Covered Person (as defined
below) is subject to any of the “bad actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under
the Securities Act (“Disqualification
Events”). To the
Company’s knowledge, after conducting such sufficiently
diligent factual inquiries, no Covered Person is subject to a
Disqualification Event, except for a Disqualification Event covered
by Rule 506(d)(2) or (d)(3) under the Securities Act. The Company
has complied, to the extent applicable, with any disclosure
obligations under Rule 506(e) under the Securities Act.
“Covered Persons” are those persons specified in Rule
506(d)(1) under the Securities Act, including the Company; any
predecessor or affiliate of the Company; any director, executive
officer, other officer participating in the offering, general
partner or managing member of the Company; any beneficial owner of
10% or more of the Company’s outstanding voting equity
securities, calculated on the basis of voting power; any promoter
(as defined in Rule 405 under the Securities Act) connected with
the Company in any capacity at the time of the sale of the
Securities; and any person that has been or will be paid (directly
or indirectly) remuneration for solicitation of purchasers in
connection with the sale of the Securities (a
“Solicitor”), any general partner or managing member of
any Solicitor, and any director, executive officer or other officer
participating in the offering of any Solicitor or general partner
or managing member of any Solicitor.
(rr) Full
Disclosure. No representation
or warranty by the Company in this Agreement and no statement
contained in the Disclosure Schedules to this Agreement or any
certificate or other document furnished or to be furnished to the
Purchasers pursuant to this Agreement contains any untrue statement
of a material fact, or omits to state a material fact necessary to
make the statements contained therein, in light of the
circumstances in which they are made, not
misleading.
3.2 Representations
and Warranties of the Purchaser. Each Purchaser,
individually for itself and for no other Purchaser, hereby
represents and warrants as of the date hereof and as of each
Closing Date to the Company as follows (unless as of a specific
date therein in which case they shall be accurate as of such
date):
(a) Organization;
Authority. The 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 the
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 the Purchaser. Each Transaction Document
to which it is a party has been duly executed by the Purchaser, and
when delivered by the Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of
the 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) Own
Account. The 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 the Purchaser’s
right to sell the Securities in compliance with applicable federal
and state securities laws). Purchaser understands that any transfer
of the Securities will be made only in compliance with the
Securities Act and applicable state securities laws. The Purchaser
is acquiring the Securities hereunder in the ordinary course of its
business.
(c) Purchaser
Status. At the time the
Purchaser was offered the Securities, it was, and as of the date
hereof it is, and on each date on which it converts the Notes or
exercise the Warrants it will be an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act.
(d) Experience
of the Purchaser. The 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. The Purchaser
acknowledges that it must bear the economic risk of an investment
in the Securities for an indefinite period of time because, among
other things, the Securities have not been registered under the
Securities Act, and, therefore, cannot be sold, transferred,
pledged, or otherwise disposed of unless they are subsequently
registered under the Securities Act and the applicable state
securities laws or the Purchaser delivers an opinion of counsel to
the Company (in reasonably acceptable form and substance to the
Company) that an exemption from such registration is
available).
(e) General
Solicitation. The Purchaser is not
purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(f) Access
to Information. In order to
adequately evaluate the merits and risks of an investment in the
Company, the Purchaser has had an opportunity to (i) ask questions
and receive answers from the Company and its representatives
concerning the Company and the Purchaser’s investment
therein, and (ii) obtain any additional information which the
Purchaser has requested with respect to the Company and the
Purchaser’s investment therein.
(g) No
Government Approval. The Purchaser
understands that no federal or state governmental agency has passed
upon or will pass upon the Securities or has made or will make any
finding or determination as to the fairness of investment in the
Securities.
(h) Agreement.
The Purchaser has been furnished and has read, understands and is
fully familiar with, this Agreement and the Transaction Documents,
which will govern the Securities.
(i) Certain
Transactions and Confidentiality. Other than
consummating the transactions contemplated hereunder, the Purchaser
has not directly or indirectly, nor has any Person acting on behalf
of or pursuant to any understanding with the Purchaser, executed
any purchases or sales, including Short Sales, of the securities of
the Company during the period commencing as of the time that the
Purchaser first received a term sheet (written or oral) from the
Company or any other Person representing the Company setting forth
the material terms of the transactions contemplated hereunder and
ending immediately prior to the execution hereof. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage
separate portions of the Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made
by the portfolio managers managing other portions of the
Purchaser’s assets, the representation 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. Other than to other Persons
party to this Agreement, the Purchaser has maintained the
confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this
transaction).
The Company acknowledges and agrees that the representations
contained in Section 3.2 shall not modify, amend or affect the
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
Transfer Restrictions.
(a) The
Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a
Purchaser or in connection with a pledge as contemplated in Section
4.1(b), the Company may require the transferor thereof to provide
to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, at the Company’s sole
expense in 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 shall have the rights and obligations of a
Purchaser under this Agreement.
(b) The
Purchaser agrees to the imprinting, so long as is required by this
Section 4.1, of a legend on any of the Securities in substantially
the following form:
[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 THE COMPANY. 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.
The Company acknowledges and agrees that the 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” as defined in Rule 501(a) under
the Securities Act and who agrees to be bound by the provisions of
this Agreement and, if required under the terms of such
arrangement, the Purchaser may transfer pledged or secured
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 Company’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.
(c) Certificates
evidencing the Conversion Shares or the Warrant Shares shall not
contain any legend (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 Conversion Shares or Warrant Shares
pursuant to Rule 144; (iii) if such Conversion Shares or the
Warrant Shares are eligible for sale under Rule 144; 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 upon request of a Purchaser and at the
Company’s sole expense cause its counsel (or at the
Purchaser’s option, counsel selected by the Purchaser) to
issue a legal opinion to the Transfer Agent promptly after any of
the events described in (i)-(iv) in the preceding sentence if
required by the Transfer Agent to effect the removal of the legend
hereunder (with a copy to the applicable Purchaser and its broker).
If all or
any portion of any Note or Warrant is converted or exercise,
respectively, at a time when there is an effective registration
statement to cover the resale of the Conversion Shares or Warrant
Shares, respectively, or if such Conversion Shares or Warrant
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 Conversion Shares or
Warrant 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(c), it will, no later than two (2)
Trading Days following the delivery by a Purchaser to the Company
or the Transfer Agent of a certificate representing Conversion
Shares or the Warrant Shares, as applicable, issued with a
restrictive legend (such third (3rd)
Trading Day, the “Legend
Removal Date”), instruct the
Transfer Agent to issue and deliver or cause to be delivered to the
Purchaser a certificate representing such shares that is free from
all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the Transfer Agent
that enlarge the restrictions on transfer set forth in this Section
4. Certificates for the Conversion Shares or the Warrant 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 the Purchaser.
(d) In
addition to the Purchaser’s other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, $1,000 per Trading Day for each
Trading Day after the Legend Removal Date until such certificate is
issued without a legend. Nothing herein shall limit the
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 the
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.
4.2 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 Conversion Shares or Warrant 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 the 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) The
Company covenants to maintain the registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act 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 even if
the Company is not then subject to the reporting requirements of
the Exchange Act.
(b) At
any time during the period commencing from the six (6)-month
anniversary of the date hereof 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 the 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
reduction of its ability to sell the Securities, an amount in cash
equal to two (2%) percent of the aggregate Subscription Amount of
the Purchaser’s Securities that continue to be 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 Purchaser to transfer the
Conversion Shares or Warrant 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. Nothing herein shall limit
the Purchaser’s right to pursue actual damages for the Public
Information Failure, and the 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 unless shareholder approval is
obtained before the closing of such subsequent
transaction.
4.5 Conversion
and Exercise Procedures. The form of Notice of
Conversion or Notice of Exercise included in any Note or Warrant,
respectively, sets forth the totality of the procedures required of
the Purchaser in order to convert such Note or exercise such
Warrant. Without limiting the preceding sentences, no ink-original
Notice of Conversion or Notice of Exercise shall be required, nor
shall any medallion guarantee (or other type of guarantee or
notarization) of any Notice of Conversion form be required in order
to convert the Notes or exercise the Warrants, respectively. No
additional legal opinion, other information or Notice of Exercise
instructions shall be required of the Purchaser to convert such
Note or exercise such Warrant, respectively. The Company shall
honor conversions of any Note or exercise of any Warrant, and shall
deliver Conversion Shares or Warrant Shares, respectively, in
accordance with the terms, conditions and time periods set forth in
the Transaction Documents.
4.6 Shareholder
Rights Plan. No claim will be made
or enforced by the Company or, with the consent of the Company, any
other Person, that the 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 the 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
Purchaser.
4.7 Material
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 of its subsidiaries, nor
any other
Person acting on its behalf, will provide the Purchaser or its
agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior
thereto such information is disclosed to the public, or
the
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 the Purchaser shall be
relying on the foregoing covenant in effecting transactions in
securities of the Company.
4.8 Use
of Proceeds. The Company shall use
the net proceeds as set forth in
Schedule 4.8.
4.9 Indemnification
of Purchaser. Subject to the
provisions of this Section 4.9, the Company will indemnify and hold
the Purchaser and its directors, officers, managers, 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 the Purchaser (within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, managers, 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 the
Purchaser Party may suffer or incur as a result of or relating to
any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other
Transaction Documents. If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought
pursuant to this Agreement, the 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 the 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 the
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 (x) for any settlement by a Purchaser Party
effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (y) to the
extent, but only to the extent that a loss, claim, damage or
liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements
made by the Purchaser Party in this Agreement or in the other
Transaction Documents. The indemnification required by this Section
4.9 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 indemnification 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.
4.10 Reservation
and Listing of Securities and SEC Filings.
(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.
(b) If,
on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than 100% of the
Required Minimum on such date, then the Board of Directors shall
use commercially reasonable efforts to amend the Company’s
Articles of Incorporation to increase the number of authorized but
unissued shares of Common Stock to at 100% of the Required Minimum
at such time, as soon as possible and in any event not later than
the 75th
day after
such date.
(c) The
Company shall, 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 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 Purchaser 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.
4.11 Subsequent
Equity Sales.
(a) For so long as any
of the Notes remain outstanding, the Company shall be prohibited
from effecting or entering into an agreement to effect any issuance
by the Company or any of its Subsidiaries of Common Stock or Common
Stock Equivalents (or a combination of units thereof) involving a
Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company
(i) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the
right to receive, additional shares of Common Stock either (A) at a
conversion price, Exercise Price or exchange rate or other price
that varies with, the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of
such debt or equity securities or (B) with a conversion, exercise
or exchange price that is subject to being reset at some future
date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or
indirectly related to the trading price or quotations for the
Common Stock or (ii) enters into any agreement, including, but not
limited to, an equity line of credit, whereby the Company may be
subject to a “put” wherein a third party may require
the Company to issue securities at a future determined
price.
(b) The Purchaser shall
be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to
any right to collect damages. Notwithstanding the foregoing, this
Section 4.11 shall not apply in respect of an Exempt Issuance,
except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.12 Certain
Transactions and Certain Acknowledgements and Obligations of the
Company. Each Purchaser,
severally and not jointly, covenants and agrees, so long as such
Purchaser holds any Notes, that neither it, nor any Affiliate
acting on its behalf or pursuant to any understanding with it will
execute any Short Sales (as such term is
defined in Rule 200 of Regulation SHO of the Exchange Act) of the
Common Stock or (ii) hedging transaction, which establishes a net
short position with respect to the Company’s Common
Stock) during the period
commencing with the execution of this Agreement and ending on the
earlier Maturity Date (as defined in the Notes) of the Notes or the
full repayment or conversion of the Notes of such Purchaser;
provided that this provision shall not prohibit any sales made
where a corresponding Notice of Conversion or Notice of Exercise,
as applicable, is tendered to the Company and the shares received
upon such conversion or exercise are used to close out such sale (a
“Prohibited
Short Sale”).
Notwithstanding the foregoing, solely with respect to any Purchaser
that has acquired securities from the Company pursuant to a prior
securities purchase agreement (collectively, the “Prior
Securities”), such Purchaser shall not be deemed to have
consummated any Prohibited Short Sales at any given time of
determination. So long as any of the Securities covered by the
Transaction Documents shall remain outstanding:
(a)
the Company
shall 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 the Company shall meet the current public information
requirements of Rule 144(c) under the Securities Act as of the end
of the period in question, (b) the Company shares of common stock
must be DWAC Eligible and not subject to a “DTC chill”,
(c) the Conversion Shares or Warrant Shares, as applicable, shall
be deemed “freely tradeable” shares (for the purposes
of this sub-section, “freely tradeable” shares shall
mean that such shares are eligible for resale pursuant to
Rule 144 (provided the Company is compliant with its current public
information requirements) promulgated by the Commission pursuant to
the Securities Act or such shares are the subject of a then
effective registration statement) after the applicable holding
period for purpose of Rule 144 or effectiveness of a registration
statement under the Securities Act, and (d) the Common
Stock is trading on any Trading Market (subject to any volume
restrictions set forth in the Note) and all of the shares issuable
pursuant to the Transaction Documents are listed or quoted for
trading on any Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on any Trading Market will
continue uninterrupted for the foreseeable future), (e) there has
been no public announcement of a pending or proposed Fundamental
Transaction or Change of Control Transaction that has not been
consummated, and (f) the applicable Holder is not in possession of
any information provided by the Company, any of its Subsidiaries,
or any of their officers, directors, employees, agents or
Affiliates, that constitutes, or may constitute, material
non-public information..
4.13 Securities
Laws Disclosure; Publicity. The Company shall (a) by 9:30
a.m. (New York City time) on the Trading Day immediately following
the Initial Closing Date and execution by the Company and
Purchasers of this Agreement, issue a press release disclosing the
material terms of the transactions contemplated hereby, and (b)
file a Current Report on Form 8-K, including the Transaction
Documents as exhibits thereto, with the Commission within the time
required by the Exchange Act. From and after the issuance of such
press release, the Company represents to the Purchaser that it
shall have publicly disclosed all material, non-public information
delivered to any of the Purchaser by the Company or any of its
Subsidiaries, or any of their respective officers, directors,
employees or agents in connection with the transactions
contemplated by the Transaction Documents. In addition, effective
upon the filing of the press release, the Company acknowledges and
agrees that any and all confidentiality or similar obligations
under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers,
directors, affiliates, employees or agents, on the one hand, and
any of the Purchasers or any of their affiliates, on the other
hand, shall terminate. The Company and the Purchaser shall consult
with each other in issuing any other press releases with respect to
the transactions contemplated hereby, and neither the Company nor
the Purchaser shall issue any such press release nor otherwise make
any such public statement without the prior consent of the Company,
with respect to any press release of the Purchaser, or without the
prior consent of the 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 the Purchaser, or include the name of the
Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of the
Purchaser, except: (a) as required by federal securities law in
connection with any registration statement contemplated by this
Agreement and (b) to the extent such disclosure is required by law
or Trading Market regulations, in which case the Company shall
provide the Purchaser with prior notice of such disclosure
permitted under this clause (b). Notwithstanding anything in any
Transaction Document to the contrary, to the extent that the
Company delivers any material, non-public information to a
Purchaser without such Purchaser's consent, the Company hereby
covenants and agrees that such Purchaser shall not have any duty of
confidentiality with respect to, or a duty not to trade on the
basis of, such material, non-public information except as otherwise
provided under Applicable Law.
4.15 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 the
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 Purchaser at the
Initial 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 the Purchaser.
ARTICLE V
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by the Purchaser, as to the
Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other
Purchaser, by written notice to the other parties, if the Closing
has not been consummated on or before December 1, 2019;
provided,
however, that such termination
will not affect the right of any party to sue for any breach by any
other party (or parties).
5.2 Fees
and Expenses. Except as
expressly set forth in the Transaction Documents to the contrary,
each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees (including, without
limitation, any fees required for same-day processing of any
instruction letter delivered by the Company and any Notice of
Conversion or Notice of Exercise delivered by the Purchaser), stamp
taxes and other taxes and duties levied in connection with the
delivery of the Conversion Shares or Warrant Shares to the
Purchaser. Notwithstanding the foregoing, the firm of Gracin &
Marlow, LLP, counsel to the Purchasers shall be entitled to receive
out of the proceeds distributed at the Closing its actual
attorneys’ fees and the Purchasers shall be entitled to
withheld from the proceeds distributed at the Closing their due
diligence fees, minus the $15,000 deposit (or such lesser amount)
it received from the Company.
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.
Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective on the earliest of: (i) the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages
attached hereto at or prior to 12:00 p.m. (New York City time) on a
Trading Day; (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages
attached hereto on a day that is not a Trading Day or later than
12:00 p.m. (New York City time) on any Trading Day; (iii) the
second (2nd)
Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service; or (iv) upon
actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as
set forth on the signature pages attached
hereto.
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 Purchasers holding at least 50.1% in interest of the
Notes then outstanding or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought,
provided that if any amendment, modification or waiver
disproportionately and adversely impacts a Purchaser (or group of
Purchasers), the consent of such disproportionately impacted
Purchaser (or group of Purchasers) shall also be required. 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. Any
proposed amendment or waiver that disproportionately, materially
and adversely affects the rights and obligations of any Purchaser
relative to the comparable rights and obligations of the other
Purchasers shall require the prior written consent of such
adversely affected Purchaser. Any amendment effected in accordance
with accordance with this Section 5.5 shall be binding upon each
Purchaser and holder of Securities and the Company. No
consideration (other than reimbursement of legal fees) shall be
offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties
to the Transaction Documents, all holders of the Notes or all
holders of the Warrants (as the case may be). From the date hereof
and while any Notes or Warrants are outstanding, the Company shall
not be permitted to receive any consideration from a Purchaser or a
holder of Notes or Warrants that is not otherwise contemplated by
the Transaction Documents in order to, directly or indirectly,
induce the Company or any Subsidiary (i) to treat such Purchaser or
holder of Notes or Warrants in a manner that is more favorable than
to other similarly situated Purchasers or holders of Notes or
Warrants, as applicable, or (ii) to treat any Purchaser(s) or
holder(s) of Notes or Warrants in a manner that is less favorable
than the Purchaser or holder of Notes or Warrants that is paying
such consideration; provided, however, that the determination of
whether a Purchaser has been treated more or less favorably than
another Purchaser shall disregard any other securities of the
Company purchased or sold by any Purchaser. The Company has not,
directly or indirectly, made any agreements with any Purchaser
relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
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 the Purchaser (other than by merger). The
Purchaser may assign any or all of its rights under this Agreement
to any Person to whom the 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
“Purchaser”.
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 4.9.
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 suit, action 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, suit or proceeding to enforce any provisions of
the Transaction Documents, then, in addition to the obligations of
the Company under Section 4.9, 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 the 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 the Purchaser may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company,
any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, that
in the case of a rescission of a conversion or exercise of any Note
or Warrant, respectively, the Purchaser shall be required to return
any shares of Common Stock subject to any such rescinded conversion
notice concurrently with the return to the Purchaser of the
aggregate Exercise Price paid to the Company for such
shares.
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, the
Purchaser 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 the 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 the 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 effective 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 the Purchaser with respect to
Indebtedness evidenced by the Transaction Documents, such excess
shall be applied by the 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 the Purchaser’s
election.
5.18 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.
5.19 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.
5.20 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.
5.21 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.
[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.
|
EXACTUS, INC.
|
Address for Notice:
80 NE
4th Avenue, Suite 28 Delray Beach, FL 33483
|
|
By: /s/ Emiliano
Aloi
Name: Emiliano Aloi
Title: President & CEO
|
Fax: _____________
|
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO EXACTUS, 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: 3i, LP
Signature of Authorized
Signatory of Purchaser:
/s/ Maier Tarlow
Name of Authorized
Signatory:
/s/ Maier Tarlow
Title of Authorized
Signatory:
Authorized
Signor
Email Address of
Authorized Signatory:
____________________________________
Facsimile Number of
Authorized Signatory:
____________________________________
Address for Notice to Purchaser:
#####
#####
#####
Closing Principal
Amount:
$833,333.33
Closing
Subscription
Amount:
$750,000.00
EIN Number: #####
SCHEDULE 3.1(j)
LEGAL MATTERS
Krassen Matter:
In July
2018 Exactus received notice of the expiration and termination of a
license agreement dated January 19, 2016 acquired through the Share
Exchange by our subsidiary Exactus BioSolutions, Inc that the
Company recognized as an intangible asset from Digital Diagnostics,
Inc. (“Digital Diagnostics”) related to our FibriLyzer
and MatriLyzer technologies. In addition, on December 14,
2018 we received a letter from KD Innovation, Ltd.
(“KDI”) and Dr. Krassen Dimitrov, our former director
seeking payment for alleged past due consulting fees from June 2017
through November 2018 pursuant to a Consulting Agreement dated
January 20, 2016. On January 23, 2019, Digital Diagnostics,
made a demand for compensation against the Company in connection
with an alleged breach of a License Agreement. Under the terms of
these agreements, the parties are required to arbitrate
claims. Although we dispute the material allegations made by
Digital Diagnostics and KDI, if such actions were successful
damages could be awarded against us.
On
December 14, 2018, the Company received a termination and demand
notice from KD Innovation, Ltd, an entity 100% owned by a former
Board member, in connection with a consulting agreement KDI entered
into with the Company’s subsidiary, Exactus Biosolutions,
Inc., on or about January 20, 2016. No lawsuit has been filed;
however, in the event a lawsuit is filed, the Company intends to
vigorously contest the matter.
Gilbert Matter:
Jonathan R. Gilbert v. Exactus Inc.: On September 25, 2019,
Jonathan Gilbert served a Complaint on the Company in the courts of
Nassau County, New York. The Company promptly filed a Notice of
Removal based on jurisdictional claims for lack of personal
jurisdiction and diversity. Mr. Gilbert is a former director of the
Company and is seeking relief based upon the alleged issuance of
certain Stock Options granted to him. The Company denies the Stock
Option Agreement was properly authorized, and if authorized the
Stock Options were not vested and were forfeited by the terms of
the Stock Option Award Agreement and the 2019 Equity Incentive Plan
of the Company. The Company intends to vigorously defend the
allegations as it believes the claims of Mr. Gilbert are completely
without merit.
SCHEDULE OF PURCHASERS
Initial Closing Date Schedule of Purchasers [to
be provided]
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(1)
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(2)
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(3)
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(4)
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Purchaser
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Principal Amount of
Initial Notes
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Initial Subscription Amount
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Initial Warrants
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3i,
LP
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$833,333,33
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$750,000
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Second Closing Date Schedule of Purchasers [to
be provided]
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(1)
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(2)
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(3)
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(4)
|
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Purchaser
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Principal Amount of
Second Notes
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Second Subscription Amount
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Second Warrants
|
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3i,
LP
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$277,777.77
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$250,000
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Third Closing Date Schedule of Purchasers [to
be provided]
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(1)
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(2)
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(3)
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(4)
|
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Purchaser
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Principal Amount of
Third Notes
|
Third Subscription Amount
|
Third Warrants
|
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|
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3i,
LP
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$833,333.33
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$750,000
|
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EXHIBIT A
Form of Senior Secured Convertible Note
EXHIBIT B
Registration Rights Agreement
EXHIBIT C
Form of Security Agreement
EXHIBIT C-1
Intellectual Property Security Agreement
EXHIBIT C-2
Form of Subsidiary Guarantee
EXHIBIT D
Form of Transfer Agent Instruction Letter
EXHIBIT E
Form of Warrant
EXHIBIT F
Perfection Certificate
DISCLOSURE SCHEDULES
(Securities
Purchase Agreement)
The
following are the Disclosure Schedules (the “Disclosure Schedules”)
referred to in that certain Securities Purchase Agreement, dated as
of November 27, 2019 (the “Agreement”), by and
between Exactus, Inc., a Nevada corporation (the
“Company”),
and the purchaser identified on the signature pages
Exhibit 10.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY
IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS 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 CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
|
Original Issue Date: November 27, 2019
|
Original Principal Amount: $833,333.33
Purchase Price: $750,000.00
|
FORM OF
8% SENIOR SECURED
CONVERTIBLE PROMISSORY NOTE
DUE NOVEMBER 26, 2020
THIS 8%
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE is one of a series of
duly authorized and validly issued 8% Senior Secured Convertible
Promissory Notes of EXACTUS,
INC., a Nevada corporation (the “Company”), having its
principal place of business at 80 NE 4th Avenue, Suite 28, Delray
Beach, Florida 33483, designated as its 8% Senior Secured
Convertible Promissory Note due November 26, 2020 (this
“Note”,
and collectively with the other Notes of such series, the
“Notes”).
This
Note is being issued at a ten percent (10%) original issue
discount.
FOR
VALUE RECEIVED, the Company promises to pay to 3i, LP, a Delaware limited partnership, or its
registered assigns (each, a “Holder”), or shall have
paid pursuant to the terms hereunder, the principal sum of Eight
Hundred Three Hundred Thirty Three Thousand Three Hundred Thirty
Three Dollars and Thirty Three Cents ($833,333.33) on November 26, 2020 or such
earlier date as this Note is required or permitted to be repaid
and/or redeemed as provided hereunder, and to pay interest to the
Holder on the aggregate unconverted and 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 (as defined below),
and (b) the following terms shall have the following
meanings:
“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.
“Alternate
Consideration” shall have
the meaning set forth in Section
5(d).
“Amortization
Conversion Rate”
means 80% of the lowest VWAP
during the ten (10) consecutive Trading Days ending on the Trading
Day that is immediately prior to the applicable Amortization
Redemption Payment Date,
provided; however,
that in the event that a Holder elects to defer an Amortization
Payment as provided for in
Section 2(d), the Amortization
Conversion Rate to be
calculated as of the delivery of the Deferral
Notice.
“Amortization
Redemption” shall have
the meaning set forth in Section
2(d).
“Amortization
Redemption Payment Amount” means the product of: (a) (i) 110%, and
(b) the sum of (i) one-ninth (1/9th)
of the Original Principal Amount of this Note, (ii) 100% of all
accrued and unpaid interest on the principal amount of this Note
that is subject to such Amortization Redemption, (iii) 100% of the
Make-Whole Amount payable in respect of the principal amount of
this Note that is subject to such Amortization Redemption (as
applicable), and (iv) all liquidated damages, costs of collection
and other amounts payable in respect of this Note as of the
applicable Amortization Redemption Payment Date for such
Amortization Redemption.
“Amortization
Redemption Payment Date” shall
have the meaning set forth in Section
2(d).
“Bankruptcy
Event” means any of the
following events: (a) the Company or any Significant Subsidiary (as
such term is defined in Rule 1-02(w) of Regulation S-X for purposes
of this definition) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction relating to the Company or any
Significant Subsidiary thereof, (b) there is commenced against the
Company or any Significant Subsidiary thereof any such case or
proceeding that is not dismissed within sixty (60) days after
commencement, (c) the Company or any Significant Subsidiary thereof
is adjudicated insolvent or bankrupt or any order of relief or
other order approving any such case or proceeding is entered, (d)
the Company or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial
part of its property that is not discharged or stayed within sixty
(60) calendar days after such appointment, (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the
benefit of creditors, (f) the Company or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts or (g) the
Company or any Significant Subsidiary thereof, by any act or
failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing in writing or takes any
corporate action for the purpose of effecting any of the
foregoing.
“Base Conversion
Price” shall have the
meaning set forth in Section
5(f).
“Beneficial Ownership
Limitation” shall have
the meaning set forth in Section
4(d).
“Buy-In”
shall have the meaning set forth in Section
4(c)(v).
“Change of
Control” means any
Fundamental Transaction other than (i) any merger of the Company or
any of its, direct or indirect, wholly-owned Subsidiaries with or
into any of the foregoing Persons, (ii) any reorganization,
recapitalization or reclassification of the shares of Common Stock
in which holders of the Company’s voting power immediately
prior to such reorganization, recapitalization or reclassification
continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly
or indirectly, are, in all material respects, the holders of at
least 50.1% of the voting power of the surviving entity (or
entities with the authority or voting power to elect the members of
the board of directors (or their equivalent if other than a
corporation) of such entity or entities) after such reorganization,
recapitalization or reclassification, or (iii) pursuant to a
migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company or any of its
Subsidiaries.
“Closing Bid
Price” and
“Closing Sale
Price” means, for any
security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the then
principal Trading Market, as reported by Bloomberg, or, if the then
principal Trading Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing
trade price (as the case may be) then the last bid price or last
trade price, respectively, of such security prior to 4:00:00 p.m.,
New York time, as reported by Bloomberg, or, if the then principal
Trading Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities
exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing
bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask
prices, respectively, of any market makers for such security as
reported in the “pink sheets” by OTC Markets Group Inc.
(formerly Pink Sheets LLC). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Bid Price or the Closing
Sale Price (as the case may be) of such security on such date shall
be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon
the fair market value of such security, then such dispute shall be
resolved in good faith by an independent, regionally recognized
accounting mutually agreeable to the Company and the Holder. All
such determinations shall be appropriately adjusted for any stock
splits, stock dividends, stock combinations, recapitalizations or
other similar transactions during such period.
“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, unit, 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.
“Conversion”
means any conversion of any Conversion Amount under this Note into
shares of Common Stock pursuant to Section 4
herein.
“Conversion
Amount” means, with
respect to a Conversion pursuant to Section 4
herein, the sum of: (a) the principal
amount of this Note to be converted in such Conversion, (b) 100% of
the accrued and unpaid interest on the principal amount of this
Note to be converted in such Conversion, (c) 100% of the Make-Whole
Amount payable in respect of the principal amount of this Note to
be converted in such Conversion (as applicable), and (d) all
liquidated damages, costs of collection and other amounts payable
in respect of this Note as of the applicable Conversion Date for
such Conversion.
“Conversion
Date” shall have the
meaning set forth in Section
4(a).
“Conversion
Rate” means, as
applicable, the Amortization Conversion Rate, the Fixed Conversion
Price, the Base Conversion Price and the EOD Conversion
Rate.
“Conversion
Schedule” means the
Conversion Schedule in the form of Schedule 1
attached hereto.
“Conversion
Shares” means,
collectively, the shares of Common Stock issuable upon Conversion
of this Note pursuant to Section 4
hereof in accordance with the terms of
this Note.
“Deferral
Notice” shall have the
meaning set forth in Section
2(d).
“Dilutive
Issuance” shall have the
meaning set forth in Section
5(e).
“Dilutive Issuance
Notice” shall have the
meaning set forth in Section
5(e).
“Dollar”,
“U.S.
Dollar”,
“United States
Dollar”,
“$”, “USD” and like expressions means United States
of America dollars.
“DTC” means the Depository Trust
Company.
“DWAC
Eligible” means that (a)
the Common Stock is eligible at DTC for full services pursuant to
DTC’s Operational Arrangements, including without limitation
transfer through DTC’s DWAC system, (b) the Company has been
approved (without revocation) by the DTC’s underwriting
department, (c) the Transfer Agent is approved as an agent in the
DTC/FAST Program, (d) the Conversion Shares are otherwise eligible
for delivery via DWAC, and (e) the Transfer Agent does not have a
policy prohibiting or limiting delivery of the Conversion Shares
via DWAC.
“EOD Conversion
Rate” shall have the
meaning set forth in Section
6(b).
“EOD Interest
Rate” shall have the
meaning set forth in Section
2(e).
“Event of
Default” shall have the
meaning set forth in Section
6(a).
“Event of Default
Notice” shall have the
meaning set forth in Section
6(b).
“Event of Default
Notice Date” shall have
the meaning set forth in Section
6(b).
“Event of Default
Redemption” shall have
the meaning set forth in Section
6(b).
“Event of Default Redemption
Amount” means, with respect to an Event of Default
Redemption pursuant to Section 6(b) herein, the
greater of (i) the product of (a) 135%, multiplied by (b) the sum
of (I) the principal amount of this Note that is subject to such
Event of Default Redemption, irrespective of when the applicable
Event of Default Redemption Date for such Event of Default occurs,
(II) 100% of the accrued and unpaid interest on the principal
amount of this Note that is subject to such Event of Default
Redemption, (III) 100% of the Make-Whole Amount payable in respect
of the principal amount of this Note that is subject to such Event
of Default Redemption (as applicable), and (IV) all liquidated
damages, costs of collection and other amounts payable in respect
of this Note as of the applicable Event of Default Redemption Date
for such Event of Default (the sum of (I), (II), (III), and (IV)
being “the Sum
Amount”), and (ii) (a)
the outstanding principal amount of this Note and accrued and
unpaid interest hereon, in addition to the payment of all other
amounts, costs, expenses and liquidated damages due in respect of
this Note, divided by the lower of the (x) the Fixed Conversion
Price and (y) the EOD Conversion Rate, multiplied by (b) the
highest closing price for the Common Stock on the Trading Market
(as defined in the Purchase Agreement) during the period beginning
on the date of first occurrence of the Event of Default and ending
on the date the Event of Default Redemption Amount is paid in
full.
“Event of Default Redemption
Date” shall have the
meaning set forth in Section
6(b).
“Event of Default Redemption
Notice” shall have the
meaning set forth in Section
6(b).
“Event of Default Redemption Notice
Date” shall have the
meaning set forth in Section
6(b).
“Exchange
Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt Issuance” means
(i) the issuance of Common Stock by the Company pursuant to the
terms and conditions of the Purchase Agreement, (ii) the issuance
of (a) Conversion Shares upon conversion of this Note or any other
Notes issued under the Purchase Agreement in accordance with the
terms of such Notes, which for the avoidance of doubt, includes any
adjustment to the conversion price prior to conversion hereof or
thereof, and (b) Warrant Shares upon exercise of the Warrants in
accordance with the terms of the Warrants, which for the avoidance
of doubt, includes any adjustment to the exercise price prior to
exercise thereof, (iii) the issue of shares of Common Stock or
options to employees, officers, directors, consultants, advisors or
contractors of the Company (pursuant to any stock or option plan
duly adopted for any such purpose, by a majority of the
non-employee members of the Board of Directors or a majority of the
members of a committee of non-employee directors established for
such purpose, provided, in no event shall the
aggregate amount of such issuances to employees, officers,
directors, consultants, advisors or contractors of the Company
during the period commencing on the Original Issuance Date and
ending on the date no Notes are outstanding exceed five (5%)
percent of the number of issued and outstanding shares of Common
Stock (as adjusted for stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions
following the Closing Date), (iv) issuance of securities in
connection with strategic license agreements, mergers,
acquisitions, purchases or leases of assets and other partnering
arrangements so long as such issuances are not primarily for the
purpose of raising capital and (v) the issuance of Common Stock
upon the exercise or exchange of or conversion of any Common Stock
Equivalents issued and outstanding on the date of the Purchase
Agreement pursuant to terms and conditions applicable to such
Common Stock Equivalents in effect as of the date of the Purchase
Agreement and disclosed in filings of the Company with the
Commission prior to the date of the Purchase Agreement,
provided that such
Common Stock Equivalents have not been amended since the date of
the Purchase Agreement to increase the number of such Common Stock
Equivalents or shares of Common Stock issuable upon the exercise or
exchange of or conversion of such Common Stock Equivalents, or to
decrease the exercise price, exchange price or conversion price of
such Common Stock Equivalents (other than Common Stock Equivalents
issued and outstanding on the date of the Purchase Agreement,
subject to exchange prices or conversion prices adjustable pursuant
to anti-dilution protection or in connection with stock splits or
combinations) or to extend the term of such Common Stock
Equivalents.
“Fixed Conversion
Price” shall have the
meaning set forth in Section
4(b).
“Fundamental
Transaction” shall have
the meaning set forth in Section
5(d).
“Intellectual Property
Security Agreement” means
that certain Intellectual Property Security Agreement, by the
Company in favor of Holder, as secured lender, dated November 27,
2019.
“Interest Payment
Date” shall have the
meaning set forth in Section
2(a).
“Make-Whole
Amount” shall have the
meaning set forth in Section
2(a).
“Mandatory
Redemption” shall have
the meaning set forth in Section
7(c).
“Mandatory Redemption
Payment Amount and Order”
means the amount and order that the Mandatory Redemption Amount is
used by the Company to redeem from the Holder amounts due and/or
outstanding under this Note in connection with each Mandatory
Redemption pursuant to Section 7(c) and
Section 7(d) herein as
follows: First,
110% of the then accrued and unpaid interest on the principal
amount of this Note, Second,
110% of any Make-Whole Amount payable on or prior to the Mandatory
Redemption Date in respect of the principal amount of this Note
including with respect to any principal amount of this Note being
paid on the Mandatory Redemption Date, Third,
110% of all liquidated damages, costs of collection and other
amounts payable in respect of this Note (other than principal) as
of and including the applicable Mandatory Redemption Date for such
Mandatory Redemption, and Fourth,
any remaining portion of the Mandatory Redemptions Amount as
follows: (i) 110% of the then principal amount of this Note
outstanding.
“Mandatory Redemption
Amount” means, with
respect to any given Subsequent Financing, thirty percent (30%) of
the aggregate gross proceeds of such Subsequent Financing (together
with all prior Subsequent Financings) less than or equal to
$3,000,000 and sixty percent (60%) of the aggregate gross proceeds
of such Subsequent Financing (together with all prior Subsequent
Financings) in excess of $3,000,000.
“Mandatory Redemption
Date” shall have the
meaning set forth in Section
7(c).
“Mandatory Redemption
Notice” shall have the
meaning set forth in Section
7(c).
“Mandatory Redemption
Notice Date” shall have
the meaning set forth in Section
7(c).
“Maturity Date” shall mean
November 26, 2020; provided, however, the Maturity Date may
be extended at the option of the Holder (i) in the event that, and
for so long as, an Event of Default shall have occurred and be
continuing or any event shall have occurred and be continuing that
with the passage of time and the failure to cure would result in an
Event of Default, or (ii) through the date that is twenty (20)
Trading Days after the consummation of a Fundamental Transaction in
the event that a Fundamental Transaction is publicly announced or a
Fundamental Transaction Notice is delivered prior to the Maturity
Date, provided further that if a Holder elects to convert some or
all of this Note pursuant to Section 4 hereof, and the
Conversion Amount would be limited pursuant to Section 4(d) or Section 4(e)
hereunder, the Maturity Date shall automatically be extended until
such time as such provision shall not limit the conversion 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(b).
“Notice of
Conversion” shall have
the meaning set forth in Section
4(a).
“Optional
Redemption” shall have
the meaning set forth in Section
7(a).
“Optional Redemption
Amount” means, with
respect to an Optional Redemption pursuant to Section 7(a)
and Section 7(b)
herein, the product of: (a) (i) 110%,
and (b) the sum of (i) the principal amount of this Note that is
subject to the Optional Redemption and (ii) 100% of the accrued and
unpaid interest on the principal amount of this Note that is
subject to such Optional Redemption, (iii) 100% of the Make-Whole
Amount payable in respect of the principal amount of this Note that
is subject to such Optional Redemption (as applicable), and (iv)
all liquidated damages, costs of collection and other amounts
payable in respect of this Note as of the applicable Optional
Redemption Date for such Optional Redemption.
“Optional Redemption
Date” shall have the
meaning set forth in Section
7(a).
“Optional Redemption
Notice” shall have the
meaning set forth in Section
7(a).
“Optional Redemption
Notice Date” shall have
the meaning set forth in Section
7(a).
“Original Issue
Date” means the date of
the first issuance of this Note, regardless of any transfers of any
Note and regardless of the number of instruments which may be
issued to evidence such Note.
“Permitted
Indebtedness” means
indebtedness of the Company or any Subsidiary (i) evidenced by this
Note, (ii) outstanding on the date hereof and set forth on
Schedule
3.1(n) to the Purchase
Agreement, provided no such indebtedness shall constitute Permitted
Indebtedness if such indebtedness has been incurred and expensed
and/or otherwise modified following the date of its original
issuance and not disclosed in Schedule 3.1, other than indebtedness
evidenced by the Notes, which in no event shall all or any portion
thereof constitute Permitted Indebtedness; and (iii) indebtedness
disclosed in the Company’s consolidated balance sheet at
September 30, 2019.
“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 Lien, or (z) that are not overdue
by more than thirty (30) days or are being contested in good faith,
(c) pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance
and other social security laws or regulations, (d) deposits to
secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course
of business, (e) liens for Indebtedness and other obligations of
the Company to the Holder including under this Note and the other
Transaction Documents (f) any other lien in favor of the Holders,
and (g) Liens permitted as set forth on Schedule 2
hereto.
“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.
“Purchase
Agreement” means that
certain Securities Purchase Agreement, by and between the Company
and the Holder, dated November 27, 2019.
“Registration Rights
Agreement” means that
certain Registration Rights Agreement, by and between the Company
and the Holder, dated November 27, 2019.
“Registration
Statement” has the
meaning set forth in the Registration Rights
Agreement.
“Required Minimum” means,
(i) 300% of the maximum aggregate number of shares of Common Stock
(including all Conversion Shares), then issued or potentially
issuable in the future upon conversion in full of the Notes, and
(ii) 100% of the maximum aggregate number of shares of Common Stock
(including all Warrant Shares), then issued or potentially issuable
upon exercise in full of the Warrants or otherwise in any
Transaction Document, ignoring any conversion or exercise limits
set forth in the Notes and the Warrants, and assuming (a) no
Conversions or redemptions of any principal amount of and/or any
other payments due under the Notes from the Original Issue Date
through the Trading Day immediately preceding the Maturity Date,
(b) no exercise of the Warrants until the Trading Day immediately
preceding the Termination Date (as defined in the Warrants), (c) on
the Maturity Date and Termination Date, the Notes are fully
converted and the Warrants are fully exercised, respectively, and
(d) (A) the Notes convert into Common Stock at the Amortization
Conversion Rate as of a determination date, and (B) the Warrants
exercise into Warrant Shares at the Exercise Price (as defined in
the Warrants) as of any determination date.
“SEC” or
“Commission” means the
United States Securities and Exchange Commission.
“Securities
Act” means the Securities
Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
“Security
Agreement” means that
certain Security Agreement, by and among the Company, any
Subsidiary of the Company now joined or joined in the future, and
the Holder, dated November 27, 2019.
“Share Delivery
Date” shall have the
meaning set forth in Section
4(c)(ii).
“Subsequent
Financing” means any
issuance by the Company or any of its Subsidiaries for
capital-raising purposes of (i) Common Stock or Common Stock
Equivalents for cash consideration, (ii) Indebtedness, and/or (iii)
a combination of units thereof.
“Subsidiary” means any
subsidiary of the Company as set forth on Schedule 3.1(a) of the Purchase
Agreement and shall also include any direct or indirect subsidiary
of the Company formed or acquired after the date hereof, to the
extent permitted under the Security Agreement.
“Subsidiary Guarantee”
means the Subsidiary Guarantee by each Guarantor (as defined in the
Security Agreement) in favor of the Holders.
“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
American; the Nasdaq Capital Market; the Nasdaq Global Market; the
Nasdaq Global Select Market; the New York Stock Exchange, the OTCQB
or OTCQX.
“Transaction Documents”
means the Notes (including this Note), the Warrants, the Purchase
Agreement, the Registration Rights Agreement, the Security
Agreement, the Subsidiary Guarantees, the Intellectual Property
Security Agreement, the Transfer Agent Instruction Letter, the
Perfection Certificate and all other security related instruments,
agreements, documents and filings, and all exhibits and schedules
thereto and hereto and any other documents or agreements and/or
delivered in connection with the transactions contemplated
hereunder.
“VWAP” means, for any
date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)
if OTCQB or OTCQX is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on OTCQB or OTCQX as applicable, (c) if the Common
Stock is not then listed or quoted for trading on OTCQB or OTCQX
and if prices for the Common Stock are then reported in the
“Pink Sheets” published by OTC Markets Group, Inc. (or
a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the
Common Stock so reported, or (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 Holders of a
majority in interest of the Securities (as defined in the Purchase
Agreement) then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
“Warrants” means the
Company’s Common Stock Purchase Warrants issued to the
Holders to purchase up to the aggregate 275,612 of shares of Common
Stock (as adjusted for stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions
following the sale of the Warrants).
Section 2.
Interest; Mandatory
Prepayment and Amortization.
a) Payment of Interest. The
Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note at
the rate of eight (8%) percent per annum, payable monthly on the
first (1st) day of each month,
beginning on the first such date after the Original Issue Date (in
accordance with the Amortization Schedule attached as Annex B), on
each Conversion Date (as to that principal amount then being
converted), on each Optional Redemption Date (as to that principal
amount then being redeemed), on each Event of Default Redemption
Date (as to that principal amount then being redeemed), on each
Amortization Redemption Payment Date (as to that principal amount
then being redeemed and
in accordance with the Amortization Schedule attached as Annex B),
on each Mandatory Redemption Date (as to the principal amount then
being redeemed) and on the Maturity Date (each such date, an
“Interest Payment
Date”) (if any Interest Payment Date is not a Business
Day, then the applicable payment shall be due on the next
succeeding Business Day), in whole or in part, in cash, or , in
shares of Common Stock (provided they can be issued without a
restrictive legend) at the lesser of (i) the Fixed Conversion
Price, and (ii) the Amortization Conversion Rate. With respect to
any principal amount of this Note being converted or redeemed
hereunder on any Conversion Date, Optional Redemption Date, Event
of Default Redemption Date, Mandatory Redemption Date, or
Amortization Redemption Payment Date (as applicable) that occurs on
or and prior to the Maturity Date, and in addition to the amount of
interest payable to the Holder in accordance with the immediately
preceding sentence of this Section 2(a) on such Conversion
Date, Optional Redemption Date, Event of Default Redemption Date,
Mandatory Redemption Date, or Amortization Redemption Payment Date
(as applicable), the amount of interest that would have accrued
with respect to such principal amount of this Note being converted
or redeemed hereunder at the applicable interest rate hereunder for
the period from such applicable Conversion Date, Optional
Redemption Date, Event of Default Redemption Date, Mandatory
Redemption Date, or Amortization Redemption Payment Date (as
applicable) through and including the Maturity Date (such
additional interest amount, the “Make-Whole Amount”),
shall be guaranteed and shall be accelerated and payable to the
Holder in connection with the conversion or redemption of this Note
on any such applicable Conversion Date, Optional Redemption Date,
Event of Default Redemption Date, Mandatory Redemption Date, or
Amortization Redemption Payment Date (as applicable).
b) Interest Calculations. Interest
shall be calculated on the basis of a 360-day year, consisting of
twelve (12) thirty (30) calendar day periods, and shall accrue
daily commencing on the Original Issue Date until payment in full
of the outstanding principal, together with all accrued and unpaid
interest, liquidated damages and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the
Person in whose name this Note is registered on the records of the
Company regarding registration and transfers of this Note (the
“Note
Register”).
c) Reserved
d) Amortization Payments.
Commencing on the date that is ninety (90) days after the Original
Issue Date, and continuing on the first (1st) Trading Day of
each of the following eight (8) successive months thereafter (each
an “Amortization
Redemption Payment Date”), until no principal amount
of this Note is outstanding, the Company shall redeem (each, an
“Amortization
Redemption”), one-ninth (1/9th) of the Original
Principal Amount of this Note in accordance with the Amortization
Schedule attached as Annex B by paying to the Holder on each
Amortization Redemption Payment Date, the Amortization Redemption
Payment Amount in cash. Notwithstanding anything to the contrary
contained in this Section
2(d), the Holder, at its option, shall be entitled to
accelerate up to six (6) future Amortization Redemptions and demand
such corresponding Amortization Redemption Payment Amounts to be
paid in Common Stock at the lesser of (i) the Fixed Conversion
Price, and (ii) Amortization Conversion Rate. In the event that the
Holder elects to accelerate an Amortization Redemption Payment,
such accelerated Amortization Redemption Payment shall be applied
to, and in the order of, the last scheduled Amortization Redemption
Payment then due. Furthermore, notwithstanding anything to the
contrary contained in this Section 2(d), any Holder, at
its option and without regard to the actions of any other Holder,
shall be entitled to defer by delivery of written notice (each such
notice, a “Deferral
Notice”) each and any Amortization Payment in its sole
discretion and for as long as it wishes to defer such Amortization
Payment and receive such payments in Common Stock pursuant to the
Amortization Conversion Rate, to be calculated as of the delivery
of the Deferral Notice. Such Deferral Notice shall be effective
upon delivery to the Company, and any Amortization Payment shall be
settled no later than two (2) Trading Days after delivery of the
Deferral Notice to the Company. In addition, in the event the
Company shall fail to make any monthly amortization payment as
provided in this Section
2(d), the Holder at any time shall be entitled to convert an
amount, in whole or in part, equal to the sum of (i) one-ninth
(1/9th) of
the Original Principal Amount of this Note, (ii) 100% of all
accrued and unpaid interest on the principal amount of this Note
that is subject to such Amortization Redemption, (iii) 100% of the
Make-Whole Amount payable in respect of the principal amount of
this Note that is subject to such Amortization Redemption (as
applicable), and (iv) all liquidated damages, costs of collection
and other amounts payable in respect of this Note as of the
applicable Amortization Redemption Payment Date for such
Amortization Redemption, into shares of Common Stock at the lower
of (i) the Fixed Conversion Price and (ii) the Amortization
Conversion Price.
e) Event of Default Interest Rate.
If an Event of Default occurs, interest shall accrue from the date
of such Event of Default at the rate equal to the lesser of (i)
eighteen (18%) percent per annum, and (ii) the maximum amount
permitted by New York law (the lesser of (i) and (ii) being the
“EOD Interest
Rate”). In the event that such Event of Default is
subsequently cured, the adjustment to the interest rate referred to
in the preceding sentence shall cease to be effective as of the
calendar day immediately following the date of such cure of such
Event of Default.
Section 3.
Registration of Transfers
and Exchanges.
a) Different Denominations. This
Note is exchangeable for an equal aggregate principal amount of
Note 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 and may be transferred or
exchanged only in compliance with applicable federal and state
securities laws and regulations.
c) Reliance on Note Register.
Prior to due presentment for transfer to the Company of this Note,
the Company and any agent of the Company may treat the Person in
whose name this Note is duly registered on the Note Register as the
owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Note is
overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
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)
and Section 4(e) hereof). The Holder shall effect
Conversions by delivering to the Company a Notice of Conversion,
the form of which is attached hereto as Annex A (each, a
“Notice of
Conversion”), specifying therein the Conversion Amount
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. Except as required by the Transfer
Agent, no ink-original Notice of Conversion shall be required, nor
shall any medallion guarantee (or other type of guarantee or
notarization) of any Notice of Conversion form be required. To
effect Conversions hereunder, the Holder shall not be required to
physically surrender this Note to the Company unless the entire
principal amount of this Note, plus all accrued and unpaid interest
thereon, Make-Whole Amounts (as
applicable) and other amounts payable in respect 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 100% (irrespective of any higher
percentage used in calculating the Conversion Amount hereunder as
set forth in the definition of “Conversion Amount”) of
the principal amount of this
Note to be converted in such Conversion. The Holder and the
Company shall maintain a Conversion Schedule showing the principal
amount(s) converted and the date of such Conversion(s). The Company
may deliver an objection to any Notice of Conversion within one (1)
Business Day of delivery of such Notice of Conversion. In the event
of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.
The Holder, and any assignee by
acceptance of this Note, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of a portion
of this Note, the unpaid and unconverted principal amount of this
Note may be less than the amount stated on the face
hereof.
b) Conversion Price. The
conversion price in effect on any Conversion Date shall be equal to
$0.50 per share of Common Stock, subject to adjustment as provided
elsewhere in this Note (the “Fixed Conversion Price”).
Nothing herein shall limit a Holder’s right to pursue actual
damages or declare an Event of Default pursuant to Section 6 hereof 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.
c) Mechanics of
Conversion.
i. Conversion Shares Issuable Upon
Conversion of Conversion Amount. The number of Conversion
Shares issuable upon a Conversion of any Conversion Amount
hereunder shall be determined by the quotient obtained by dividing
(x) such Conversion Amount by (y) the Fixed Conversion
Price.
ii. Delivery of Certificate Upon
Conversion. Not later than the earlier of (i) two (2)
Trading Days and (ii) the number of Trading Days comprising the
Standard Settlement Period (as defined below) after each Conversion
Date (the “Share
Delivery Date”), the Company shall deliver, or cause
to be delivered, to the Holder (A) the Conversion Shares which, on
or after the earlier of (i) the six month anniversary of the
Original Issue Date or (ii) the Effective Date (as defined in the
Registration Rights Agreement), 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
and (B) a bank check in the amount of accrued and unpaid interest.
On or after the earlier of (i) the six-month anniversary of the
Original Issue Date or (ii) the Effectiveness Date of the Initial
Registration Statement (as defined in the Registration Rights
Agreement), the Company shall deliver any Conversion Shares
required to be delivered by the Company under this Section 4(c) electronically
through the DTC or another established clearing corporation
performing similar functions. As used herein, “Standard Settlement
Period” means the standard settlement period,
expressed in a number of Trading Days, on the Company’s
primary Trading Market with respect to the Common Stock as in
effect on the date of delivery of the Notice of
Conversion.
Notwithstanding the
foregoing, commencing on such date that the Conversion Shares are
eligible for resale under Rule 144 by the Holder subject to current
public information requirements and compliance with any other
requirements of Rule 144, the Company, upon request and at the
Company’s sole cost and expense, shall obtain a legal opinion
that is acceptable to each of the Holder and the Company and the
Company’s Transfer Agent, to permit resale of Conversion
Shares received by Holder under Holder’s Conversion Notice,
pursuant to Rule 144.
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 the
Company at any time on or before its receipt of such certificate or
certificates, to rescind such Conversion, in which event the
Company shall promptly return to the Holder any original Note
delivered to the Company and the Holder shall promptly return to
the Company the Common Stock certificates issued to such Holder
pursuant to the rescinded Conversion Notice.
iv. Obligation
Absolute; Partial Liquidated Damages. The Company’s
obligations to issue and deliver the Conversion Shares upon
conversion of this Note in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction
by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any
setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any
obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of
the Company to the Holder in connection with the issuance of such
Conversion Shares; provided, however, that such delivery
shall not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event the Holder of
this Note shall elect to convert any or all of the outstanding
Conversion Amount hereof, the Company may not refuse conversion
based on any claim that the Holder or anyone associated or
affiliated with the Holder has been engaged in any violation of
law, agreement or for any other
reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Note
shall have been sought. If the injunction is not granted, the
Company shall promptly comply with all conversion obligations
herein. If the injunction is obtained, the Company must post a
surety bond for the benefit of the Holder in the amount of one
hundred fifty percent (150%) of the outstanding Conversion 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
seeking such injunction, the Company shall issue Conversion Shares
or, if applicable, cash, upon a properly noticed Conversion. If the
Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to Section
4(c)(ii) by the Share Delivery
Date, the Company shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, $1,000 per Trading Day 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 6
hereof for the Company’s failure
to deliver Conversion Shares within the period specified herein and
the Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holder from
seeking to enforce damages pursuant to any other Section hereof or
under applicable law.
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the Holder, if the Company
fails for any reason to deliver to the Holder such 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’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the
Conversion Shares which the Holder was entitled to receive upon the
conversion relating to such Share Delivery Date (a
“Buy-In”),
then the Company shall (A) pay in cash to the Holder (in addition
to any other remedies available to or elected by the Holder) the
amount, if any, by which (x) the Holder’s total purchase
price (including any brokerage commissions) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that the Holder was entitled to receive from
the conversion at issue multiplied by (2) the actual sale price at
which the sell order giving rise to such purchase obligation was
executed (including any brokerage commissions) and (B) at the
option of the Holder, either reissue (if surrendered) this Note in
a principal amount equal to the principal amount of the attempted
conversion (in which case such conversion shall be deemed
rescinded) or deliver to the Holder the number of shares of Common
Stock that would have been issued if the Company had timely
complied with its delivery requirements under Section
4(c)(ii). For example, if the
Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion
of this Note with respect to which the actual sale price of the
Conversion Shares (including any brokerage commissions) giving rise
to such purchase obligation was a total of $10,000 under clause (A)
of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder
in respect of the Buy-In and, upon request of the Company, evidence
of the amount of such loss. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver
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. The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued
shares of Common Stock a number of shares of Common Stock at least
equal to the Required Minimum (the “Reserve Amount”) 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). The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue,
be duly authorized, validly issued, fully paid and
nonassessable.
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 Company shall 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, the Company shall not
be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder
of this Note so converted and the Company shall not be required to
issue or deliver such certificates unless or until the Person or
Persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The
Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion.
d) Holder’s
Conversion Limitations. The Company shall not effect any
conversion of this Note, and a Holder shall not have the right to
convert any portion of this Note, to the extent that after giving
effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s
Affiliates, and any other Persons acting as a group together with
the Holder or any of the Holder’s Affiliates (such Persons,
“Attribution
Parties”)) would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). For purposes of
the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates and Attribution
Parties shall include the number of shares of Common Stock issuable
upon conversion of this Note with respect to which such
determination is being made, but shall exclude the number of shares
of Common Stock which are issuable upon (i) conversion of the
remaining, unconverted principal amount of this Note beneficially
owned by the Holder or any of its Affiliates or Attribution
Parties, and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company subject
to a limitation on conversion or exercise analogous to the
limitation contained herein (including, without limitation, any
other Notes) beneficially owned by the Holder or any of its
Affiliates or Attribution Parties. Except as set forth in the
preceding sentence, for purposes of this Section 4(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated
thereunder. To the extent that the limitation contained in this
Section 4(d)
applies, the determination of whether this Note is convertible (in
relation to other securities owned by the Holder together with any
Affiliates and Attribution Parties) and of which principal amount
of this Note is convertible shall be in the sole discretion of the
Holder, and the submission of a Notice of Conversion shall be
deemed to be the Holder’s determination of whether this Note
may be converted (in relation to other securities owned by the
Holder together with any Affiliates or Attribution Parties) and
which principal amount of this Note is convertible, in each case
subject to the Beneficial Ownership Limitation. To ensure
compliance with this restriction, the Holder will be deemed to
represent to the Company each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the
restrictions set forth in this paragraph and the Company shall have
no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status
as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 4(d), in determining
the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as stated
in the most recent of the following: (i) the Company’s most
recent periodic or annual report filed with the Commission, as the
case may be, (ii) a more recent public announcement by the Company,
or (iii) a more recent written notice by the Company or the
Company’s Transfer Agent setting forth the number of shares
of Common Stock outstanding. Upon the written or oral request of a
Holder, the Company shall within one (1) Trading Day confirm orally
and in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including this
Note, by the Holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The
“Beneficial
Ownership Limitation” shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon
conversion of this Note held by the Holder. The Holder, upon notice
to the Company, may increase or
decrease the Beneficial Ownership Limitation provisions of
this Section
4(d), provided that the
Beneficial Ownership Limitation in no event exceeds 9.99% of the
number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock upon
conversion of this Note held by the Holder and the Beneficial
Ownership Limitation provisions of this Section 4(d)
shall continue to apply. Any increase
in the Beneficial Ownership Limitation will not be effective until
the 61st
day after such notice is delivered to
the Company. The Beneficial Ownership Limitation provisions of this
paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this
Section
4(d) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation contained herein or to
make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitations contained in this
paragraph shall apply to a successor Holder of this
Note.
Section 5.
Certain
Adjustments.
a) Stock Dividends and Stock
Splits. If the Company, at any time while this Note is
outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock
issued by the Company upon conversion of, or payment of interest
on, this Note), (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, (iii) combines (including by way of
a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of
capital stock of the Company, then the Fixed Conversion Price shall
be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding any treasury shares of
the Company) outstanding immediately before such event, and of
which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made
pursuant to this Section
5 shall become effective immediately after the record date
for the determination of shareholders 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 adjustment pursuant to Section 5(e) below, if at
any time the Company grants, issues or sells any Common Stock
Equivalents or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of
shares of Common Stock (the “Purchase Rights”), then
the Holder will be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of
shares of Common Stock acquirable upon complete conversion of this
Note (without regard to any limitations on exercise hereof,
including without limitation, the Beneficial Ownership Limitation)
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares
of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights (provided, however, 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. While
this Note is outstanding, the Company shall not declare or make any
dividend or other distribution of its assets (or rights to acquire
its assets) to holders of shares of Common Stock, by way of return
of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or
options by way of a dividend, spin-off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”). In the
event that the Note is repaid at the time of such Distribution, the
Holder shall not be entitled to participate in such Distribution.
If the Holder and the Company mutually agree, and the Note is not
repaid at the time of such Distribution, then 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) 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 fifty percent (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,
(v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires
more than fifty percent (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) and
Section 4(e) on the conversion
of this Note), the number of shares of Common Stock of the
successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the
“Alternate
Consideration”)
receivable as a result of such Fundamental Transaction by a holder
of the number of shares of Common Stock for which this Note is
convertible immediately prior to such Fundamental Transaction
(without regard to any limitation in Section 4(d) and
Section 4(e) on the conversion
of this Note). For purposes of any such conversion, the
determination of the Fixed Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one (1)
share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Fixed Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any conversion of this
Note following such Fundamental Transaction. The Company shall use
its reasonable best efforts to cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor
(the “Successor
Entity”) to assume in
writing all of the obligations of the Company under this Note and
any document ancillary hereto, 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 the Company and shall
assume all of the obligations of the Company under this Note and
the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company
herein.
e) Intentionally
omitted.
f) Calculations. All calculations
under this Section
5 shall be made to the nearest cent or the nearest 1/100th
of a share, as the case may be. For purposes of this Section 5, the number of shares
of Common Stock deemed to be issued and outstanding as of a given
date shall be the sum of the number of shares of Common Stock
(excluding any treasury shares of the Company) issued and
outstanding.
g) Notice to the
Holder.
i. Adjustment to Fixed Conversion
Price. Whenever the Fixed Conversion Price is adjusted
pursuant to any provision of Section 5, the Company shall
promptly deliver to each Holder a notice setting forth the Fixed
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by
Holder. If (A) the Company shall declare a dividend (or any
other distribution in whatever form) on the Common Stock, (B) the
Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the
granting to all holders of the Common Stock of rights or warrants
to subscribe for or purchase any shares of capital stock of any
class or of any rights, (D) the approval of any shareholders of the
Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially
all of the assets of the Company, or any compulsory share exchange
whereby the Common Stock is converted into other securities, cash
or property or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of
conversion of this Note, and shall cause to be delivered to the
Holder at its last address as it shall appear upon the Note
Register, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange, provided that the failure to deliver such notice or any
defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such
notice. To the extent that any notice provided hereunder
constitutes, or contains, material, non-public information
regarding the Company or any of the Subsidiaries, the Company shall
within one (1) Trading Day 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.
h) Subsequent Equity Sales; Variable Rate
Transactions; Other.
(1) Intentionally
omitted.
(2) So long as this
Note remains outstanding or the Holder holds any Securities (as
defined in the Purchase Agreement), the Company shall not, directly
or indirectly, amend, modify, waive or alter any terms or
conditions of any Common Stock Equivalents outstanding as of the
date of the Purchase Agreement to decrease the exercise, conversion
and/or exchange price, as applicable, thereunder or otherwise
increase the aggregate number of shares of Common Stock issuable in
connection therewith (other than Common Stock Equivalents issued
and outstanding on the date of the Purchase Agreement that are
subject to exchange prices or conversion prices adjustable pursuant
to anti-dilution protection or in connection with stock splits or
combinations).
(3) During the period
commencing on the Original Issue Date through and including the
date that is the later of (i) twelve (12) months following the
Original Issue Date and (ii) the date that this Note is no longer
outstanding, the Company and each Subsidiary of the Company shall
be prohibited from effecting or entering into (or publicly
announcing or recommending to its shareholders the approval or
adoption thereof by such shareholders) any agreement, plan,
arrangement or transaction to effect, directly or indirectly, any
issuance by the Company or any of its Subsidiaries of Common Stock
or Common Stock Equivalents (or a combination of units thereof)
involving a Variable Rate Transaction, without the prior written
consent of the Holder (which consent may be withheld, delayed or
conditioned in the sole discretion of such Holder).
“Variable Rate
Transaction” means a transaction in which the Company
(i) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the
right to receive, additional shares of Common Stock either (A) at a
conversion price, exercise price or exchange rate or other price
that is based upon, and/or varies with, the trading prices of or
quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt
or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock or (ii) enters into,
or effects a transaction under, any agreement, including, but not
limited to, an equity line of credit, an at-the-market offering (as
defined in SEC Rule 415) or a similarly structured transaction,
whereby the Company may issue securities at a future determined
price.
(4) So long as this
Note remains outstanding, neither the Company nor any Subsidiary
shall, directly or indirectly, effect or enter into (or publicly
announce or recommend to its shareholders the approval or adoption
thereof by such shareholders) any agreement, plan, arrangement or
transaction structured in accordance with, based upon, or related
or pursuant to Section 3(a)(9) or Section 3(a)(l0) of the
Securities Act, without the prior written consent of the Holder
(which consent may be withheld, delayed or conditioned in the sole
discretion of such Holder).
(5) So long as this
Note remains outstanding, the Company and each of its Subsidiaries
shall be prohibited from, directly or indirectly, effecting or
entering into (or publicly announcing or recommending to its
shareholders the approval or adoption thereof by such shareholders)
any agreement, plan, arrangement or transaction, including, without
limitation, any Subsequent Financing, that would or would
reasonably be expected to restrict, delay, conflict with or impair
the ability or right of the Company and/or a Subsidiary to timely
perform its obligations under the Purchase Agreement, this Note,
the Warrants and/or the other Transaction Documents, including,
without limitation, the obligation of the Company to timely (i)
deliver shares of Common Stock to any Holder of the Notes (or a
designee thereof, if applicable) in accordance with the Purchase
Agreement or the Notes and/or (ii) repay in cash all outstanding
principal and other amounts outstanding under the Notes at maturity
or at any other times when payments are required to be made in cash
pursuant to the terms of the Notes whether pursuant to a redemption
and/or otherwise.
(6) The Holder shall be
entitled to obtain injunctive relief against the Company to
preclude any such issuance in this Section 6 (without the need for
the posting of any bond or similar item, which the Company hereby
expressly and irrevocably waives the requirement for), which remedy
shall be in addition to any right to collect damages.
i) Issuance Price. So long as this
Note remains outstanding, except with respect to any Exempt
Issuance pursuant to clauses (i), (ii), (iii) or (v) of thereof,
the Company shall not issue shares of Common Stock or Common Stock
Equivalents at a price lower than the Fixed Conversion Price (as
adjusted for stock splits, stock dividends, stock combinations,
recapitalizations or other similar transactions following the sale
of this Note) (subject to adjustment in accordance with
Section 5(a))
without the prior written consent of the Holder (which consent may
be withheld, delayed or conditioned in the sole discretion of such
Holder).
Section 6.
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 failure to pay
any amount of principal, interest, Make-Whole Amount, liquidated
damages or other amounts as and when the same shall become due and
payable under any of the Notes and/or any of the other Transaction
Documents (whether on a Conversion Date, Optional Redemption Date,
Event of Default Redemption Date, Mandatory Redemption Date, the
Maturity Date and/or any other date when any funds are due to be
redeemed, converted and/or otherwise paid to the Holder by the
Company and/or any Subsidiary, whether by acceleration or
otherwise), including, without limitation, any failure to pay any
redemption payments or amounts thereunder, or under any other
Transaction Document (as defined in the Purchase Agreement) or any
other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby
and thereby, except, in the case of a failure to pay interest and
Make-Whole Amounts when and as due, in which case only if such
failure is not cured within three (3) Trading Days and except any
failure to make an amortization payment on an Amortization
Redemption Payment Date, which failure shall only be deemed an
Event of Default if the Conversion Shares to be issued upon
conversion of this Note cannot be issued without a restrictive
legend;
ii. the Company and/or
any Subsidiary shall fail to observe, perform and/or breaches any
material covenant, provision, or agreement contained in any of the
Notes (other than payment failures set forth in Section 6(a)(i) above, a breach
by the Company of its obligations to deliver Conversion Shares to
the Holder upon conversion of this Note, which such certain breach
is addressed in Section
6(a)(ix) below and any other failure, breaches and/or other
events covered by another provision of this Section 6(a)); (ii) the
Warrants (a breach by the Company of its obligations to exercise
the Warrants, issue Common Stock, and any other failure, breaches
and/or other events covered by another provision of this
Section 6(a));
and/or (iii) any of the other Transaction Documents (except those
covered in any other provision if this Section 6(a)), which failure
is not cured, if possible to cure, within the earlier to occur of
(A) five (5) Trading Days after notice of such failure is sent by
the Holder or by any other Holder to the Company and (B) ten (10)
Trading Days after the Company has become or should have become
aware of such failure;
iii. a
default or event of default (subject to any grace or cure period
provided in the applicable agreement, document or instrument) shall
occur under (A) any of the Transaction Documents, or (B) any other
material agreement, lease, document or instrument to which the
Company or any Subsidiary is obligated (and not covered by clause
(vi) below;
iv. any material
representation or warranty made in any of the Notes, any other
Transaction Documents, any written statement pursuant hereto or
thereto, any other agreement, contract, lease, document or
instrument to which the Company or any Subsidiary is obligated
(including those covered by clause (vi) below), or any other
report, financial statement or certificate made or delivered to the
Holder or any other Holder shall be untrue or incorrect in any
material respect as of the date when made or deemed
made;
v. the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of
Regulation S-X) shall be subject to a Bankruptcy
Event;
vi. the Company or any
Subsidiary shall default on any of its obligations under any
mortgage, credit and/or loan 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. the
suspension from trading or quotation of the Common Stock, or the
failure of the Common Stock to be eligible for listing or quotation
on a Trading Market for a period of five (5) consecutive Trading
Days;
viii. the
Company shall fail for any reason to deliver certificates to a
Holder prior to the second (2nd) Trading Day after a Conversion
Date or any other date shares of Common Stock are required to be
delivered to the Holder pursuant to Section 4(c) or otherwise, or
the Company shall provide at any time notice to the Holder,
including by way of public announcement, of the Company’s
intention to not honor requests for conversions of this Note in
accordance with the terms hereof;
ix. the Company fails
to file with the Commission any required reports under Section 13
or 15(d) of the Exchange Act such that it is not in compliance with
Rule 144(c)(1) (or Rule 144(i)(2), if applicable), which failure is
not cured, if possible to cure, within two (2) Trading Days after
the expiration of the applicable grace period permitted under Rule
12b-25 of the Exchange Act, further provided that the Company files
a Form 12b-25 for such report;
x. the Company shall
fail to maintain the Reserve Amount and such failure is not cured
within five (5) Trading Days;
xi. any monetary
judgment, writ or similar final process shall be entered or filed
against the Company, any Subsidiary or any of their respective
property or other assets for more than $250,000, and such judgment,
writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) calendar
days;
xii. the
Company shall fail to obtain all necessary approvals of the issue
and sale of all shares of Common Stock issuable in connection with
the Note, the Warrants and/or Transaction Documents, including, but
not limited to, all Conversion Shares and Warrant Shares, and other
shares of Common Stock issuable as payment of principal, interest,
liquidation damages, Make-Whole Amounts and or otherwise,
consistent with the rules and regulations of the principal Trading
Market as of the Original Issuance Date;
xiii. any
Person shall breach any agreement delivered to the Holder pursuant
to Section 2.2 of the Purchase Agreement;
xiv. the
electronic transfer by the Company of shares of Common Stock
through the Depository Trust Company or another established
clearing corporation is no longer available or is subject to a
“chill”;
xv. any Change of
Control occurs other than in compliance with Section 5 of the Notes and the
Purchase Agreement;
xvi. the
Security Documents (as defined in the Security Agreement) shall for
any reason fail or cease to create a separate valid and perfected
and first priority Lien on the Collateral (as defined in the
Security Agreement) in favor of each of the Secured Parties (as
defined in the Security Agreement) and such breach remains uncured
for a period of three (3) Business Days;
xvii. any
material damage to, or loss, theft or destruction of, any
Collateral, whether or not insured, or any strike, lockout, labor
dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than fifteen (15) consecutive
days, the cessation or substantial curtailment of revenue producing
activities at any facility of the Company, if any such event or
circumstance could have a Material Adverse Effect.
xviii. the
Initial Registration Statement (as defined in the Registration
Rights Agreement) shall not (a) have been filed with the Commission
on or prior to the Filing Date (as defined in the Registration
Rights Agreement) or declared effective by the Effectiveness Date
(as defined in the Registration Rights Agreement), and (b) the
Company does not meet the current public information requirements
under Rule 144 in respect of the Registrable Securities (as defined
under the Registration Rights Agreement); or
xix. if,
during the Company shall at any time after the Effectiveness Date,
the Company shall fail to keep the Registration Statement
continuously effective under the Securities Act until the date when
all Registrable Securities covered by such Registration Statement
have been; or
xx. any violation
and/or breach of Section 4.10(d) of the Purchase
Agreement.
b) Remedies Upon Event of Default.
If an Event of Default occurs with respect to this Note, then, at
the Holder’s election, all or any portion of the outstanding
principal amount of this Note, plus accrued but unpaid interest
thereon, Make-Whole Amounts, liquidated damages and other amounts
owing in respect thereof through the Event of Default Redemption
Notice Date, shall accelerate and become immediately due and
payable in cash and shall be redeemed by the Company at a
redemption price equal to the Event of Default Redemption Amount on
the applicable Event of Default Redemption Date in accordance
herewith (the “Event
of Default Redemption”). After the occurrence of any
Event of Default that results in the eventual acceleration of this
Note, the interest rate on this Note shall accrue at the EOD
Interest Rate. Upon the occurrence of
an Event of Default with respect to this Note, the Company shall
within one (1) Business Day of becoming aware of such Event of
Default deliver written notice thereof via facsimile or electronic
mail and overnight courier (with next day delivery specified) (an
“Event of Default
Notice”) to the Holder.
At any time after the earlier of (i) the date of the Holder’s
receipt of an Event of Default Notice and (ii) the Holder becoming
aware of an Event of Default, (such earlier date, the
“Event of Default Right
Commencement Date”), and
each such period, an “Event of Default
Redemption Right Period”)
the Holder may require the Company to redeem (regardless of whether
such Event of Default has been cured) all or any portion of this
Note by delivering written notice thereof (the
“Event of Default
Redemption Notice”) to
the Company and the date such Event of Default Redemption Notice is
deemed delivered to the Company (the “Event of Default
Notice Date”), which
Event of Default Redemption Notice shall indicate the portion of
this Note the Holder is electing to redeem (i) the portion of this Note the Holder is
electing to redeem in such Event of Default Redemption and the
total Event of Default Redemption Amount to be paid by the Company
to the Holder in cash in such Event of Default Redemption pursuant
to this Section 6(b), (ii) the Event of Default Redemption Date the
Company is required to pay such Event of Default Redemption Amount
to the Holder in cash, and (iii) the allocation of such Event of
Default Redemption Amount between this Note and any other Notes
held by the Holder.
Notwithstanding
anything to the contrary provided herein or elsewhere, commencing
upon the date of an Event of Default, the then Fixed Conversion
Price, Amortization Conversion Rate and/or any other Conversion
price set forth herein shall automatically be adjusted to equal the
lower of (i) the applicable Conversion price then in effect (i.e.
the Fixed Conversion Price, the Amortization Conversion Price or
others), and (ii) 70% of the lowest VWAP during the ten (10) day
consecutive Trading Days ending on the Trading day immediately
prior to the relevant Conversion Date or any other conversion of
any amounts owed under this Note to the Holder including, but not
limited to, any conversion of the Event of Default Redemption
Amount (the “EOD
Conversion Rate. Any redemption upon an Event of Default
shall not constitute an election of remedies by the Holder; and all
other rights and remedies of the Holder shall be preserved. To the
extent redemptions required by this Section 6(b) are deemed or
determined by a court of competent jurisdiction to be prepayments
of this Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything to the contrary in
this Section 6, but
subject to Section
4(d) and Section
4(e), at any time prior to the date the Event of Default
Redemption Amount is paid in full, the Event of Default Redemption
Amount submitted for redemption under this Section 6(b) may be converted,
in whole or in part, by the Holder, at its option and in its sole
discretion, into Common Stock pursuant to and in accordance with
the conversion procedures set forth in Section 4 hereunder,
mutatis mutandis except
that the Conversion Rate shall be at the EOD Conversion Rate.
The Company covenants and agrees that
it will honor all Notices of Conversion tendered from the Event of
Default Redemption Notice Date through the date all amounts owing
thereon are due and paid in full. The portion of the Event
of Default Redemption Amount converted by the Holder after the
Event of Default Notice Date shall reduce the Event of Default
Redemption Amount of this Note required to be redeemed on the
Company Event of Default Redemption Date. In the event of the
Company’s redemption of any portion of this Note under this
Section 6(b), the
Holder’s damages would be uncertain and difficult to estimate
because of the parties’ inability to predict future interest
rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any
redemption premium due under this Section 6(b) is intended by the
parties to be, and shall be deemed, a reasonable estimate of the
Holder’s actual loss of its investment opportunity and not as
a penalty. Upon the payment in full of the Event of Default
Redemption Amount, the Holder shall promptly surrender this Note to
or as directed by the Company. In connection with such acceleration
described herein, the Holder need not provide, and the Company
hereby waives, any presentment, demand, protest or other notice of
any kind (other than the Holder’s election to declare such
acceleration), 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 of the Event of Default
Redemption Amount 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 of the Event of Default Redemption Amount
pursuant to this Section
6(b). No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent
thereon.
Section
7. Optional Redemption; Mandatory
Redemption.
a) Optional Redemption. Subject to
the provisions of this Section 7(a), at any time after
the Original Issuance Date, the Company shall have the right to
redeem all, or any part, of the then outstanding principal amount
of this Note, plus accrued but unpaid interest thereon, Make-Whole
Amount, liquidated damages and other amounts owing in respect
thereof through and including the Optional Redemption Date
for a cash redemption price equal
to the Optional Redemption Amount on the Optional Redemption Date (a
“Optional
Redemption”). The Company shall exercise its right
to require an Optional Redemption under this Section 7(a) by delivering a
written notice thereof by facsimile or electronic mail to all, but
not less than all, of the Holders of Notes (the “Optional Redemption
Notice” and the date the Holders of Note received such
notice is referred to as the “Optional Redemption Notice
Date”). The Company may deliver one or more Optional
Redemption Notices hereunder and each such Optional Redemption
Notice shall be irrevocable. Each such Optional Redemption Notice
shall (x) state the date on which the Optional Redemption shall
occur (the “Optional
Redemption Date”) which date shall not be less than
ten (10) calendar days nor more than fifteen (15) calendar days
following the Optional Redemption Notice Date, and (y) state the
aggregate amount of the Notes which are being redeemed in such
Optional Redemption from the Holder and all of the other Holders of
the Notes pursuant to this Section 7(a) and the total
Optional Redemption Amount to be paid by the Company to the Holder
in cash in such Optional Redemption pursuant to this Section 7(a). Notwithstanding
anything herein to the contrary, (i) an Event of Default occurs and
is continuing and/or with the passage of time and/or the giving of
notice or both could occur at any time prior to or on the Optional
Redemption Date, the Company shall provide the Holder a subsequent
notice to that effect, and, the Optional Redemption shall be
cancelled and the applicable Optional Redemption Notice shall be
null and void, and (ii) at any time prior to the date the Optional
Redemption Amount is paid in full, but subject to Section 4(d), the Optional
Redemption Amount may be converted, in whole or in part, by the
Holder, at its option and in its sole discretion, into Common Stock
pursuant to and in accordance with the conversion procedures set
forth in Section 4
hereunder, mutatis
mutandis. The portion of the Optional Redemption Amount
converted by the Holder after the Optional Redemption Notice Date
shall reduce the Optional Redemption Amount of this Note to be
redeemed on the Optional Redemption Date. The Company covenants and agrees that it will
honor all Notices of Conversion tendered from the time of delivery
of the Optional Redemption Notice through the date all amounts
owing thereon are due and paid in full. If the Company
elects to cause an Optional Redemption of this Note pursuant to
this Section 7(a),
then it must simultaneously take the same action with respect to
all of the other Notes. In the event of the Company’s
redemption of any portion of this Note under this Section 7(a), the
Holder’s damages would be uncertain and difficult to estimate
because of the parties’ inability to predict future interest
rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any
redemption premium due under this Section 7(a) is intended by the
parties to be, and shall be deemed, a reasonable estimate of the
Holder’s actual loss of its investment opportunity and not as
a penalty. For the avoidance of doubt, the Company shall have no
right to effect an Optional Redemption if any Event of Default has
occurred and is continuing, but any Event of Default shall have no
effect upon the Holder’s right to convert this Note in its
discretion.
b) Optional Redemption Procedure.
The Optional Redemption Amount is
payable in full in cash on the Optional Redemption Date. If
any portion of the payment pursuant to an Optional Redemption shall
not be paid by the Company by the applicable due date, interest
shall accrue thereon at an interest rate equal to the EOD Interest
Rate. Notwithstanding anything herein contained to the contrary, if
any portion of the Optional Redemption Amount remains unpaid after
such date, the Holder may elect, by written notice to the Company
given at any time thereafter, to invalidate such Optional
Redemption, ab initio, and,
with respect to the Company’s failure to honor the Optional
Redemption, the Company shall have no further right to exercise
such Optional Redemption.
c) Mandatory Redemption. If at any
time after the Original Issue Date, the Company closes a Subsequent
Financing, the Company shall redeem in cash from the Holder amounts
equal to the Mandatory Redemption Amount under this Note (each a
“Mandatory
Redemption”) in accordance with the Mandatory
Redemption Payment Amount and Order. The Company shall effectuate
such Mandatory Redemption by delivering written notice thereof (the
“Mandatory
Redemption Notice” and the date such Mandatory
Redemption Notice is deemed delivered hereunder, the
“Mandatory
Redemption Notice Date”) to the Holder. The Mandatory
Redemption Notice shall state (i) the gross proceeds received by
the Company in the Subsequent Financing, (ii) the Mandatory
Redemption Amount (including the calculations used in determining
the Mandatory Redemption Amount), (iii) a detailed breakdown of the
Mandatory Redemption Payment Amount and Order, and (iv) the date on
which the Company is required to pay such Mandatory Redemption
Amount to the Holder in cash (the “Mandatory Redemption
Date”), which date shall be no earlier than fifteen
(15) Business Days following the Mandatory Redemption Notice Date.
Notwithstanding anything herein to the contrary, at any time prior
to the date the Mandatory Redemption Amount is paid in full, but
subject to Section 4(d)
and Section 4(e), the Mandatory Redemption Amount may be
converted, in whole or in part, by the Holder, at its option and in
its sole discretion, into Common Stock pursuant to and in
accordance with the conversion procedures set forth in Section 4 hereunder,
mutatis mutandis. The
Company covenants and agrees that it will honor all Notices of
Conversion tendered from the date of delivery of the Mandatory
Redemption Exercise Notice through the date all amounts owing
thereon are due and paid in full, provided that any such Notice of
Conversion shall first apply to any portion of the Note that is not
subject to the Mandatory Redemption unless the Notice of Conversion
expressly states that it shall apply to a portion of the Note that
is subject to the Mandatory Redemption. The portion of the
Mandatory Redemption Amount converted by the Holder after the
Mandatory Redemption Notice Date shall reduce the amount of this
Note to be redeemed on the Mandatory Redemption Date. The Company covenants and agrees that it will
honor all Notices of Conversion tendered from the time of delivery
of the Mandatory Redemption Notice Date through the date all
amounts owing thereon are due and paid in full. The
Company’s payment of the Mandatory Redemption Proceeds shall
be applied ratably to all of the Holders of the then outstanding
Notes which exercise the right to require a Mandatory Redemption on
the basis of their (or their predecessor’s) initial purchases
of Notes pursuant to the Purchase Agreement. To the extent
redemptions required by this Section 7(c) are deemed or
determined by a court of competent jurisdiction to be prepayments
of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything in this
Section 7(c) to the
contrary, Mandatory Redemptions shall not apply to Exempt
Issuances.
d) Mandatory Redemption Procedure.
The payment of cash pursuant to a Mandatory Redemption shall be
payable in full on the Mandatory Redemption Date. If any portion of
the payment pursuant to a Mandatory Redemption shall not be paid by
the Company by the applicable due date, interest shall accrue
thereon at an interest rate equal to the EOD Interest Rate.
Notwithstanding anything to the contrary in this Section 6, in addition to, and
without limiting any other rights hereunder and under the other
Transaction Documents, the Holder may elect, by written notice to
the Company at any time following the Mandatory Redemption Notice
Date through the date of actual payment in full in cash of the
Mandatory Redemption Amount, to rescind such Mandatory
Redemption.
Section
8. Negative Covenants. As long as
any portion of this Note remains outstanding, unless the Holder
shall have otherwise given prior written consent (which consent may
be withheld, delayed or conditioned in the sole discretion of such
Holder), the Company 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, 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 (other than in
connection with any reverse stock split reasonably required in
order to satisfy any requirement for listing on a Trading
Market);
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
permitted or required under the Transaction Documents;
e) repay, repurchase
or offer to repay, repurchase or otherwise acquire any
indebtedness, other than the Permitted Indebtedness and the Notes
if on a pro-rata basis, other than regularly scheduled principal
and interest payments as such terms are in effect as of the
Original Issue Date, provided that such payments shall not be
permitted if, at such time, or after giving effect to such payment,
any Event of Default exist or occur;
f) pay cash dividends
or distributions on any equity securities of the Company and/or the
Subsidiaries;
g) other than
transactions and agreements with Ceed2Med, LLC and any of its
Affiliates, enter into any transaction with any Affiliate of the
Company which would be required to be disclosed in any public
filing with the Commission, unless such transaction is made on an
arm’s-length basis and expressly approved by a majority of
the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or
h) Enter into any
agreement with respect to the foregoing.
Section
9. Miscellaneous.
a) Notices. Any and all notices or
other communications or deliveries to be provided by the Holder
hereunder including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile or
e-mail, or sent by a nationally recognized overnight courier
service, addressed to the Company, at 80 NE 4th Avenue, Suite 28,
Delray Beach, Florida 33483, Attention: Chief Financial Officer, email
address: kpuzder@exactusinc.com
or an email address or address as the Company may specify for such
purposes by notice to the Holder delivered in accordance with this
Section 9(c), with
a copy, which shall not constitute notice, to Greenberg Traurig,
P.A., 5100 Town Center Circle, Suite 400,| Boca Raton, Florida
33486, email address: rosettob@gtlaw.com.
Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be delivered to the Holder
pursuant to the provisions of Section 5.4 of the Purchase
Agreement, or such other email address or address as the Holder may
specify for such purposes by notice to the Company delivered in
accordance with this Section 9(c). Any notice or
other communication or deliveries hereunder shall be deemed given
and effective on the earliest of (i) the time of transmission, if
such notice or communication is delivered via e-mail at the e-mail
address set forth in this Section prior to 5:30 p.m. (New York City
time) on any date, (ii) the next Trading Day after the time of
transmission, if such notice or communication is delivered via
e-mail at the e-mail address set forth in this Section on a day
that is not a Trading Day or later than 5:30 p.m. (New York City
time) on any Trading Day, (iii) the second Trading Day following
the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. To the extent that any
notice provided hereunder constitutes, or contains, material,
non-public information regarding the Company or any subsidiaries,
the Company shall within one (1) Trading Day file such notice with
the Commission pursuant to a Current Report on Form
8-K.
b) Absolute Obligation. Except as
expressly provided herein, no provision of this Note shall alter or
impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, liquidated damages and
accrued interest, as applicable, on this Note at the time, place,
and rate, and in the coin or currency, herein prescribed. This Note
is a direct debt obligation of the Company.
c) Lost or Mutilated Note. If this
Note shall be mutilated, lost, stolen or destroyed, the Company
shall execute and deliver, in exchange and substitution for and
upon cancellation of a mutilated Note, or in lieu of or in
substitution for a lost, stolen or destroyed Note, a new Note for
the principal amount of this Note so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft or
destruction of such Note, and of the ownership hereof, reasonably
satisfactory to the Company.
d) Governing Law. The parties
hereto expressly and irrevocably agree that 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 this Note (whether brought against a
party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively
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 with regard to this Note, 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.
e) Waiver. Any waiver by the
Company or the Holder of a breach of any provision of this Note
shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Note on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any
other term of this Note on any other occasion. Any waiver by the
Company or the Holder must be in writing.
f) Amendments. The prior written
consent of a Holder having 50.1% in interest of the aggregate
principal amount of all Notes outstanding at any given time in
question, which shall be calculated based on the principal amount
of all Notes outstanding at the time of such consent, shall be
required for any change, wavier or amendment to the Notes. Any
change, waiver or amendment so approved shall be binding upon all
existing and future holders of this Note and any other Notes;
provided, however, that no such change, waiver or, as applied to
any of the Notes held by any particular holder of Notes, shall,
without the written consent of that particular holder, (i) reduce
the amount of Principal, reduce the amount of accrued and unpaid
Interest, or extend the Maturity Date, of the Notes, (ii)
disproportionally and adversely affect any rights under the Notes
of any holder of Notes; or (iii) modify any of the provisions of,
or impair the right of any holder of Notes under, this Section
9(f).
g) Severability. If any provision
of this Note is invalid, illegal or unenforceable, the balance of
this Note shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it
shall be found that any interest or other amount deemed interest
due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under
applicable law. The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of
the principal of or interest on this Note as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which
may affect the covenants or the performance of this Note, and the
Company (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no
such law has been enacted.
h) Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief. The remedies provided in
this Note shall be cumulative and in addition to all other remedies
available under this Note and any of the other Transaction
Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein
shall limit the Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with
the terms of this Note. The Company covenants to the Holder that
there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided
for herein with respect to payments, conversion and the like (and
the computation thereof) shall be the amounts to be received by the
Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or
threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any such
breach or any such threatened breach, without the necessity of
showing economic loss and without any bond or other security being
required. The Company shall provide all information and
documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with
the terms and conditions of this Note.
i) 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.
j) Payment of Collection, Enforcement and
Other Costs. If (i) this Note is placed in the hands of an
attorney for collection or enforcement or is collected or enforced
through any legal proceeding or the Holder otherwise takes action
to collect amounts due under this Note or to enforce the provisions
of this Note, or (ii) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company
creditors’ rights and involving a claim under this Note, then
the Company shall pay the reasonable and documented out-of-pocket
costs incurred by the Holder for such collection, enforcement or
action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to,
attorneys’ fees and disbursements.
k) 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.
l) Secured Obligations. The
obligations of the Company under this Note are secured by all of
the assets of the Company and each of its Subsidiaries pursuant to
the Security Agreement and the Intellectual Property Security
Agreement.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the Company has
caused this Note to be duly executed by a duly authorized officer
as of the date first above indicated.
EXACTUS,
INC., a Nevada
corporation
By: /s/ Emiliano
Aloi
Name:
Emiliano Aloi
Title:
President & CEO
[Signature Page to Exactus, Inc. 8% Senior Secured Convertible
Promissory Note]
-27-
ANNEX A
NOTICE OF CONVERSION
The
undersigned hereby elects to convert principal under the 8% Senior
Secured Convertible Promissory Note, due November 27, 2019 of
Exactus, Inc., a Nevada corporation (the “Company”), into shares of
common stock of the Company (the “Common Stock”), according
to the conditions hereof, as of the date written below. If shares
of Common Stock are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any.
By the
delivery of this Notice of Conversion, the undersigned represents
and warrants to the Company that its ownership of the Common Stock
does not exceed the amounts specified under Section 4 of this Note, as
determined in accordance with Section 13(d) of the Exchange
Act.
The
undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection
with any transfer of the aforesaid shares of Common
Stock.
Conversion calculations:
Date
to Effect Conversion: __________________
Please
confirm the following information:
Conversion
Price: ______________
Please
check the following box if the Conversion Price is determined
by:
EOD
Conversion Price
Principal
Amount of Note to be Converted: ____________
Payment
of Interest in Common Stock __ Yes __ No
If
Yes, $_____ of Interest Accrued on Account of Conversion at
Issue.
If
Yes, $_____ of Make-Whole Amount on Account of Conversion at
Issue
Number
of Shares of Common Stock to be Issued:
Name:
Delivery Instructions:
ANNEX B
AMORTIZATION SCHEDULE
|
Amortization Schedule - Note 1
|
|
|
|
|
Amortization Redemption
|
|
|
|
Day
|
Principal
|
Interest
|
Payment Amount
|
Outstanding Principal
|
Outstanding Interest
|
|
0
|
|
|
$ -
|
$ 833,333.33
|
$ 66,666.67
|
|
30
|
|
$ 5,555.56
|
$ 5,555.56
|
$ 833,333.33
|
$ 61,111.11
|
|
60
|
|
$ 5,555.56
|
$ 5,555.56
|
$ 833,333.33
|
$ 55,555.56
|
|
90
|
$ 92,592.59
|
$ 7,407.41
|
$ 110,000.00
|
$ 740,740.74
|
$ 48,148.15
|
|
120
|
$ 92,592.59
|
$ 7,407.41
|
$ 110,000.00
|
$ 648,148.15
|
$ 40,740.74
|
|
150
|
$ 92,592.59
|
$ 7,407.41
|
$110,000.00
|
$ 555,555.55
|
$ 33,333.33
|
|
180
|
$ 92,592.59
|
$ 7,407.41
|
$ 110,000.00
|
$ 462,962.96
|
$ 25,925.93
|
|
210
|
$ 92,592.59
|
$ 7,407.41
|
$ 110,000.00
|
$ 370,370.37
|
$ 18,518.52
|
|
240
|
$ 92,592.59
|
$ 7,407.41
|
$ 110,000.00
|
$ 277,777.78
|
$ 11,111.11
|
|
270
|
$ 92,592.59
|
$ 7,407.41
|
$ 110,000.00
|
$ 185,185.18
|
$ 3,703.70
|
|
300
|
$ 92,592.59
|
$ 3,703.70
|
$105,925.93
|
$ 92,592.59
|
$ -
|
|
330
|
$ 92,592.59
|
$ -
|
$ 101,851.85
|
$ (0.00)
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 1
CONVERSION SCHEDULE
This 8% Senior Secured Convertible Promissory Note, due November
26, 2020, in the original principal amount of $8333,333.33 is
issued by Exactus, Inc., a Nevada corporation. This Conversion
Schedule reflects conversions made under Section 4 of the above
referenced Note.
Dated:
|
Date of Conversion (or for first entry,Original Issue
Date)
|
Amount of Conversion
|
AggregatePrincipalAmountRemainingSubsequent toConversion(or
originalPrincipalAmount)
|
Company Attest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 2
PERMITTED INDEBTEDNESS AND LIENS
“Permitted Indebtedness” means any
Indebtedness.
“Permitted Liens” means any Liens arising with respect
to Permitted Indebtedness.
Exhibit 10.3
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.
COMMON STOCK PURCHASE WARRANT
EXACTUS, INC.
Warrant Shares:
275,612
Issuance Date:
November 27, 2019
This
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that,
for value received, 3i, LP or its assigns (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after November
27, 2019 (the “Issuance Date”) and on or
prior to the close of business on the second (2nd) year anniversary
of the Issuance Date (the “Termination Date”) but
not thereafter, to subscribe for and purchase from Exactus, Inc., a
Nevada corporation (the “Company”), up to 275,612
shares (as subject to adjustment hereunder, the “Warrant Shares”) of
common stock, par value $0.0001 per share, of the Company (the
“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.
In addition to the terms defined elsewhere in this Warrant, the
following terms have the meanings set forth in this Section
1:
a) “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.
b) “Business Day” means any
day other than a Saturday or Sunday or any other day on which the
Federal Reserve Bank of New York is not open for
business.
c) “Commission” means the
United States Securities and Exchange Commission.
d) “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, unit 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.
e) “Conversion Shares” means,
collectively, the shares of Common Stock issuable upon Conversion
of the Notes in accordance with the terms of this
Notes.
f) “Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
g) “Exempt
Issuance” means
the issuance of (i) Common Stock by the Company pursuant to the
terms and conditions of the Purchase Agreement, (ii) the issuance
of (a) Conversion Shares upon conversion of the Notes or any other
Notes issued under the Purchase Agreement in accordance with the
terms of such Notes, which for the avoidance of doubt, includes any
adjustment to the conversion price prior to conversion hereof or
thereof, and (b) Warrant Shares upon exercise of the Warrants in
accordance with the terms of the Warrants, which for the avoidance
of doubt, includes any adjustment to the Exercise Price prior to
exercise thereof, (iii) the issue of shares of Common Stock or
options to employees, officers, directors, consultants, advisors or
contractors of the Company pursuant to any stock or option plan
duly adopted for any such purpose, by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, provided, in no event shall the
aggregate amount of such issuances to employees, officers,
directors, consultants, advisors or contractors of the Company
during the period commencing on the date of the Purchase Agreement
and ending on the date no Warrants are outstanding exceed fifteen
percent (15%) of the outstanding shares of Common Stock (as
adjusted for stock splits, stock dividends, stock combinations,
recapitalizations or other similar transactions following the
Issuance Date), (iv) securities issued as part of the purchase
price for strategic acquisitions, which in no event shall include
any issuances of securities that directly and/or indirectly will be
used to raise capital of all such strategic acquisitions, which
must have been approved by a majority of the disinterested
directors of the Company, and (v) the issuance of Common Stock upon
the exercise or exchange of or conversion of any Common Stock
Equivalents issued and outstanding on the date of the Purchase
Agreement pursuant to terms and conditions applicable to such
Common Stock Equivalents in effect as of the date of the Purchase
Agreement and disclosed in filings of the Company with the
Commission prior to the date of the Purchase Agreement,
provided that such
Common Stock Equivalents have not been amended since the date of
the Purchase Agreement to increase the number of such Common Stock
Equivalents or shares of Common Stock issuable upon the exercise or
exchange of or conversion of such Common Stock Equivalents, or to
decrease the Exercise Price, exchange price or conversion price of
such Common Stock Equivalents (other than Common Stock Equivalents
issued and outstanding on the date of the Purchase Agreement,
subject to exchange prices or conversion prices adjustable pursuant
to anti-dilution protection or in connection with stock splits or
combinations) or to extend the term of such Common Stock
Equivalents.
h) “Notes” means the 8%
Senior Secured Convertible Promissory Notes of the Company offered
by the Company pursuant to the Purchase Agreement.
i) “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.
j) “Purchase Agreement” means
that certain Securities Purchase Agreement, dated November 27,
2019, between the Company and the Holder.
k) “Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
l) “Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
m) “Transfer
Agent” means V Stock
Transfer, the current transfer agent of the Company, with a mailing
address of 18 Lafayette Place, Woodmere, New York 11598 and a phone
number of (212) 828-8436, attention: Yoel Goldfeder, and any
successor transfer agent of the Company.
Section
2. Exercise.
a) Exercise
of Warrant. 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 Issuance 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 and within two (2) Business Days of
the date said Notice of Exercise is delivered to the Company, the
Company shall have received payment of the aggregate Exercise Price
of the shares of Common Stock thereby purchased by wire transfer or
cashier’s check drawn on a United States bank . No ink-original Notice of Exercise
shall be required, nor shall any medallion guarantee (or other type
of guarantee or notarization) of any Notice of Exercise form be
required. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant
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) Business Day of receipt 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.
b) Exercise Price. The exercise
price per share of the Common Stock under this Warrant shall be
$0.756, subject to adjustment hereunder (the “Exercise
Price”).
c) Cashless
Exercise. Notwithstanding
anything contained herein to the contrary, if at any point after
the 180 day anniversary of the issuance of this Warrant a
Registration Statement on Form S-1 (or other applicable
registration statement under the 1933 Act (the
“Registration
Statement”) covering the
resale of the Warrant Shares is not available for the issuance of
such Warrant Shares, the Holder may, in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Exercise Price, elect instead
to exercise this Warrant by means of a cashless exercise (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) as
applicable: (i) the VWAP on the Trading Day immediately preceding
the date of the applicable Notice of Exercise if such Notice of
Exercise is (1) both executed and delivered pursuant to Section
1(a) hereof on a day that is not a Trading Day or (2) both executed
and delivered pursuant to Section 1(a) hereof on a Trading Day
prior to the opening of “regular trading hours” (as
defined in Rule 600(b)(64) of Regulation NMS promulgated under the
federal securities laws) on such Trading Day, (ii) the Bid Price of
the Common Shares on the principal Trading Market as reported by
Bloomberg L.P. as of the time of the Holder’s execution of
the applicable Notice of Exercise if such Notice of Exercise is
executed during “regular trading hours” on a Trading
Day and is delivered within two (2) hours thereafter pursuant to
Section 1(a) hereof or (iii) the VWAP on the date of the applicable
Notice of Exercise if the date of such Notice of Exercise is a
Trading Day and such Notice of Exercise is both executed and
delivered pursuant to Section 1(a) hereof after the close of
“regular trading hours” on such Trading
Day;
(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.
d) Mechanics
of Exercise.
i. Delivery of Warrant Shares Upon
Exercise. Warrant 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) the shares are eligible for resale by the Holder without volume
or manner-of-sale limitations pursuant to Rule 144, and otherwise
Warrant Shares purchased hereunder shall be transmitted by physical
delivery to the address specified by the Holder in the Notice of
Exercise by the date that is two (2) Business Days after the latest
of (A) the delivery to the Company of the Notice of Exercise and
(B) surrender of this Warrant (if required) (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,
which Exercise Price shall be paid in either lawful U.S. currency
or by contributing Notes that have been duly and validly issued by
the Company, 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 Warrant Shares shall bear a
restrictive legend in the following form, as
appropriate:
“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”
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 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 the Warrant Shares pursuant to Section
2(d)(i) by the Warrant Share Delivery Date, then the Holder will
have the right to rescind such exercise.
iv. Compensation for Buy-In on Failure to
Timely Deliver Warrant Shares 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 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 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 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 Warrant Shares, all of which taxes and
expenses shall be paid by the Company, and such Warrant Shares
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 that
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.
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.
e) 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
(such Persons, “Attribution
Parties”)), would
beneficially own in excess of the Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the
Holder and its Affiliates and Attribution Parties shall include the
number of shares of Common Stock issuable upon 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 or Attribution Parties 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 or Attribution
Parties. 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 Attribution Parties) 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 Attribution Parties) 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 or
Attribution Parties since the date as of which such number of
outstanding shares of Common Stock was reported. The
“Beneficial Ownership
Limitation” shall be
4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant. The Holder, upon
notice to the Company, may increase or decrease 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 increase in the
Beneficial Ownership Limitation will not be effective until the
61st
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),
(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) Intentionally
Omitted
c) Pro Rata Distributions. During
such time as this Warrant is outstanding, if the Company shall
declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common
Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or
other similar transaction) (a “Distribution”), at any
time after the issuance of this Warrant, 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 Warrant (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;
provided, further, that to the extent that this Warrant has not
been partially or completely exercised at the time of such
Distribution, such portion of the Distribution shall be held in
abeyance for the benefit of the Holder until the Holder has
exercised this Warrant).
d) 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 fifty percent (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, 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. 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.
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 (as defined in the Purchase Agreement) 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 (as defined in the Purchase Agreement)
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 (as defined
in the Purchase Agreement) with the same effect as if such
Successor Entity had been named as the Company herein.
e) 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.
f) 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 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 or
(E) the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to
holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash,
stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement,
scheme of arrangement or other similar transaction), then, in each
case, the Company shall cause to be mailed to the Holder at its
last address as it shall appear upon the Warrant Register of the
Company, at least ten (10) Business Days prior to the applicable
record or effective date hereinafter specified, a notice stating
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;
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. 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 conditions
set forth in Section 4(d) hereof, this Warrant and all rights
hereunder 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. Notwithstanding anything
herein to the contrary, the Holder shall not be required to
physically surrender this Warrant to the Company unless the Holder
has assigned this Warrant in full, in which case, the Holder shall
surrender this Warrant to the Company within three (3) Business
Days of the date the Holder delivers an assignment form to the
Company assigning this Warrant full. 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 Issuance Date 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.
d) Transfer Restrictions. If, at
the time of the surrender of this Warrant in connection with any
transfer of this Warrant, the transfer of this Warrant shall not be
either (i) registered pursuant to an effective registration statement under the
Securities Act and under applicable state securities or blue sky
laws or (ii) eligible for resale without volume or manner-of-sale
restrictions or current public information requirements pursuant to
Rule 144, the Company may require, as a condition of allowing such
transfer, that the Holder or transferee of this Warrant, as the
case may be, comply with the provisions of Section
5(k).
a) Representation by the Holder.
The Holder, by the acceptance hereof, represents and warrants as of
the date hereof, and through the Termination Date, as
follows:
i. Organization;
Authority. The Holder 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 this Warrant.
ii. Own
Account. The Holder
understands that the securities are “restricted
securities” and is acquiring such securities 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
the Holder’s right to sell the securities in compliance with
applicable federal and state securities laws). Holder understands
that any transfer of the securities will be made only in compliance
with the Securities Act and applicable state securities laws. The
Holder is acquiring the securities hereunder in the ordinary course
of its business.
iii. Holder
Status. At the time the
Holder was offered the Warrants, it was, and as of the date hereof
it is, and on each date on which it exercises the Warrants it will
be, an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act.
iv. Experience
of the Holder. The Holder, 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 described herein, and has
so evaluated the merits and risks of such investment. The
Holder acknowledges that it must bear the economic risk of an
investment in the securities for an indefinite period of time
because, among other things, the securities have not been
registered under the Securities Act, and, therefore, cannot be
sold, transferred, pledged, or otherwise disposed of unless they
are subsequently registered under the Securities Act and the
applicable state securities laws or the Holder delivers an opinion
of counsel to the Company (in reasonably acceptable form and
substance to the Company) that an exemption from such registration
is available.
v. General
Solicitation. The Holder is not
purchasing the securities as a result of any advertisement,
article, notice or other communication regarding the securities
published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
vi. Access
to Information. In order to
adequately evaluate the merits and risks of an investment in the
Company, the Holder has had an opportunity to (i) ask questions and
receive answers from the Company and its representatives concerning
the Company and the Holder’s investment therein, and (ii)
obtain any additional information which the Holder has requested
with respect to the Company and the Holder’s investment
therein.
vii. No
Government Approval. The Holder
understands that no federal or state governmental agency has passed
upon or will pass upon the securities or has made or will make any
finding or determination as to the fairness of investment in the
securities.
viii. Agreement.
The Holder has been furnished and has read, understands and is
fully familiar with, this Warrant and the Transaction Documents (as
defined in the Purchase Agreement), which will govern the
securities.
Section
5. Miscellaneous.
a) 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), except as expressly set forth in Section 3.
b) 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.
c) 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.
d) 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 issuing the necessary 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 any 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
nonassessable 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, 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.
e) 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.
f) Restrictions. The Holder
acknowledges that the Warrant Shares acquired upon the exercise of
this Warrant, if not registered, will have restrictions upon resale
imposed by state and federal securities laws.
g) Nonwaiver 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, notwithstanding the fact that all rights hereunder
terminate on the Termination Date. 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.
h) 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.
i) 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.
j) 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.
k) 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 such
Holder.
l) Amendment. No provision of this
Warrant may be waived, modified, supplemented or amended except in
a written instrument signed, in the case of an amendment, by the
Company and the holders of warrants issued under the Purchase
Agreement holding at least 51% in interest of such warrants then
outstanding or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought; provided,
however, that no such waiver,
modification, supplement or amendment, as applied to any provision
of this Warrant held by any particular holder of the Warrants,
shall, without the written consent of that particular holder (i)
reduce the number of Warrant Shares issuable upon exercise
of this Warrant, (ii) increase
in the Exercise Price under this Warrant, or (iii) disproportionally and adversely affect
any rights under this Warrant of any holder of the Warrants.
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.
m) 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.
n) 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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EXACTUS, INC.
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By:
/s/ Emiliano
Aloi
Name:
Emiliano Aloi
Title:
President & CEO
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NOTICE OF EXERCISE
(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 said
Warrant Shares in the name of the undersigned or in such other name
as is specified below:
_______________________________
The
Warrant Shares shall be delivered to the following DWAC account
number:
_______________________________
_______________________________
_______________________________
(4)
Accredited
Investor. The undersigned is an “accredited
investor” as defined in Regulation D promulgated under the
Securities Act of 1933, as amended.
[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 purchase
shares.)
FOR
VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
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Name:
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(Please
Print)
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Address:
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(Please
Print)
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Dated:
_______________ __, ______
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Holder’s
Signature:
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Holder’s
Address:
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Exhibit 10.4
SUBSIDIARY GUARANTEE
SUBSIDIARY
GUARANTEE, dated as of November 27, 2019 (this “Guarantee”), made by each
of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, the “Guarantors”), in favor of
the purchasers signatory (together with their permitted assigns,
the “Purchasers”) to that
certain Securities Purchase Agreement, dated as of the date hereof
(the “Purchase
Agreement”), between Exactus, Inc., a Nevada
corporation (the “Company”) and the
Purchasers.
W I T N E S S E T H:
WHEREAS, pursuant
to the Purchase Agreement, the Company has agreed to sell and issue
to the Purchasers, and the Purchasers have agreed to purchase from
the Company the Senior Secured Convertible Note and Warrants,
subject to the terms and conditions set forth therein;
WHEREAS, each
Guarantor will directly benefit from the extension of credit to the
Company represented by the issuance of the Senior Secured
Convertible Note and Warrants; and
NOW,
THEREFORE, in consideration of the premises and to induce the
Purchasers to enter into the Purchase Agreement and to carry out
the transactions contemplated thereby, each Guarantor hereby agrees
with the Purchasers as follows:
1. Definitions.
Unless otherwise defined herein, terms defined in the Purchase
Agreement and used herein shall have the meanings given to them in
the Purchase Agreement. The words “hereof,”
“herein,” “hereto” and
“hereunder” and words of similar import when used in
this Guarantee shall refer to this Guarantee as a whole and not to
any particular provision of this Guarantee, and Section and
Schedule references are to this Guarantee unless otherwise
specified. The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such
terms. The following terms shall have the following
meanings:
“Guarantee” means this
Subsidiary Guarantee, as the same may be amended, supplemented or
otherwise modified from time to time.
“Obligations” means, in
addition to all other costs and expenses of collection incurred by
Purchasers in enforcing any of such Obligations and/or this
Guarantee, all of the liabilities and obligations (primary,
secondary, direct, contingent, sole, joint or several) due or to
become due, or that are now or may be hereafter contracted or
acquired, or owing to, of the Company or any Guarantor to the
Purchasers, including, without limitation, all obligations under
this Guarantee, the Senior Secured Convertible Note and any other
instruments, agreements or other documents executed and/or
delivered in connection herewith or therewith, in each case,
whether now or hereafter existing, voluntary or involuntary, direct
or indirect, absolute or contingent, liquidated or unliquidated,
whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such
payment is avoided or recovered directly or indirectly from any of
the Purchasers as a preference, fraudulent transfer or otherwise as
such obligations may be amended, supplemented, converted, extended
or modified from time to time. Without limiting the generality of
the foregoing, the term “Obligations” shall include,
without limitation: (i) principal of, and interest on the Senior
Secured Convertible Note and the loans extended pursuant thereto;
(ii) any and all other fees, indemnities, costs, obligations and
liabilities of the Company or any Guarantor from time to time under
or in connection with this Guarantee, the Senior Secured
Convertible Note and any other instruments, agreements or other
documents executed and/or delivered in connection herewith or
therewith; and (iii) all amounts (including but not limited to
post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts
are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the
Company or any Guarantor.
2. Guarantee.
(a) Guarantee.
(i) The
Guarantors hereby, jointly and severally, unconditionally and
irrevocably, guarantee to the Purchasers and their respective
successors, endorsees, transferees and assigns, the prompt and
complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the
Obligations.
(ii) Anything
herein or in any other Transaction Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder
and under the other Transaction Documents shall in no event exceed
the amount which can be guaranteed by such Guarantor under
applicable federal and state laws, including laws relating to the
insolvency of debtors, fraudulent conveyance or transfer or laws
affecting the rights of creditors generally (after giving effect to
the right of contribution established in Section
2(b)).
(iii) Each
Guarantor agrees that the Obligations may at any time and from time
to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section
2 or affecting the rights and remedies of the Purchasers
hereunder.
(iv) The
guarantee contained in this Section 2 shall remain in full force
and effect until all the Obligations and the obligations of each
Guarantor under the guarantee contained in this Section 2 shall
have been satisfied by indefeasible payment in full.
(v) No
payment made by the Company, any of the Guarantors, any other
guarantor or any other Person or received or collected by the
Purchasers from the Company, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding
or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall
be deemed to modify, reduce, release or otherwise affect the
liability of any Guarantor hereunder which shall, notwithstanding
any such payment (other than any payment made by such Guarantor in
respect of the Obligations or any payment received or collected
from such Guarantor in respect of the Obligations), remain liable
for the Obligations up to the maximum liability of such Guarantor
hereunder until the Obligations are indefeasibly paid in
full.
(vi) Notwithstanding
anything to the contrary in this Guarantee, with respect to any
defaulted non-monetary Obligations the specific performance of
which by the Guarantors is not reasonably possible (e.g. the
issuance of the Company’s Common Stock), the Guarantors shall
only be liable for making the Purchasers whole on a monetary basis
for the Company’s failure to perform such Obligations in
accordance with the Transaction Documents.
(b) Right
of Contribution. Subject to Section 2(c), each Guarantor
hereby agrees that to the extent that a Guarantor shall have paid
more than its proportionate share of any payment made hereunder,
such Guarantor shall be entitled to seek and receive contribution
from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor’s
right of contribution shall be subject to the terms and conditions
of Section 2(c). The provisions of this Section 2(b) shall in no
respect limit the obligations and liabilities of any Guarantor to
the Purchasers and each Guarantor shall remain liable to the
Purchasers for the full amount guaranteed by such Guarantor
hereunder.
(c) No
Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any
Guarantor by the Purchasers, no Guarantor shall be entitled to be
subrogated to any of the rights of the Purchasers against the
Company or any other Guarantor or any collateral security or
guarantee or right of offset held by the Purchasers for the payment
of the Obligations, nor shall any Guarantor seek or be entitled to
seek any contribution or reimbursement from the Company or any
other Guarantor in respect of payments made by such Guarantor
hereunder, until all amounts owing to the Purchasers by the Company
on account of the Obligations are indefeasibly paid in full. If any
amount shall be paid to any Guarantor on account of such
subrogation rights at any time when all of the Obligations shall
not have been paid in full, such amount shall be held by such
Guarantor in trust for the Purchasers, segregated from other funds
of such Guarantor, and shall, forthwith upon receipt by such
Guarantor, be turned over to the Purchasers in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the
Purchasers, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Purchasers may
determine.
(d) Amendments,
Etc. With Respect to the Obligations. Each Guarantor shall
remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to
or further assent by any Guarantor, any demand for payment of any
of the Obligations made by the Purchasers may be rescinded by the
Purchasers and any of the Obligations continued, and the
Obligations, or the liability of any other Person upon or for any
part thereof, or any collateral security or guarantee therefor or
right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the
Purchasers, and the Purchase Agreement and the other Transaction
Documents and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Purchasers may deem
advisable from time to time, and any collateral security, guarantee
or right of offset at any time held by the Purchasers for the
payment of the Obligations may be sold, exchanged, waived,
surrendered or released. The Purchasers shall have no obligation to
protect, secure, perfect or insure any Lien at any time held by
them as security for the Obligations or for the guarantee contained
in this Section 2 or any property subject thereto.
(e) Guarantee
Absolute and Unconditional. Each Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of
the Obligations and notice of or proof of reliance by the
Purchasers upon the guarantee contained in this Section 2 or
acceptance of the guarantee contained in this Section 2; the
Obligations, and any of them, shall conclusively be deemed to have
been created, contracted or incurred, or renewed, extended, amended
or waived, in reliance upon the guarantee contained in this Section
2; and all dealings between the Company and any of the Guarantors,
on the one hand, and the Purchasers, on the other hand, likewise
shall be conclusively presumed to have been had or consummated in
reliance upon the guarantee contained in this Section 2. Each
Guarantor waives to the extent permitted by law diligence,
presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Company or any of the Guarantors with
respect to the Obligations. Each Guarantor understands and agrees
that the guarantee contained in this Section 2 shall be construed
as a continuing, absolute and unconditional guarantee of payment
and performance without regard to (a) the validity or
enforceability of the Purchase Agreement or any other Transaction
Document, any of the Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at
any time or from time to time held by the Purchasers, (b) any
defense, set-off or counterclaim (other than a defense of payment
or performance or fraud by Purchasers) which may at any time be
available to or be asserted by the Company or any other Person
against the Purchasers, or (c) any other circumstance whatsoever
(with or without notice to or knowledge of the Company or such
Guarantor) which constitutes, or might be construed to constitute,
an equitable or legal discharge of the Company for the Obligations,
or of such Guarantor under the guarantee contained in this Section
2, in bankruptcy or in any other instance. When making any demand
hereunder or otherwise pursuing its rights and remedies hereunder
against any Guarantor, the Purchasers may, but shall be under no
obligation to, make a similar demand on or otherwise pursue such
rights and remedies as they may have against the Company, any other
Guarantor or any other Person or against any collateral security or
guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Purchasers to make any such demand,
to pursue such other rights or remedies or to collect any payments
from the Company, any other Guarantor or any other Person or to
realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Company,
any other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve any
Guarantor of any obligation or liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied
or available as a matter of law, of the Purchasers against any
Guarantor. For the purposes hereof, “demand” shall
include the commencement and continuance of any legal
proceedings.
(f) Reinstatement.
The guarantee contained in this Section 2 shall continue to be
effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Obligations is
rescinded or must otherwise be restored or returned by the
Purchasers upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Company or any Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, the Company or
any Guarantor or any substantial part of its property, or
otherwise, all as though such payments had not been
made.
(g) Payments.
Each Guarantor hereby guarantees that payments hereunder will be
paid to the Purchasers without set-off or counterclaim in U.S.
dollars at the address set forth or referred to in the Signature
Pages to the Purchase Agreement.
3. Representations
and Warranties. Each Guarantor hereby makes the following
representations and warranties to Purchasers as of the date
hereof:
(a) Organization
and Qualification. The Guarantor is a corporation or a
limited liability company, duly incorporated or formed, validly
existing and in good standing under the laws of the applicable
jurisdiction set forth on Schedule 1, with the requisite corporate
or limited liability company power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. The Guarantor has no subsidiaries other than those
identified as such on the Disclosure Schedules to the Purchase
Agreement. The Guarantor is duly qualified to do business and is in
good standing as a foreign corporation or limited liability company
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, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of any of
this Guaranty in any material respect, (y) have a material adverse
effect on the results of operations, assets, prospects, or
financial condition of the Guarantor or (z) adversely impair in any
material respect the Guarantor’s ability to perform fully on
a timely basis its obligations under this Guaranty (a
“Material Adverse
Effect”).
(b) Authorization;
Enforcement. The Guarantor has the requisite corporate or
limited liability company power and authority to enter into and to
consummate the transactions contemplated by this Guaranty, and
otherwise to carry out its obligations hereunder. The execution and
delivery of this Guaranty by the Guarantor and the consummation by
it of the transactions contemplated hereby have been duly
authorized by all requisite corporate or limited liability company
action on the part of the Guarantor. This Guaranty has been duly
executed and delivered by the Guarantor and constitutes the valid
and binding obligation of the Guarantor enforceable against the
Guarantor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally the enforcement of, creditors’
rights and remedies or by other equitable principles of general
application.
(c) No
Conflicts. The execution, delivery and performance of this
Guaranty by the Guarantor and the consummation by the Guarantor of
the transactions contemplated thereby do not and will not (i)
conflict with or violate any provision of its Certificate of
Incorporation or organizational document or By-laws or (ii)
conflict with, constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which
the Guarantor is a party, or (iii) 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
Guarantor is subject (including Federal and State securities laws
and regulations), or by which any material property or asset of the
Guarantor is bound or affected, except in the case of each of
clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as could
not, individually or in the aggregate, have or result in a Material
Adverse Effect. The business of the Guarantor is not being
conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually
or in the aggregate, do not have a Material Adverse
Effect.
(d) Consents
and Approvals. The Guarantor is not required to obtain any
consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local,
foreign or other governmental authority or other person in
connection with the execution, delivery and performance by the
Guarantor of this Guaranty.
(e) Purchase
Agreement. The representations and warranties of the Company
set forth in the Purchase Agreement as they relate to such
Guarantor, each of which is hereby incorporated herein by
reference, are true and correct as of each time such
representations are deemed to be made pursuant to such Purchase
Agreement, and the Purchasers shall be entitled to rely on each of
them as if they were fully set forth herein, provided that each
reference in each such representation and warranty to the
Company’s knowledge shall, for the purposes of this Section
3, be deemed to be a reference to such Guarantor’s
knowledge.
(f) Foreign
Law. Each Guarantor has consulted with appropriate foreign
legal counsel with respect to any of the above representations for
which non-U.S. law is applicable. Such foreign counsel have advised
each applicable Guarantor that such counsel knows of no reason why
any of the above representations would not be true and accurate.
Such foreign counsel were provided with copies of this Subsidiary
Guarantee and the Transaction Documents prior to rendering their
advice.
4. Covenants.
(a) Each
Guarantor covenants and agrees with the Purchasers that, from and
after the date of this Guarantee until the Obligations shall have
been indefeasibly paid in full, such Guarantor shall take, and/or
shall refrain from taking, as the case may be, each commercially
reasonable action that is necessary to be taken or not taken, as
the case may be, so that no Event of Default (as defined in the
Senior Secured Convertible Note) is caused by the failure to take
such action or to refrain from taking such action by such
Guarantor.
(b) So
long as any of the Obligations are outstanding, unless Purchasers
holding at least 51% of the aggregate principal amount of the then
outstanding Senior Secured Convertible Note shall otherwise consent
in writing, each Guarantor will not directly or indirectly on or
after the date of this Guarantee:
(i) enter
into, create, incur, assume 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;
(ii) 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;
(iii) amend
its certificate of incorporation, bylaws or other charter documents
so as to adversely affect any rights of any Purchaser;
(iv) repay,
repurchase or offer to repay, repurchase or otherwise acquire more
than a de minimis number of shares of its securities or debt
obligations;
(v) pay
cash dividends on any equity securities of the
Company;
(vi) enter
into any transaction with any Affiliate of the Guarantor which
would be required to be disclosed in any public filing of the
Company with the Commission, unless such transaction is made on an
arm’s-length basis and expressly approved by a majority of
the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or
(vii)
enter into any agreement with respect to any of the
foregoing.
5. Miscellaneous.
(a) Amendments
in Writing. None of the terms or provisions of this
Guarantee may be waived, amended, supplemented or otherwise
modified except in writing by the Purchasers.
(b) Notices.
All notices, requests and demands to or upon the Purchasers or any
Guarantor hereunder shall be effected in the manner provided for in
the Purchase Agreement, provided that any such notice, request or
demand to or upon any Guarantor shall be addressed to such
Guarantor at its notice address set forth on Schedule 5(b).
(c) No
Waiver By Course Of Conduct; Cumulative Remedies. The
Purchasers shall not by any act (except by a written instrument
pursuant to Section 5(a)), delay, indulgence, omission or otherwise
be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default under the Transaction Documents or Event
of Default. No failure to exercise, nor any delay in exercising, on
the part of the Purchasers, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Purchasers of any right or remedy
hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Purchasers would otherwise have on
any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by
law.
(d) Enforcement
Expenses; Indemnification.
(i) Each
Guarantor agrees to pay, or reimburse the Purchasers for, all its
costs and expenses incurred in collecting against such Guarantor
under the guarantee contained in Section 2 or otherwise enforcing
or preserving any rights under this Guarantee and the other
Transaction Documents to which such Guarantor is a party,
including, without limitation, the reasonable fees and
disbursements of counsel to the Purchasers.
(ii) Each
Guarantor agrees to pay, and to save the Purchasers harmless from,
any and all liabilities with respect to, or resulting from any
delay in paying, any and all stamp, excise, sales or other taxes
which may be payable or determined to be payable in connection with
any of the transactions contemplated by this
Guarantee.
(iii) Each
Guarantor agrees to pay, and to save the Purchasers harmless from,
any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Guarantee to
the extent the Company would be required to do so pursuant to the
Purchase Agreement.
(iv) The
agreements in this Section shall survive repayment of the
Obligations and all other amounts payable under the Purchase
Agreement and the other Transaction Documents.
(e) Successor
and Assigns. This Guarantee shall be binding upon the
successors and assigns of each Guarantor and shall inure to the
benefit of the Purchasers and their respective successors and
assigns; provided that no Guarantor may assign, transfer or
delegate any of its rights or obligations under this Guarantee
without the prior written consent of the Purchasers.
(f) Set-Off.
Each Guarantor hereby irrevocably authorizes the Purchasers at any
time and from time to time while an Event of Default under any of
the Transaction Documents shall have occurred and be continuing,
without notice to such Guarantor or any other Guarantor, any such
notice being expressly waived by each Guarantor, to set-off and
appropriate and apply any and all deposits, credits, indebtedness
or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time
held or owing by the Purchasers to or for the credit or the account
of such Guarantor, or any part thereof in such amounts as the
Purchasers may elect, against and on account of the obligations and
liabilities of such Guarantor to the Purchasers hereunder and
claims of every nature and description of the Purchasers against
such Guarantor, in any currency, whether arising hereunder, under
the Purchase Agreement, any other Transaction Document or
otherwise, as the Purchasers may elect, whether or not the
Purchasers have made any demand for payment and although such
obligations, liabilities and claims may be contingent or unmatured.
The Purchasers shall notify such Guarantor promptly of any such
set-off and the application made by the Purchasers of the proceeds
thereof, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of
the Purchasers under this Section are in addition to other rights
and remedies (including, without limitation, other rights of
set-off) which the Purchasers may have.
(g) Counterparts.
This Guarantee may be executed by one or more of the parties to
this Guarantee on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
(h) Severability.
Any provision of this Guarantee which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
(i) Section
Headings. The Section headings used in this Guarantee are
for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the
interpretation hereof.
(j) Integration.
This Guarantee and the other Transaction Documents represent the
agreement of the Guarantors and the Purchasers with respect to the
subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Purchasers
relative to subject matter hereof and thereof not expressly set
forth or referred to herein or in the other Transaction
Documents.
(k) Governing
Laws. All questions concerning the construction, validity,
enforcement and interpretation of this Guarantee 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 of the Company and the Guarantors
agree that all proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this
Guarantee (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, Borough of
Manhattan. Each of the Company and the Guarantors 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, and hereby irrevocably waives, and agrees not to
assert in any proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such proceeding
is improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such
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
Guarantee 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 manner permitted by 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 Guarantee or the transactions
contemplated hereby.
(l) Acknowledgements.
Each Guarantor hereby acknowledges that:
(i) it
has been advised by counsel in the negotiation, execution and
delivery of this Guarantee and the other Transaction Documents to
which it is a party;
(ii) the
Purchasers have no fiduciary relationship with or duty to any
Guarantor arising out of or in connection with this Guarantee or
any of the other Transaction Documents, and the relationship
between the Guarantors, on the one hand, and the Purchasers, on the
other hand, in connection herewith or therewith is solely that of
debtor and creditor; and
(iii) no
joint venture is created hereby or by the other Transaction
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Guarantors and the
Purchasers.
(m) Additional
Guarantors. The Company shall cause each of its subsidiaries
formed or acquired on or subsequent to the date hereof to become a
Guarantor for all purposes of this Guarantee by executing and
delivering an Assumption Agreement in the form of Annex 1
hereto.
(n) Release
of Guarantors. Each Guarantor will be released from all
liability hereunder concurrently with the indefeasible repayment in
full of all amounts owed under the Purchase Agreement, the Senior
Secured Convertible Note and the other Transaction
Documents.
(o) Seniority.
The Obligations of each of the Guarantors hereunder rank senior in
priority to any other Indebtedness (as defined in the Purchase
Agreement) of such Guarantor.
(p) WAIVER
OF JURY TRIAL.
EACH GUARANTOR AND, BY ACCEPTANCE
OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM
THEREIN.
*********************
(Signature Pages Follow)
IN
WITNESS WHEREOF, each of the undersigned has caused this Guarantee
to be duly executed and delivered as of the date first above
written.
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EXACTUS ONE WORLD, LLC
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By:
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/s/ Emiliano
Aloi
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Name:
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Emiliano
Aloi
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Title:
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President
& CEO – Exactus, Inc.
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PARADISE MEDLIFE, LLC
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By:
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/s/
Emiliano Aloi
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Name:
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Emiliano
Aloi
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Title:
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President
& CEO – Exactus, Inc.
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SCHEDULE 1
GUARANTORS
The
following are the names, notice addresses and jurisdiction of
organization of each Guarantor.
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COMPANY
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JURISDICTION
OF
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OWNED
BY
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INCORPORATION
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PERCENTAGE
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Exactus
One World, LLC
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Oregon
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100%
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Paradise
Medlife, LLC
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Florida
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100%
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Annex 1
to
SUBSIDIARY GUARANTEE
ASSUMPTION
AGREEMENT, dated as of November 27, 2019 made by Exactus, Inc., a
Nevada corporation (the “Additional Guarantor”),
in favor of the Purchasers pursuant to the Purchase Agreement
referred to below. All capitalized terms not defined herein shall
have the meaning ascribed to them in such Purchase
Agreement.
W I T N E S S E T H:
WHEREAS, Exactus,
Inc., a Nevada corporation (the “Company”) and the
Purchasers have entered into a Securities Purchase Agreement, dated
as of November 27, 2019 (as amended, supplemented or otherwise
modified from time to time, the “Purchase
Agreement”);
WHEREAS, in
connection with the Purchase Agreement, the Subsidiaries of the
Company (other than the Additional Guarantor) have entered into the
Subsidiary Guarantee, dated as of November 27, 2019 (as amended,
supplemented or otherwise modified from time to time, the
“Guarantee”) in favor of
the Purchasers;
WHEREAS, the
Purchase Agreement requires the Additional Guarantor to become a
party to the Guarantee; and
WHEREAS, the
Additional Guarantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the
Guarantee;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee.
By executing and delivering this Assumption Agreement, the
Additional Guarantor, as provided in Section 5(m) of the Guarantee,
hereby becomes a party to the Guarantee as a Guarantor thereunder
with the same force and effect as if originally named therein as a
Guarantor and, without limiting the generality of the foregoing,
hereby expressly assumes all obligations and liabilities of a
Guarantor thereunder. The information set forth in Annex 1 hereto
is hereby added to the information set forth in Schedule 1 to the
Guarantee. The Additional Guarantor hereby represents and warrants
that each of the representations and warranties contained in
Section 3 of the Guarantee is true and correct on and as the date
hereof as to such Additional Guarantor (after giving effect to this
Assumption Agreement) as if made on and as of such
date.
2. Governing
Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF NEW YORK.
IN
WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first
above written.
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[ADDITIONAL GUARANTOR]
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By:
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Name:
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Title:
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Exhibit 10.5
SECURITY AGREEMENT
This
SECURITY AGREEMENT, dated as of November 27, 2019 (this
“Agreement”), is among
Exactus, Inc., a Nevada corporation (the “Company”), any subsidiary
and affiliate of the Company that is a signatory hereto either now
or joined in the future (such subsidiaries, the “Guarantors” and, together
with the Company, the “Debtors”) and 3i, LP, as
a secured party and Agent, and the other secured parties signatory
hereto their endorsees, transferees and assigns (collectively, the
“Secured
Parties”).
W I T N E S S E T H:
WHEREAS, pursuant
to that certain Securities Purchase Agreement, dated as of even
date herewith (the “Purchase Agreement”), the
Secured Parties have agreed to fund the Company with respect to the
issuance of certain Senior Secured Convertible Notes, subject to the terms
therein, issued by the Company to the Secured Parties (the
“Notes”);
and together with any other securities that may be issued from
time-to-time (the “Securities”).
WHEREAS, pursuant
to a certain Subsidiary Guarantee, dated as of the date hereof (the
“Guarantee”), the
Guarantors have jointly and severally agreed to guarantee and act
as surety for payment of such Notes; and
WHEREAS, in order
to induce the Secured Parties to extend the loans evidenced by the
Notes, each Debtor has agreed to execute and deliver to the Secured
Parties this Agreement and to grant the Secured Parties,
pari passu with each other Secured
Party and through the Agent (as defined in Section 18 hereof), a
security interest in certain property of such Debtor to secure the
prompt payment, performance and discharge in full of all of the
Company’s obligations under the Notes and the
Guarantors’ obligations under the Guarantee.
NOW,
THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Certain
Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but
not otherwise defined in this Agreement that are defined in Article
9 of the UCC (such as “account”, “chattel
paper”, “commercial tort claim”, “deposit
account”, “document”, “equipment”,
“fixtures”, “general intangibles”,
“goods”, “instruments”,
“inventory”, “investment property”,
“letter-of-credit rights”, “proceeds” and
“supporting obligations”) shall have the respective
meanings given such terms in Article 9 of the UCC.
(a) “Collateral”
means the collateral in which the Secured Parties are granted a
security interest by this Agreement and which shall include all of
the assets of the Debtors, including the following personal
property of the Debtors, whether presently owned or existing or
hereafter acquired or coming into existence, wherever situated, and
all additions and accessions thereto and all substitutions and
replacements thereof, and all proceeds, products and accounts
thereof, including, without limitation, all proceeds from the sale
or transfer of the Collateral and of insurance covering the same
and of any tort claims in connection therewith, and all dividends,
interest, cash, notes, securities, equity interest or other
property at any time and from time to time acquired, receivable or
otherwise distributed in respect of, or in exchange for, any or all
of the Pledged Securities or Pledged Interests (as defined
below):
(i) All
goods, including, without limitation, (A) all machinery, equipment,
computers, motor vehicles, trucks, tanks, boats, ships, appliances,
furniture, special and general tools, fixtures, test and quality
control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and
documents representing the same, all additions and accessions
thereto, replacements therefor, all parts therefor, and all
substitutes for any of the foregoing and all other items used and
useful in connection with any Debtor’s businesses and all
improvements thereto; and (B) all inventory;
(ii) All
contract rights and other general intangibles, including, without
limitation, all partnership interests, membership interests, stock
or other securities, rights under any of the Organizational
Documents, agreements related to the Pledged Securities or Pledged
Interests, licenses, distribution and other agreements, computer
software (whether “off-the-shelf”, licensed from any
third party or developed by any Debtor), computer software
development rights, leases, franchises, customer lists, quality
control procedures, grants and rights, goodwill, Intellectual
Property and income tax refunds;
(iii) All
accounts, together with all instruments, all documents of title
representing any of the foregoing, all rights in any merchandising,
goods, equipment, motor vehicles and trucks which any of the same
may represent, and all right, title, security and guaranties with
respect to each account, including any right of stoppage in
transit;
(iv) All
documents, letter-of-credit rights, instruments and chattel
paper;
(v) All
commercial tort claims;
(vi) All
deposit accounts and all cash (whether or not deposited in such
deposit accounts);
(vii) All
investment property;
(viii)
All supporting obligations;
(ix) All
files, records, books of account, business papers, and computer
programs; and
(x) the
products and proceeds of all of the foregoing Collateral set forth
in clauses (i)-(ix) above.
Without
limiting the generality of the foregoing, the “Collateral” shall include
all investment property and general intangibles respecting
ownership and/or other equity interests in each Guarantor,
including, without limitation, the shares of capital stock and the
other equity interests listed on Schedule H hereto (as the same
may be modified from time to time pursuant to the terms hereof),
and any other shares of capital stock and/or other equity interests
of any other direct or indirect subsidiary of any Debtor obtained
in the future, and, in each case, all certificates representing
such shares and/or equity interests and, in each case, all rights,
options, warrants, stock, other securities and/or equity interests
that may hereafter be received, receivable or distributed in
respect of, or exchanged for, any of the foregoing and all rights
arising under or in connection with the Pledged Securities or
Pledged Interests, including, but not limited to, all dividends,
interest and cash.
Notwithstanding the
foregoing, nothing herein shall be deemed to constitute an
assignment of any asset which, in the event of an assignment,
becomes void by operation of applicable law or the assignment of
which is otherwise prohibited by applicable law (in each case to
the extent that such applicable law is not overridden by Sections
9-406, 9-407 and/or 9-408 of the UCC or other similar applicable
law); provided,
however, that, to
the extent permitted by applicable law, this Agreement shall create
a valid security interest in such asset and, to the extent
permitted by applicable law, this Agreement shall create a valid
security interest in the proceeds of such asset.
(b) “Intellectual
Property” .means the collective reference to all
rights, priorities and privileges relating to intellectual
property, whether arising under United States, multinational or
foreign laws or otherwise, including, without limitation, (i) all
copyrights arising under the laws of the United States, any other
country or any political subdivision thereof, whether registered or
unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, all
registrations, recordings and applications in the United States
Copyright Office, (ii) all letters patent of the United States, any
other country or any political subdivision thereof, all reissues
and extensions thereof, and all applications for letters patent of
the United States or any other country and all divisions,
continuations and continuations-in-part thereof, (iii) all
trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade dress, service marks,
logos, domain names and other source or business identifiers, and
all goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country
or any political subdivision thereof, or otherwise, and all common
law rights related thereto, (iv) all trade secrets arising under
the laws of the United States, any other country or any political
subdivision thereof, (v) all rights to obtain any reissues,
renewals or extensions of the foregoing, (vi) all licenses for any
of the foregoing, and (vii) all causes of action for infringement
of the foregoing.
(c) “Majority
in Interest” means, at any time of determination, the
majority in interest (based on then-outstanding principal amounts
of Notes at the time of such determination) of the Secured
Parties.
(d)
“Necessary
Endorsement” means undated stock powers endorsed in
blank or other proper instruments of assignment duly executed and
such other instruments or documents as the Agent (as that term is
defined below) may reasonably request.
(e) “Obligations”
means all of the liabilities and obligations (primary, secondary,
direct, contingent, sole, joint or several) due or to become due,
or that are now or may be hereafter contracted or acquired, or
owing to, of any Debtor to the Secured Parties, including, without
limitation, all obligations under this Agreement, the Securities,
the other Transaction Documents (as defined in the Purchase
Agreement), and any other instruments, agreements or other
documents executed and/or delivered in connection herewith or
therewith, in each case, whether now or hereafter existing,
voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or
any portion of such obligations or liabilities that are paid, to
the extent all or any part of such payment is avoided or recovered
directly or indirectly from any of the Secured Parties as a
preference, fraudulent transfer or otherwise as such obligations
may be amended, supplemented, converted, extended or modified from
time to time. Without limiting the generality of the foregoing, the
term “Obligations” shall include, without limitation:
(i) principal of, interest, and any other amounts owed on the Note
as set forth in the Note; (ii) any and all obligations due under
the Transaction Documents (as defined in the Purchase Agreement),
(iii) any and all other fees, indemnities, costs, obligations and
liabilities of the Debtors from time to time under or in connection
with this Agreement, the Securities, the other Transaction
Documents (as defined in the Purchase Agreement) and any other
instruments, agreements or other documents executed and/or
delivered in connection herewith or therewith; and (iv) all amounts
(including but not limited to post-petition interest) in respect of
the foregoing that would be payable but for the fact that the
obligations to pay such amounts are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar
proceeding involving any Debtor.
(f) “Organizational
Documents” means, with respect to any Debtor, the
documents by which such Debtor was organized (such as articles of
incorporation, certificate of incorporation, certificate of limited
partnership or articles of organization, and including, without
limitation, any certificates of designation for preferred stock or
other forms of preferred equity) and which relate to the internal
governance of such Debtor (such as bylaws, a partnership agreement
or an operating, limited liability or members
agreement).
(g) “Permitted
Liens” means the following:
(i) Liens
imposed by law for taxes that are not yet due or are being
contested in good faith, which in each
case, have been appropriately reserved for;
(ii) Carriers’,
warehousemen’s, mechanics’, materialmen’s,
repairmen’s and other like Liens imposed by law, arising in
the ordinary course of business and securing obligations that are
not overdue by more than thirty (30) days or are being contested in
good faith;
(iii) Pledges
and deposits made in the ordinary course of business in compliance
with workers’ compensation, unemployment insurance and other
social security laws or regulations;
(iv) Deposits
to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the
ordinary course of business;
(v) Liens
under this Agreement; and
(vi) Any
other liens in favor of the Secured Parties.
(h) “Pledged
Interests” shall have the meaning ascribed to such
term in Section 4(j).
(i) “Pledged
Securities” shall have the meaning ascribed to such
term in Section 4(i).
(j) “UCC”
means the Uniform Commercial Code of the State of New York and any
other applicable law of any state or states that has jurisdiction
with respect to all, or any portion of, the Collateral or this
Agreement, from time to time. It is the intent of the parties that
defined terms in the UCC should be construed in their broadest
sense so that the term “Collateral” will be construed
in its broadest sense. Accordingly, if there are, from time to
time, changes to defined terms in the UCC that broaden the
definitions, they are incorporated herein and if existing
definitions in the UCC are broader than the amended definitions,
the existing ones shall be controlling.
2. Grant
of Security Interest in Collateral. As an inducement for the
Secured Parties to fund the Company and to secure the complete and
timely payment, performance and discharge in full, as the case may
be, of all of the Obligations, each Debtor hereby unconditionally
and irrevocably pledges, grants and hypothecates to the Secured
Parties a perfected, first priority security interest in and to, a
lien upon and a right of set-off against all of their respective
right, title and interest of whatsoever kind and nature in and to,
the Collateral (a “Security Interest” and,
collectively, the “Security
Interests”).
3. Delivery
of Certain Collateral. Contemporaneously or prior to the
execution of this Agreement, each Debtor shall deliver or cause to
be delivered to the Agent (a) any and all certificates and other
instruments representing or evidencing the Pledged Securities, and
(b) any and all certificates and other instruments or documents
representing any of the other Collateral, in each case, together
with all Necessary Endorsements. The Debtors are, contemporaneously
with the execution hereof, delivering to Agent, or have previously
delivered to Agent, a true and correct copy of each Organizational
Document governing any of the Pledged Securities.
4. Representations,
Warranties, Covenants and Agreements of the Debtors. Except
as set forth under the corresponding Section of the disclosure
schedules delivered to the Secured Parties concurrently herewith
(the “Disclosure
Schedules”), which Disclosure Schedules shall be
deemed a part hereof, each Debtor represents and warrants to, and
covenants and agrees with, the Secured Parties as
follows:
(a) Each
Debtor has the requisite corporate, partnership, limited liability
company or other power and authority to enter into this Agreement
and otherwise to carry out its obligations hereunder. The
execution, delivery and performance by each Debtor of this
Agreement and the filings contemplated therein have been duly
authorized by all necessary action on the part of such Debtor and
no further action is required by such Debtor. This Agreement has
been duly executed by each Debtor. This Agreement constitutes the
legal, valid and binding obligation of each Debtor, enforceable
against each Debtor in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization and similar laws of general application relating to
or affecting the rights and remedies of creditors and by general
principles of equity.
(b) The
Debtors have no place of business or offices where their respective
books of account and records are kept (other than temporarily at
the offices of its attorneys or accountants) or places where
Collateral is stored or located, except as set forth on
Schedule A attached
hereto. Except as specifically set forth on Schedule A, each Debtor is the
record owner of the real property where such Collateral is located,
and there exist no mortgages or other liens on any such real
property except for Permitted Liens as set forth on Schedule A. Except as disclosed
on Schedule A, none
of such Collateral is in the possession of any consignee, bailee,
warehouseman, agent or processor.
(c) Except
for Permitted Liens and as set forth on Schedule B attached hereto, the
Debtors are the sole owners of the Collateral (except for
non-exclusive licenses granted by any Debtor in the ordinary course
of business), free and clear of any liens, security interests,
encumbrances, rights or claims, and are fully authorized to grant
the Security Interests. Except as set forth on Schedule C attached hereto,
there is not on file in any governmental or regulatory authority,
agency or recording office an effective financing statement,
security agreement, license or transfer or any notice of any of the
foregoing (other than those that will be filed in favor of the
Secured Parties pursuant to this Agreement) covering or affecting
any of the Collateral. Except as set forth on Schedule C attached hereto and
except pursuant to this Agreement, as long as this Agreement shall
be in effect, the Debtors shall not execute and shall not knowingly
permit to be on file in any such office or agency any other
financing statement or other document or instrument (except to the
extent filed or recorded in favor of the Secured Parties pursuant
to the terms of this Agreement).
(d) No
written claim has been received that any Collateral or any
Debtor’s use of any Collateral violates the rights of any
third party. There has been no adverse decision to any
Debtor’s claim of ownership rights in or exclusive rights to
use the Collateral in any jurisdiction or to any Debtor’s
right to keep and maintain such Collateral in full force and
effect, and there is no proceeding involving said rights pending
or, to the best knowledge of any Debtor, threatened before any
court, judicial body, administrative or regulatory agency,
arbitrator or other governmental authority.
(e) Each
Debtor shall at all times maintain its books of account and records
relating to the Collateral at its principal place of business and
its Collateral at the locations set forth on Schedule A attached hereto and
may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Parties at least
thirty (30) days prior to such relocation (i) written notice of
such relocation and the new location thereof (which must be within
the United States) and (ii) evidence that appropriate financing
statements under the UCC and other necessary documents have been
filed and recorded and other steps have been taken to perfect the
Security Interests to create in favor of the Secured Parties a
valid, perfected and continuing perfected first priority lien in
the Collateral.
(f) This
Agreement creates in favor of the Secured Parties a valid first
priority security interest in the Collateral, subject only to
Permitted Liens, securing the payment and performance of the
Obligations. Upon making the filings described in the immediately
following paragraph, all security interests created hereunder in
any Collateral which may be perfected by filing Uniform Commercial
Code financing statements shall have been duly perfected. Except
for (i) the filing of the Uniform Commercial Code financing
statements referred to in the immediately following paragraph, (ii)
]the recordation of the Intellectual Property Security Agreement
(as defined in Section 4(p) hereof) with respect to copyrights and
copyright applications in the United States Copyright Office
referred to in paragraph (mm), (iii) the recordation of the
Intellectual Property Security Agreement (as defined in Section
4(p) hereof) with respect to patents and trademarks of the Debtors
in the United States Patent and Trademark Office referred to in
paragraph (oo), (iv) the execution and delivery of deposit account
control agreements satisfying the requirements of Section
9-104(a)(2) of the UCC with respect to each deposit account of the
Debtors, (v) if there is any investment property or deposit account
included as Collateral that can be perfected by
“control” through an account control agreement, the
execution and delivery of securities account control agreements
satisfying the requirements of 9-106 of the UCC with respect to
each such investment property of the Debtors, and (vi) the delivery
of the certificates and other instruments provided in Section 3,
Section 4(aa) and Section 4(cc), no action is necessary to create,
perfect or protect the security interests created hereunder.
Without limiting the generality of the foregoing, except for the
foregoing, no consent of any third parties and no authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for (x) the
execution, delivery and performance of this Agreement, (y) the
creation or perfection of the Security Interests created hereunder
in the Collateral or (z) the enforcement of the rights of the Agent
and the Secured Parties hereunder.
(g) Each
Debtor hereby authorizes the Agent to file one or more financing
statements under the UCC, with respect to the Security Interests,
with the proper filing and recording agencies in any jurisdiction
deemed proper by it.
(h) The
execution, delivery and performance of this Agreement by the
Debtors does not (i) violate any of the provisions of any
Organizational Documents of any Debtor or any judgment, decree,
order or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to any Debtor or (ii)
conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument
(evidencing any Debtor’s debt or otherwise) or other
understanding to which any Debtor is a party or by which any
property or asset of any Debtor is bound or affected. If any, all
required consents (including, without limitation, from stockholders
or creditors of any Debtor) necessary for any Debtor to enter into
and perform its obligations hereunder have been
obtained.
(i) The
capital stock and other equity interests listed on Schedule H hereto (the
“Pledged
Securities”) represent all capital stock and other
equity interests of the Guarantors and represent all capital stock
and other equity interests owned, directly or indirectly, by the
Company. All of the Pledged Securities are validly issued, fully
paid and nonassessable, and the Company is the legal and beneficial
owner of the Pledged Securities, free and clear of any lien,
security interest or other encumbrance except for the security
interests created by this Agreement and other Permitted
Liens.
(j) The
ownership and other equity interests in partnerships and limited
liability companies (if any) included in the Collateral, including,
without limitation, 100% of the membership interests of Exactus One
World, LLC, a Oregon limited liability company (the
“Pledged
Interests”), by their express terms do not provide
that they are securities governed by Article 8 of the UCC and are
not held in a securities account or by any financial intermediary.
All of the Pledged Interests are validly issued, fully paid and
nonassessable, and the Company is the legal and beneficial owner of
the Pledged Interests, free and clear of any lien, security
interest or other encumbrance except for the security interests
created by this Agreement and other Permitted Liens.
(k) Except
for Permitted Liens, each Debtor shall at all times maintain the
liens and Security Interests provided for hereunder as valid and
perfected, first priority liens and security interests in the
Collateral in favor of the Secured Parties until this Agreement and
the Security Interest hereunder shall be terminated pursuant to
Section 14 hereof. Each Debtor hereby agrees to defend the same
against the claims of any and all persons and entities. Each Debtor
shall safeguard and protect all Collateral for the account of the
Secured Parties. At the request of the Agent, each Debtor will sign
and deliver to the Agent on behalf of the Agent at any time or from
time to time one or more financing statements pursuant to the UCC
in form reasonably satisfactory to the Agent and will pay the cost
of filing the same in all public offices wherever filing is, or is
deemed by the Agent to be, necessary or desirable to effect the
rights and obligations provided for herein. Without limiting the
generality of the foregoing, each Debtor shall pay all fees, taxes
and other amounts necessary to maintain the Collateral and the
Security Interests hereunder, and each Debtor shall obtain and
furnish to the Agent from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to
maintain the priority of the Security Interests
hereunder.
(l) No
Debtor will transfer, pledge, hypothecate, encumber, license, sell
or otherwise dispose of any of the Collateral (except for
non-exclusive licenses granted by a Debtor in its ordinary course
of business, sales of inventory by a Debtor in its ordinary course
of business and the replacement of worn-out or obsolete equipment
by a Debtor in its ordinary course of business) without the prior
written consent of the Agent
(m) Each
Debtor shall keep and preserve its equipment, inventory and other
tangible Collateral in good condition, repair and order and shall
not operate or locate any such Collateral (or cause to be operated
or located) in any area excluded from insurance
coverage.
(n) Each
Debtor shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral, including
Collateral hereafter acquired, against loss or damage of the kinds
and in the amounts customarily insured against by entities of
established reputation having similar properties similarly situated
and in such amounts as are customarily carried under similar
circumstances by other such entities and otherwise as is prudent
for entities engaged in similar businesses but in any event
sufficient to cover the full replacement cost thereof. Each Debtor
shall cause each insurance policy issued in connection herewith to
provide, and the insurer issuing such policy to certify to the
Agent, that (a) the Agent will be named as lender-loss-payee and
additional insured under each such insurance policy; (b) if such
insurance be proposed to be cancelled or materially changed for any
reason whatsoever, such insurer will promptly notify the Agent and
such cancellation or change shall not be effective as to the Agent
for at least thirty (30) days after receipt by the Agent of such
notice, unless the effect of such change is to extend or increase
coverage under the policy; and (c) the Agent will have the right
(but no obligation) at its election to remedy any default in the
payment of premiums within thirty (30) days of notice from the
insurer of such default. If no Event of Default (as defined in the
Notes) exists and if the proceeds arising out of any claim or
series of related claims do not exceed $100,000, loss payments in
each instance will be applied by the applicable Debtor to the
repair and/or replacement of property with respect to which the
loss was incurred to the extent reasonably feasible, and any loss
payments or the balance thereof remaining, to the extent not so
applied, shall be payable to the applicable Debtor; provided, however, that payments received
by any Debtor after an Event of Default (as defined in the Note) or
an Event of Default occurs and is continuing or in excess of
$100,000 for any occurrence or series of related occurrences, upon
approval by Secured Parties, which approval shall not be
unreasonably withheld, delayed, denied or conditioned, loss
payments in each instance will be applied by the applicable Debtor
to the repair and/or replacement of property with respect to which
the loss was incurred to the extent reasonably feasible, and any
loss payments or the balance thereof remaining, to the extent not
so applied, shall be paid to the Agent on behalf of the Secured
Parties and, if received by such Debtor, shall be held in trust for
the Secured Parties and immediately paid over to the Agent unless
otherwise directed in writing by the Agent. Copies of such policies
or the related certificates, in each case, naming the Agent as
lender-loss-payee and additional insured shall be delivered to the
Agent at least annually and at the time any new policy of insurance
is issued.
(o) Each
Debtor shall, within ten (10) days of obtaining knowledge thereof,
advise the Secured Parties, in sufficient detail, of any material
adverse change in the Collateral, and of the occurrence of any
event that would have a material adverse effect on the value of the
Collateral or on the Secured Parties’ security interest,
through the Agent, therein.
(p) Each
Debtor shall promptly execute and deliver to the Agent such further
deeds, mortgages, assignments, security agreements, financing
statements or other instruments, documents, certificates and
assurances and take such further action as the Agent may from time
to time request and may in its sole discretion deem necessary to
perfect, protect or enforce the Secured Parties’ security
interest in the Collateral, including, without limitation, if
applicable, the execution and delivery of a separate security
agreement with respect to each Debtor’s Intellectual Property
(“Intellectual
Property Security Agreement”) in which the Secured
Parties has been granted a security interest hereunder,
substantially in a form reasonably acceptable to the Agent, which
Intellectual Property Security Agreement, other than as stated
therein, shall be subject to all of the terms and conditions
hereof.
(q) Upon
reasonable prior notice (so long as no
Event of Default (as defined in the Note) or a breach under any of the Transaction Documents
(as defined in the Purchase Agreement) has occurred or continuing,
which in either such event, no prior notice is required),
each Debtor shall permit the Secured Parties and its
representatives and agents to inspect the Collateral during normal
business hours and to make copies of records pertaining to the
Collateral as may be reasonably requested by the Secured Parties
from time to time.
(r) Each
Debtor shall take all steps reasonably necessary to diligently
pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable in respect of the
Collateral.
(s) Each
Debtor shall promptly notify the Secured Parties in sufficient
detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Collateral and
of any other information received by such Debtor that may
materially affect the value of the Collateral, the Security
Interest or the rights and remedies of the Secured Parties
hereunder.
(t) All
information heretofore, herein or hereafter supplied to the Secured
Parties by or on behalf of any Debtor with respect to the
Collateral is accurate and complete in all material respects as of
the date furnished.
(u) The
Debtors shall at all times preserve and keep in full force and
effect their respective valid existence and good standing and any
rights and franchises material to its business.
(v) No
Debtor will change its name, type of organization, jurisdiction of
organization, organizational identification number (if it has one),
legal or corporate structure, or identity, or add any new
fictitious name unless it provides at least thirty (30) days’
prior written notice to the Secured Parties of such change and, at
the time of such written notification, such Debtor provides any
financing statements or fixture filings necessary to perfect and
continue the perfection of the Security Interests granted and
evidenced by this Agreement.
(w) Except
in the ordinary course of business, no Debtor may consign any of
its inventory or sell any of its inventory on bill-and-hold,
sale-or-return, sale-on-approval, or other conditional terms of
sale without the consent of the Agent, which shall not be
unreasonably withheld, delayed, denied, or
conditioned.
(x) No
Debtor may relocate its chief executive office to a new location
without providing thirty (30) days’ prior written
notification thereof to the Secured Parties and so long as, at the
time of such written notification, such Debtor provides any
financing statements or fixture filings necessary to perfect and
continue the perfection of the Security Interests granted and
evidenced by this Agreement.
(y) Each
Debtor was organized and remains organized solely under the laws of
the state set forth next to such Debtor’s name in
Schedule D attached
hereto, which Schedule
D sets forth each Debtor’s organizational
identification number or, if any Debtor does not have one, states
that one does not exist.
(z) (i)
The actual name of each Debtor is the name set forth in
Schedule D attached
hereto; (ii) no Debtor has any trade names except as set forth on
Schedule E attached
hereto; (iii) no Debtor has used any name other than that stated in
the preamble hereto or as set forth on Schedule E for the preceding
five (5) years; and (iv) no entity has merged into any Debtor or
been acquired by any Debtor within the past five years except as
set forth on Schedule
E.
(aa) At
any time and from time to time that any Collateral consists of
instruments, certificated securities or other items that require or
permit possession by the secured party to perfect the security
interest created hereby, the applicable Debtor shall deliver such
Collateral to the Agent.
(bb) Each
Debtor, in its capacity as issuer, hereby agrees to comply with any
and all orders and instructions of Agent regarding the Pledged
Interests consistent with the terms of this Agreement without the
further consent of any Debtor as contemplated by Section 8-106 (or
any successor section) of the UCC. Further, each Debtor agrees that
it shall not enter into a similar agreement (or one that would
confer “control” within the meaning of Article 8 of the
UCC) with any other person or entity.
(cc) Each
Debtor shall cause all tangible chattel paper constituting
Collateral to be delivered to the Agent, or, if such delivery is
not possible, then to cause such tangible chattel paper to contain
a legend noting that it is subject to the security interest created
by this Agreement. To the extent that any Collateral consists of
electronic chattel paper, the applicable Debtor shall cause the
underlying chattel paper to be “marked” within the
meaning of Section 9-105 of the UCC (or successor Section
thereto).
(dd) If
there is any investment property or deposit account included as
Collateral that can be perfected by “control” through
an account control agreement, the applicable Debtor shall cause
such an account control agreement, in form and substance in each
case satisfactory to the Agent, to be entered into and delivered to
the Agent for the benefit of the Secured Parties.
(ee)
To the extent that any Collateral consists of letter-of-credit
rights, the applicable Debtor shall cause the issuer of each
underlying letter of credit to consent to an assignment of the
proceeds thereof to the Secured Parties.
(ff)
To the extent that any Collateral is in the possession of any third
party, the applicable Debtor shall join with the Agent in notifying
such third party of the Secured Parties’ security interest in
such Collateral and shall use its best efforts to obtain an
acknowledgement and agreement from such third party with respect to
the Collateral, in form and substance reasonably satisfactory to
the Agent.
(gg) If
any Debtor shall at any time hold or acquire a commercial tort
claim, such Debtor shall promptly notify the Secured Parties in a
writing signed by such Debtor of the particulars thereof and grant
to the Secured Parties in such writing a security interest therein
and in the proceeds thereof, all upon the terms of this Agreement,
with such writing to be in form and substance satisfactory to the
Agent.
(hh) Each
Debtor shall immediately provide written notice to the Secured
Parties of any and all accounts that are equal to or in excess of
$10,000 and which arise out of contracts with any governmental
authority and, to the extent necessary to perfect or continue the
perfected status of the Security Interests in such accounts and
proceeds thereof, shall execute and deliver to the Agent an
assignment of claims for such accounts and cooperate with the Agent
in taking any other steps required, in its judgment, under the
Federal Assignment of Claims Act or any similar federal, state or
local statute or rule to perfect or continue the perfected status
of the Security Interests in such accounts and proceeds
thereof.
(ii) Each
Debtor shall cause each subsidiary of such Debtor to immediately
become a party hereto (an “Additional Debtor”), by
executing and delivering an Additional Debtor Joinder in
substantially the form of Annex A attached hereto and
comply with the provisions hereof applicable to the Debtors.
Concurrently therewith, the Additional Debtor shall deliver
replacement schedules for, or supplements to all other Schedules to
(or referred to in) this Agreement, as applicable, which
replacement schedules shall supersede, or supplements shall modify,
the Schedules then in effect. The Additional Debtor shall also
deliver such opinions of counsel, authorizing resolutions, good
standing certificates, incumbency certificates, organizational
documents, financing statements and other information and
documentation as the Agent may reasonably request. Upon delivery of
the foregoing to the Agent, the Additional Debtor shall be and
become a party to this Agreement with the same rights and
obligations as the Debtors, for all purposes hereof as fully and to
the same extent as if it were an original signatory hereto and
shall be deemed to have made the representations, warranties and
covenants set forth herein as of the date of execution and delivery
of such Additional Debtor Joinder, and all references herein to the
“Debtors” shall be deemed to include each Additional
Debtor.
(jj) Each
Debtor shall vote the Pledged Securities and Pledged Interests to
comply with the covenants and agreements set forth herein and in
the Transaction Documents (as defined in the Purchase
Agreement).
(kk)
Each Debtor shall register the pledge of the applicable Pledged
Securities and Pledged Interests on the books of such Debtor. Each
Debtor shall notify each issuer of Pledged Securities and Pledged
Interests to register the pledge of the applicable Pledged
Securities and Pledged Interests in the name of the Agent on the
books of such issuer. Further, except with respect to certificated
securities delivered to the Agent, the applicable Debtor shall
deliver to Agent an acknowledgement of pledge (which, where
appropriate, shall comply with the requirements of the relevant UCC
with respect to perfection by registration) signed by the issuer of
the applicable Pledged Securities and Pledged Interests, which
acknowledgement shall confirm that: (a) it has registered the
pledge on its books and records; and (b) at any time directed by
Agent during the continuation of an Event of Default, such issuer
will transfer the record ownership of such Pledged Securities or
Pledged Interests, as applicable, into the name of any designee of
Agent, will take such steps as may be necessary to effect the
transfer, and will comply with all other instructions of Agent
regarding such Pledged Securities and Pledged Interests without the
further consent of the applicable Debtor.
(ll) In
the event that, upon an occurrence of an Event of Default, Agent
shall sell all or any of the Pledged Securities or Pledged
Interests to another party or parties (herein called the
“Transferee”) or shall
purchase or retain all or any of the Pledged Securities or Pledged
Interests, each Debtor shall, to the extent applicable: (i) deliver
to Agent or the Transferee, as the case may be, the articles of
incorporation, bylaws, minute books, stock certificate books,
corporate seals, deeds, leases, indentures, agreements, evidences
of indebtedness, books of account, financial records and all other
Organizational Documents and records of the Debtors and their
direct and indirect subsidiaries (but not including any items
subject to the attorney-client privilege related to this Agreement
or any of the transactions hereunder); (ii) use its best efforts to
obtain resignations of the persons then serving as officers and
directors of the Debtors and their direct and indirect
subsidiaries, if so requested; and (iii) use its best efforts to
obtain any approvals that are required by any governmental or
regulatory body in order to permit the sale of the Pledged
Securities and Pledged Interests to the Transferee or the purchase
or retention of the Pledged Securities and Pledged Interests by
Agent and allow the Transferee or Agent to continue the business of
the Debtors and their direct and indirect
subsidiaries.
(mm)
Without limiting the generality of the other obligations of the
Debtors hereunder, each Debtor shall promptly (i) cause to be
registered at the United States Copyright Office all of its
material copyrights, (ii) cause the security interest contemplated
hereby with respect to all Intellectual Property registered at the
United States Copyright Office or United States Patent and
Trademark Office to be duly recorded at the applicable office, and
(iii) give the Agent notice whenever it acquires (whether
absolutely or by license) or creates any additional material
Intellectual Property.
(nn) Each
Debtor will from time to time, at the joint and several expense of
the Debtors, promptly execute and deliver all such further
instruments and documents, and take all such further action as may
be necessary or desirable, or as the Agent may reasonably request,
in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Secured Parties to
exercise and enforce their rights and remedies hereunder and with
respect to any Collateral or to otherwise carry out the purposes of
this Agreement.
(oo) Schedule
F attached hereto lists all of the patents, patent
applications, trademarks, trademark applications, registered
copyrights, and domain names owned by any of the Debtors as of the
date hereof. Schedule
F lists all material licenses in favor of any Debtor for the
use of any patents, trademarks, copyrights and domain names as of
the date hereof. All material patents and trademarks of the Debtors
have been duly recorded at the United States Patent and Trademark
Office and all material copyrights of the Debtors have been duly
recorded at the United States Copyright Office.
(pp)
Except as set forth on Schedule G attached hereto,
none of the account debtors or other persons or entities obligated
on any of the Collateral is a governmental authority covered by the
Federal Assignment of Claims Act or any similar federal, state or
local statute or rule in respect of such Collateral.
(qq) Until
the Obligations shall have been paid and performed in full, the
Company covenants that it shall promptly direct any direct or
indirect subsidiary of the Company formed or acquired after the
date hereof to enter into a guarantee in favor of the Secured
Party, in the form of attached as an exhibit to the Purchase
Agreement.
5. Effect
of Pledge on Certain Rights. If any of the Collateral
subject to this Agreement consists of nonvoting equity or ownership
interests (regardless of class, designation, preference or rights)
that may be converted into voting equity or ownership interests
upon the occurrence of certain events (including, without
limitation, upon the transfer of all or any of the other stock or
assets of the issuer), it is agreed by Debtors that the pledge of
such equity or ownership interests pursuant to this Agreement or
the enforcement of any of Agent’s rights hereunder shall not
be deemed to be the type of event which would trigger such
conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which any Debtor is
subject or to which any Debtor is party.
6. Defaults.
The following events shall be “Events of
Default”:
(a) The
occurrence of an Event of Default (as defined in the
Note);
(b) The
occurrence of an event of default or breach under any Transaction
Documents (as defined in the Purchase Agreement);
(c) Any
representation or warranty of any Debtor in this Agreement shall
prove to have been incorrect in any material respect when
made;
(d) The
failure by any Debtor to observe or perform any of its obligations
hereunder for five (5) days after delivery to such Debtor of notice
of such failure by or on behalf of a Secured Party unless such
default is capable of cure but cannot be cured within such time
frame and such Debtor is using best efforts to cure same in a
timely fashion; or
(e) If
any provision of this Agreement shall at any time for any reason be
declared to be null and void, or the validity or enforceability
thereof shall be contested by any Debtor, or a proceeding shall be
commenced by any Debtor, or by any governmental authority having
jurisdiction over any Debtor, seeking to establish the invalidity
or unenforceability thereof, or any Debtor shall deny that any
Debtor has any liability or obligation purported to be created
under this Agreement.
7. Duty
to Hold in Trust.
(a) Upon
the occurrence of any Event of Default and at any time thereafter,
each Debtor shall, upon receipt of any revenue, income, dividend,
interest or other sums subject to the Security Interests, whether
payable pursuant to the Transaction Documents (as defined in the
Purchase Agreement) or otherwise, or of any check, draft, note,
trade acceptance or other instrument evidencing an obligation to
pay any such sum, hold the same in trust for the Secured Parties
and shall forthwith endorse and transfer any such sums or
instruments, or both, to the Agent, pro-rata in proportion to their
respective then-currently issued and outstanding Principal Amount
for application to the satisfaction of the
Obligations.
(b) If
any Debtor shall become entitled to receive or shall receive any
securities or other property (including, without limitation, shares
of Pledged Securities or Pledged Interests or instruments
representing Pledged Securities or Pledged Interests acquired after
the date hereof, or any options, warrants, rights or other similar
property or certificates representing a dividend, or any
distribution in connection with any recapitalization,
reclassification or increase or reduction of capital, or issued in
connection with any reorganization of such Debtor or any of its
direct or indirect subsidiaries) in respect of the Pledged
Securities or Pledged Interests (whether as an addition to, in
substitution of, or in exchange for, such Pledged Securities,
Pledged Interests or otherwise), such Debtor agrees to (i) accept
the same as the agent of the Secured Parties; (ii) hold the same in
trust on behalf of and for the benefit of the Secured Parties; and
(iii) to deliver any and all certificates or instruments evidencing
the same to Agent on or before the close of business on the fifth
(5th)
business day following the receipt thereof by such Debtor, in the
exact form received together with the Necessary Endorsements, to be
held by Agent subject to the terms of this Agreement as
Collateral.
8. Rights
and Remedies Upon Default.
(a) Upon
the occurrence of any Event of Default and at any time thereafter,
the Secured Parties, acting through the Agent, shall have the right
to exercise all of the remedies conferred hereunder and under the
Transaction Documents (as defined in the Purchase Agreement), and
the Secured Parties shall have all the rights and remedies of a
secured party under the UCC. Without limitation, the Agent, for the
benefit of the Secured Parties, shall have the following rights and
powers:
(i) The
Agent shall have the right to take possession of the Collateral
and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is
or may be placed and remove the same, and each Debtor shall
assemble the Collateral and make it available to the Agent at
places which the Agent shall reasonably select, whether at such
Debtor’s premises or elsewhere, and make available to the
Agent, without rent, all of such Debtor’s respective premises
and facilities for the purpose of the Agent taking possession of,
removing or putting the Collateral in saleable or disposable
form.
(ii) Upon
notice to the Debtors by Agent, all rights of each Debtor to
exercise the voting and other consensual rights which it would
otherwise be entitled to exercise and all rights of each Debtor to
receive the dividends and interest which it would otherwise be
authorized to receive and retain, shall cease. Upon such notice,
Agent shall have the right to receive, for the benefit of the
Secured Parties, any interest, cash dividends or other payments on
the Collateral and, at the option of Secured Parties, to exercise
in such Agent’s discretion all voting rights pertaining
thereto. Without limiting the generality of the foregoing, Agent
shall have the right (but not the obligation) to exercise all
rights with respect to the Collateral as it were the sole and
absolute owner thereof, including, without limitation, to vote
and/or to exchange, at its sole discretion, any or all of the
Collateral in connection with a merger, reorganization,
consolidation, recapitalization or other readjustment concerning or
involving the Collateral or any Debtor or any of its direct or
indirect subsidiaries.
(iii) The
Agent shall have the right to operate the business of each Debtor
using the Collateral and shall have the right to assign, sell,
lease or otherwise dispose of and deliver all or any part of the
Collateral, at public or private sale or otherwise, either with or
without special conditions or stipulations, for cash or on credit
or for future delivery, in such parcel or parcels and at such time
or times and at such place or places, and upon such terms and
conditions as the Agent may deem commercially reasonable, all
without (except as shall be required by applicable statute and
cannot be waived) advertisement or demand upon or notice to any
Debtor or right of redemption of a Debtor, which are hereby
expressly waived. Upon each such sale, lease, assignment or other
transfer of Collateral, the Agent, for the benefit of the Secured
Parties, may, unless prohibited by applicable law which cannot be
waived, purchase all or any part of the Collateral being sold, free
from and discharged of all trusts, claims, right of redemption and
equities of any Debtor, which are hereby waived and
released.
(iv) The
Agent shall have the right (but not the obligation) to notify any
account debtors and any obligors under instruments or accounts to
make payments directly to the Agent, on behalf of the Secured
Parties, and to enforce the Debtors’ rights against such
account debtors and obligors.
(v) The
Agent, for the benefit of the Secured Parties, may (but is not
obligated to) direct any financial intermediary or any other person
or entity holding any investment property to transfer the same to
the Agent, on behalf of the Secured Parties, or its
designee.
(vi) The
Agent may (but is not obligated to) transfer any or all
Intellectual Property registered in the name of any Debtor at the
United States Patent and Trademark Office and/or Copyright Office
into the name of the Secured Parties or any designee or any
purchaser of any Collateral.
(b) The
Agent shall comply with any applicable law in connection with a
disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any
sale of the Collateral. The Agent may sell the Collateral without
giving any warranties and may specifically disclaim such
warranties. If the Agent sells any of the Collateral on credit, the
Debtors will only be credited with payments actually made by the
purchaser. In addition, each Debtor waives (except as shall be
required by applicable statute and cannot be waived) any and all
rights that it may have to a judicial hearing in advance of the
enforcement of any of the Agent’s rights and remedies
hereunder, including, without limitation, its right following an
Event of Default to take immediate possession of the Collateral and
to exercise its rights and remedies with respect
thereto.
(c) For
the purpose of enabling the Agent to further exercise rights and
remedies under this Section 8 or elsewhere provided by agreement or
applicable law, each Debtor hereby grants to the Agent, for the
benefit of the Agent and the Secured Parties, an irrevocable,
nonexclusive license (exercisable without payment of royalty or
other compensation to such Debtor) to use, license or sublicense
following an Event of Default, any Intellectual Property now owned
or hereafter acquired by such Debtor, and wherever the same may be
located, and including in such license access to all media in which
any of the licensed items may be recorded or stored and to all
computer software and programs used for the compilation or printout
thereof.
9. Applications
of Proceeds. The proceeds of any such sale, lease or other
disposition of the Collateral hereunder or from payments made on
account of any insurance policy insuring any portion of the
Collateral shall be applied first, to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and
the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the
reasonable attorneys’ fees and expenses incurred by the Agent
in enforcing the Secured Parties’ rights hereunder and in
connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations pro rata
among the Secured Parties (based on then issued and outstanding
Securities at the time of any such determination), and to the
payment of any other amounts required by applicable law, after
which the Secured Parties shall pay to the applicable Debtor any
surplus proceeds. If, upon the sale, license or other disposition
of the Collateral, the proceeds thereof are insufficient to pay all
amounts to which the Secured Parties are legally entitled, the
Debtors will be liable for the deficiency, together with interest
thereon, at the rate of 12.5% per annum or the lesser amount
permitted by applicable law (the “Default Rate”), and the
reasonable fees of any attorneys employed by the Secured Parties to
collect such deficiency. To the extent permitted by applicable law,
each Debtor waives all claims, damages and demands against the
Secured Parties arising out of the repossession, removal, retention
or sale of the Collateral, unless due solely to the gross
negligence or willful misconduct of the Secured Parties as
determined by a final judgment (not subject to further appeal) of a
court of competent jurisdiction.
10. Securities
Law Provision. Each Debtor recognizes that Agent may be
limited in its ability to effect a sale to the public of all or
part of the Pledged Securities or Pledged Interests by reason of
certain prohibitions in the Securities Act of 1933, as amended, or
other federal or state securities laws (collectively, the
“Securities
Laws”), and may be compelled to resort to one or more
sales to a restricted group of purchasers who may be required to
agree to acquire the Pledged Securities or Pledged Interests for
their own account, for investment and not with a view to the
distribution or resale thereof. Each Debtor agrees that sales so
made may be at prices and on terms less favorable than if the
Pledged Securities or Pledged Interests were sold to the public,
and that Agent has no obligation to delay the sale of any Pledged
Securities or Pledged Interests for the period of time necessary to
register the Pledged Securities or Pledged Interests for sale to
the public under the Securities Laws. Each Debtor shall cooperate
with Agent in its attempt to satisfy any requirements under the
Securities Laws (including, without limitation, registration
thereunder if requested by Agent) applicable to the sale of the
Pledged Securities and Pledged Interests by Agent.
11. Costs
and Expenses. Each Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with
any filing required hereunder, including without limitation, any
financing statements pursuant to the UCC, continuation statements,
partial releases and/or termination statements related thereto, or
any expenses of any searches reasonably required by the Agent. The
Debtors shall also pay all other claims and charges which in the
reasonable opinion of the Agent are reasonably likely to prejudice,
imperil or otherwise affect the Collateral or the Security
Interests therein. The Debtors will also, upon demand, pay to the
Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and
agents, which the Agent, for the benefit of the Secured Parties,
may incur in connection with the creation, perfection, protection,
satisfaction, foreclosure, collection or enforcement of the
Security Interest and the preparation, administration, continuance,
amendment or enforcement of this Agreement and pay to the Agent the
amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents,
which the Agent, for the benefit of the Secured Parties, and the
Secured Parties may incur in connection with (i) the enforcement of
this Agreement, (ii) the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the
Collateral, or (iii) the exercise or enforcement of any of the
rights of the Secured Parties under the Transaction Documents (as
defined in the Purchase Agreement). Until so paid, any fees payable
hereunder shall be added to the amounts owed under the Transaction
Documents (as defined in the Purchase Agreement) and shall bear
interest at the Default Rate.
12. Responsibility
for Collateral. The Debtors assume all liabilities and
responsibility in connection with all Collateral, and the
Obligations shall in no way be affected or diminished by reason of
the loss, destruction, damage or theft of any of the Collateral or
its unavailability for any reason. Without limiting the generality
of the foregoing and except as required by applicable law, (a)
neither the Agent nor any Secured Party (i) has any duty (either
before or after an Event of Default) to collect any amounts in
respect of the Collateral or to preserve any rights relating to the
Collateral, or (ii) has any obligation to clean-up or otherwise
prepare the Collateral for sale, and (b) each Debtor shall remain
obligated and liable under each contract or agreement included in
the Collateral to be observed or performed by such Debtor
thereunder. Neither the Agent nor any Secured Party shall have any
obligation or liability under any such contract or agreement by
reason of or arising out of this Agreement or the receipt by the
Agent or any Secured Party of any payment relating to any of the
Collateral, nor shall the Agent or any Secured Party be obligated
in any manner to perform any of the obligations of any Debtor under
or pursuant to any such contract or agreement, to make inquiry as
to the nature or sufficiency of any payment received by the Agent
or any Secured Party in respect of the Collateral or as to the
sufficiency of any performance by any party under any such contract
or agreement, to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts
which may have been assigned to the Agent or to which the Agent or
any Secured Party may be entitled at any time or
times.
13. Security
Interests Absolute. All rights of the Secured Parties and
all obligations of each Debtor hereunder, shall be absolute and
unconditional, irrespective of: (a) any lack of validity or
enforceability of this Agreement, the Securities, the Transaction
Documents (as defined in the Purchase Agreement), or any agreement
entered into in connection with the foregoing, or any portion
hereof or thereof, against any other Debtor or Guarantor; (b) any
change in the time, manner or place of payment or performance of,
or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from
the Transaction Documents (as defined in the Purchase Agreement) or
any other agreement entered into in connection with the foregoing;
(c) any exchange, release or nonperfection of any of the
Collateral, or any release or amendment or waiver of or consent to
departure from any other collateral for, or any guarantee, or any
other security, for all or any of the Obligations; (d) any action
by the Secured Parties to obtain, adjust, settle and cancel in its
sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which
might otherwise constitute any legal or equitable defense available
to a Debtor, or a discharge of all or any part of the Security
Interests granted hereby. Until the Obligations shall have been
paid and performed in full, the rights of the Secured Parties shall
continue even if the Obligations are barred for any reason,
including, without limitation, the running of the statute of
limitations. Each Debtor expressly waives presentment, protest,
notice of protest, demand, notice of nonpayment and demand for
performance. In the event that at any time any transfer of any
Collateral or any payment received by the Secured Parties hereunder
shall be deemed by final order of a court of competent jurisdiction
to have been a voidable preference or fraudulent conveyance under
the bankruptcy or insolvency laws of the United States, or shall be
deemed to be otherwise due to any party other than the Secured
Parties, then, in any such event, each Debtor’s obligations
hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or
cancellation of this Agreement, but shall remain a valid and
binding obligation enforceable in accordance with the terms and
provisions hereof. Each Debtor waives all right to require the
Secured Parties to proceed against any other person or entity or to
apply any Collateral which the Secured Parties may hold at any
time, or to marshal assets, or to pursue any other remedy. Each
Debtor waives any defense arising by reason of the application of
the statute of limitations to any obligation secured
hereby.
14. Term
of Agreement. This Agreement shall terminate on the date on
which all payments under the Securities and the Transaction
Documents (as defined in the Purchase Agreement) (have been
indefeasibly paid in full and all other Obligations have been paid
or discharged; provided, however, that all indemnities of the
Debtors contained in this Agreement shall survive and remain
operative and in full force and effect regardless of the
termination of this Agreement.
15. Power
of Attorney; Further Assurances.
(a) Each
Debtor authorizes the Agent, and does hereby make, constitute and
appoint the Agent and its officers, agents, successors or assigns
with full power of substitution, as such Debtor’s true and
lawful attorney-in-fact, with power, in the name of the Agent or
such Debtor, to, after the occurrence and during the continuance of
an Event of Default, (i) endorse any note, checks, drafts, money
orders or other instruments of payment (including payments payable
under or in respect of any policy of insurance) in respect of the
Collateral that may come into possession of the Agent; (ii) to sign
and endorse any financing statement pursuant to the UCC or any
invoice, freight or express bill, bill of lading, storage or
warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other
documents relating to the Collateral; (iii) to pay or discharge
taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral; (iv) to
demand, collect, receipt for, compromise, settle and sue for monies
due in respect of the Collateral; (v) to transfer any Intellectual
Property or provide licenses respecting any Intellectual Property;
and (vi) generally, at the option of the Agent, and at the expense
of the Debtors, at any time, or from time to time, to execute and
deliver any and all documents and instruments and to do all acts
and things which the Agent deems necessary to protect, preserve and
realize upon the Collateral and the Security Interests granted
therein in order to effect the intent of this Agreement and the
Transaction Documents (as defined in the Purchase Agreement) all as
fully and effectually as the Debtors might or could do; and each
Debtor hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is
coupled with an interest and shall be irrevocable for the term of
this Agreement and thereafter as long as any of the Obligations
shall be outstanding. The designation set forth herein shall be
deemed to amend and supersede any inconsistent provision in the
Organizational Documents or other documents or agreements to which
any Debtor is subject or to which any Debtor is a party. Without
limiting the generality of the foregoing, after the occurrence and
during the continuance of an Event of Default, each Secured Party
is specifically authorized to execute and file any applications for
or instruments of transfer and assignment of any patents,
trademarks, copyrights or other Intellectual Property with the
United States Patent and Trademark Office and the United States
Copyright Office.
(b) On
a continuing basis, each Debtor will make, execute, acknowledge,
deliver, file and record, as the case may be, with the proper
filing and recording agencies in any jurisdiction, including,
without limitation, the jurisdictions indicated on Schedule C attached hereto, all
such instruments, and take all such action as may reasonably be
deemed necessary or advisable, or as reasonably requested by the
Agent, to perfect the Security Interests granted hereunder and
otherwise to carry out the intent and purposes of this Agreement,
or for assuring and confirming to the Agent the grant or perfection
of a perfected security interest in all the Collateral under the
UCC.
(c) Each
Debtor hereby irrevocably appoints the Agent as such Debtor’s
attorney-in-fact, with full authority in the place and instead of
such Debtor and in the name of such Debtor, from time to time in
the Agent’s discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in
its sole discretion, of one or more financing or continuation
statements and amendments thereto, relative to any of the
Collateral without the signature of such Debtor where permitted by
law, which financing statements may (but need not) describe the
Collateral as “all assets” or “all personal
property” or words of like import, and ratifies all such
actions taken by the Agent. This power of attorney is coupled with
an interest and shall be irrevocable for the term of this Agreement
and thereafter as long as any of the Obligations shall be
outstanding.
16. Notices.
All notices, requests, demands and other communications hereunder
shall be subject to the notice provision of the Purchase
Agreement.
17. Other
Security. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the
guarantee, endorsement or property of any other person, firm,
corporation or other entity, then the Agent shall have the right,
in its sole discretion, to pursue, relinquish, subordinate, modify
or take any other action with respect thereto, without in any way
modifying or affecting any of the Secured Parties’ rights and
remedies hereunder.
18. Appointment
of Agent. The Secured Parties hereby appoint 3i, LP to act
as their agent ( “Agent”) for purposes of
exercising any and all rights and remedies of the Secured Parties
hereunder. The Agent shall have the rights, responsibilities and
immunities set forth in Annex B hereto.
19. Miscellaneous.
(a) No
course of dealing between the Debtors and the Secured Parties, nor
any failure to exercise, nor any delay in exercising, on the part
of the Secured Parties, any right, power or privilege hereunder or
under the Transaction Documents (as defined in the Purchase
Agreement) shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
(b) All
of the rights and remedies of the Secured Parties with respect to
the Collateral, whether established hereby, the Securities or the
Transaction Documents (as defined in the Purchase Agreement) or by
any other agreements, instruments or documents or by law shall be
cumulative and may be exercised singly or
concurrently.
(c) This
Agreement, together with the exhibits and schedules hereto,
contains the entire understanding of the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into this Agreement
and the exhibits and schedules hereto. 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
Debtors and the Secured Parties holding a Majority in Interest or
more of the Principal Amount, as defined in the Note, then issued
and outstanding, or, in the case of a waiver, by the party against
whom enforcement of any such waived provision is sought provided,
however, that no such waiver,
modification, supplement or amendment,
as applied to any provision of this Agreement, shall, without the
written consent of that particular Secured Party disproportionally
and adversely affect any rights under this Agreement of such
Secured Party.
(d) 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.
(e) 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.
(f) This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company and
the Guarantors may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each
Secured Party (other than by merger). Any Secured Party may assign
any or all of its rights under this Agreement to any Person (as
defined in the Purchase Agreement) to whom such Secured Party
assigns or transfers any Obligations, provided such transferee
agrees in writing to be bound, with respect to the transferred
Obligations, by the provisions of this Agreement that apply to the
“Secured Parties.”
(g) Each
party shall take such further action and execute and deliver such
further documents as may be necessary or appropriate in order to
carry out the provisions and purposes of this
Agreement.
(h) Except
to the extent mandatorily governed by the jurisdiction or situs
where the Collateral is located, all questions concerning the
construction, validity, enforcement and interpretation of this
Agreement 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. Except to the
extent mandatorily governed by the jurisdiction or situs where the
Collateral is located, each Debtor agrees that all proceedings
concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and the Transaction
Documents (as defined in the Purchase Agreement) (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, Borough of Manhattan. Except to
the extent mandatorily governed by the jurisdiction or situs where
the Collateral is located, each Debtor 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, and
hereby irrevocably waives, and agrees not to assert in any
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such proceeding is improper.
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 Agreement
or the transactions contemplated hereby.
(i) This
Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and, all
of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.
(j) All
Debtors shall jointly and severally be liable for the obligations
of each Debtor to the Secured Parties hereunder.
(k) Each
Debtor shall indemnify, reimburse and hold harmless the Agent and
the Secured Parties and their respective partners, members,
shareholders, officers, directors, employees and agents (and any
other persons with other titles that have similar functions)
(collectively, “Indemnitees”) from and
against any and all losses, claims, liabilities, damages,
penalties, suits, costs and expenses, of any kind or nature,
(including fees relating to the cost of investigating and defending
any of the foregoing) imposed on, incurred by or asserted against
such Indemnitee in any way related to or arising from or alleged to
arise from this Agreement or the Collateral, except any such
losses, claims, liabilities, damages, penalties, suits, costs and
expenses which result from the gross negligence or willful
misconduct of the Indemnitee as determined by a final,
nonappealable decision of a court of competent jurisdiction. This
indemnification provision is in addition to, and not in limitation
of, any other indemnification provision in the Purchase Agreement,
the Transaction Documents (as defined in the Purchase Agreement),
or any other agreement, instrument or other document executed or
delivered in connection herewith or therewith.
(l) Nothing
in this Agreement shall be construed to subject Agent or any
Secured Party to liability as a partner in any Debtor or any if its
direct or indirect subsidiaries that is a partnership or as a
member in any Debtor or any of its direct or indirect subsidiaries
that is a limited liability company, nor shall Agent or any Secured
Party be deemed to have assumed any obligations under any
partnership agreement or limited liability company agreement, as
applicable, of any such Debtor or any of its direct or indirect
subsidiaries or otherwise, unless and until any such Secured Party
exercises its right to be substituted for such Debtor as a partner
or member, as applicable, pursuant hereto.
(m) To
the extent that the grant of the security interest in the
Collateral and the enforcement of the terms hereof require the
consent, approval or action of any partner or member, as
applicable, of any Debtor or any direct or indirect subsidiary of
any Debtor or compliance with any provisions of any of the
Organizational Documents, the Debtors hereby represent that all
such consents and approvals have been obtained.
[SIGNATURE
PAGE OF DEBTORS FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above
written.
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By:
/s/ Emiliano
Aloi
Name:
Emiliano Aloi
Title:
President & CEO
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[SIGNATURE
PAGE OF HOLDERS FOLLOWS]
[SIGNATURE
PAGE OF HOLDERS TO SECURITY AGREEMENT]
Name of
Secured Party: 3i,
LP
Signature of Authorized Signatory of Secured Party:
/s/ Maier
Tarlow
Name of
Authorized Signatory: Maier Tarlow
Title
of Authorized Signatory: Authorized Signer
DISCLOSURE SCHEDULES
(Security
Agreement)
The
following are the Disclosure Schedules (the “Disclosure Schedules”)
referred to in that certain Security Agreement, dated as of
November 27, 2019 (the “Agreement”), by and
between Exactus, Inc., a Nevada corporation (the
“Company”),
any subsidiary and affiliate of the Company that is a signatory
hereto either now or joined in the future (the “Subsidiaries”, and,
together with the Company, the “Debtors”) and the
holder(s) of the Note (as defined in the Agreement), their
endorsees, transferees and assigns (collectively, the
“Secured
Parties”).
SCHEDULE A
Principal Place of Business of Debtors:
Locations Where Collateral is Located or Stored
Exactus
Offices:
80 NE
4th
Avenue
Suite
28
Delray
Beach, Florida 33483
80 NE
4th
Avenue
Suite
18
Delray
Beach, Florida 33483
95 NE
4th
Avenue
Suite
100
Delray
Beach, Florida 33483
SCHEDULE B
Liens on Assets
None
SCHEDULE C
Governmental or regulatory filing evidencing liens on
collateral
None
SCHEDULE D
Organizational Information on Subsidiaries of Exactus,
Inc.
Exactus,
Inc. – Nevada Corporation
SCHEDULE E
See
Schedule H below for subsidiary information.
Exactus,
Inc. (the Debtor) consists of multiple brands.
SCHEDULE F
Patents & trademarks listing
See
patent information set forth in separate attachment
(None)
See
trademark information set forth in separate
attachment:
Green
Goddess Extracts
SCHEDULE G
Account debtors’ governmental authority
None
SCHEDULE H
Pledged ownership & equity interests in partnerships and
LLC’s
Exactus
One World, LLC (organized in Oregon) – 50.1%
interest
Paradise
Medlife, LLC (organized in Florida) – 51%
interest
SCHEDULE I
Written claims upon the Collateral
Legal:
In July
2018 we received notice of the expiration and termination of a
license agreement dated January 19, 2016 acquired through the Share
Exchange by our subsidiary Exactus BioSolutions, Inc that the
Company recognized as an intangible asset from Digital Diagnostics,
Inc. (“Digital Diagnostics”) related to our FibriLyzer
and MatriLyzer technologies. In addition, on December 14,
2018 we received a letter from KD Innovation, Ltd.
(“KDI”) and Dr. Krassen Dimitrov, our former director
seeking payment for alleged past due consulting fees from June 2017
through November 2018 pursuant to a Consulting Agreement dated
January 20, 2016. On January 23, 2019, Digital Diagnostics,
made a demand for compensation against the Company in connection
with an alleged breach of a License Agreement. Under the terms of
these agreements, the parties are required to arbitrate
claims. Although we dispute the material allegations made by
Digital Diagnostics and KDI, if such actions were successful
damages could be awarded against us.
On
December 14, 2018, the Company received a termination and demand
notice from KD Innovation, Ltd, an entity 100% owned by a former
Board member, in connection with a consulting agreement KDI entered
into with the Company’s subsidiary, Exactus Biosolutions,
Inc., on or about January 20, 2016. No lawsuit has been filed;
however, in the event a lawsuit is filed, the Company intends to
vigorously contest the matter.
On
September 25, 2019, Jonathan Gilbert, a former director, filed and
served a complaint against the Company in the courts of Nassau
County, New York. The complaint alleges that Mr. Gilbert is
entitled to retain certain cancelled equity awards and seeks
specific performance and damages. The Company has filed a notice of
removal and intends to vigorously defend the allegations as it
believes the claims are without merit.
SCHEDULE J
Pledged ownership & equity interests in partnerships and
LLC’s
See
Note H
ANNEX A
to
SECURITY AGREEMENT
FORM OF ADDITIONAL DEBTOR JOINDER
Security
Agreement dated as of November 27, 2019, made by Exactus, Inc. and
its subsidiaries party thereto from time to time, as Debtors to and
in favor of the Secured Parties identified therein (the
“Security
Agreement”).
Reference is made
to the Security Agreement as defined above; capitalized terms used
herein and not otherwise defined herein shall have the meanings
given to such terms in, or by reference in, the Security
Agreement.
The
undersigned hereby agrees that, upon delivery of this Additional
Debtor Joinder to the Secured Parties referred to above, the
undersigned shall (a) be an Additional Debtor under the Security
Agreement, (b) have all the rights and obligations of the Debtors
under the Security Agreement as fully and to the same extent as if
the undersigned was an original signatory thereto and (c) be deemed
to have made the representations and warranties set forth therein
as of the date of execution and delivery of this Additional Debtor
Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY
INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY
AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL
PROVISIONS SET FORTH THEREIN.
Attached hereto are
supplemental and/or replacement Schedules to the Security
Agreement, as applicable.
An
executed copy of this Joinder shall be delivered to the Secured
Parties, and the Secured Parties may rely on the matters set forth
herein on or after the date hereof. This Joinder shall not be
modified, amended or terminated without the prior written consent
of the Secured Parties.
IN
WITNESS WHEREOF, the undersigned has caused this Joinder to be
executed in the name and on behalf of the undersigned.
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[Name
of Additional Debtor]
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By:
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Name:
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Title:
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Address:
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Dated:
ANNEX B
to
SECURITY
AGREEMENT
THE AGENT
1.
Appointment. The Secured Parties (all
capitalized terms used herein and not otherwise defined shall have
the respective meanings provided in the Security Agreement to which
this Annex B is attached (the “Agreement”)), by their
acceptance of the benefits of the Agreement, hereby designate 3i,
LP ( “Agent”) as the Agent to
act as specified herein and in the Agreement. Each Secured Party
shall be deemed irrevocably to authorize the Agent to take such
action on its behalf under the provisions of the Agreement and any
other Transaction Document (as such term is defined in the Purchase
Agreement) and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or
required of the Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Agent may
perform any of its duties hereunder by or through its agents or
employees.
2.
Nature of Duties. The Agent shall have no duties or
responsibilities except those expressly set forth in the Agreement.
Neither the Agent nor any of its partners, members, shareholders,
officers, directors, employees or agents shall be liable for any
action taken or omitted by it as such under the Agreement or
hereunder or in connection herewith or therewith, be responsible
for the consequence of any oversight or error of judgment or
answerable for any loss, unless caused solely by its or their gross
negligence or willful misconduct as determined by a final judgment
(not subject to further appeal) of a court of competent
jurisdiction. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of the
Agreement or any other Transaction Document a fiduciary
relationship in respect of any Debtor or any Secured Party; and
nothing in the Agreement or any other Transaction Document,
expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of the Agreement
or any other Transaction Document except as expressly set forth
herein and therein.
3.
Lack of Reliance on the
Agent. Independently and without reliance upon the Agent,
each Secured Party, to the extent it deems appropriate, has made
and shall continue to make (i) its own independent investigation of
the financial condition and affairs of the Company and its
subsidiaries in connection with such Secured Party’s
investment in the Debtors, the creation and continuance of the
Obligations, the transactions contemplated by the Transaction
Documents, and the taking or not taking of any action in connection
therewith, and (ii) its own appraisal of the creditworthiness of
the Company and its subsidiaries, and of the value of the
Collateral from time to time, and the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to
provide any Secured Party with any credit, market or other
information with respect thereto, whether coming into its
possession before any Obligations are incurred or at any time or
times thereafter. The Agent shall not be responsible to the Debtors
or any Secured Party for any recitals, statements, information,
representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith, or
for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectability, priority or sufficiency
of the Agreement or any other Transaction Document, or for the
financial condition of the Debtors or the value of any of the
Collateral, or be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or
conditions of the Agreement or any other Transaction Document, or
the financial condition of the Debtors, or the value of any of the
Collateral, or the existence or possible existence of any default
or Event of Default under the Agreement, the Notes or any of the
other Transaction Documents.
4.
Certain Rights of the Agent.
The Agent shall have the right to take any action with respect to
the Collateral, on behalf of all of the Secured Parties. To the
extent practical, the Agent shall request instructions from the
Secured Parties with respect to any material act or action
(including failure to act) in connection with the Agreement or any
other Transaction Document, and shall be entitled to act or refrain
from acting in accordance with the instructions of a Majority in
Interest; if such instructions are not provided despite the
Agent’s request therefor, the Agent shall be entitled to
refrain from such act or taking such action, and if such action is
taken, shall be entitled to appropriate indemnification from the
Secured Parties in respect of actions to be taken by the Agent; and
the Agent shall not incur liability to any person or entity by
reason of so refraining. Without limiting the foregoing, (a) no
Secured Party shall have any right of action whatsoever against the
Agent as a result of the Agent acting or refraining from acting
hereunder in accordance with the terms of the Agreement or any
other Transaction Document, and the Debtors shall have no right to
question or challenge the authority of, or the instructions given
to, the Agent pursuant to the foregoing and (b) the Agent shall not
be required to take any action which the Agent believes (i) could
reasonably be expected to expose it to personal liability or (ii)
is contrary to this Agreement, the Transaction Documents or
applicable law.
5.
Reliance. The Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, statement, certificate, telex,
teletype or telecopier message, cablegram, radiogram, order or
other document or telephone message signed, sent or made by the
proper person or entity, and, with respect to all legal matters
pertaining to the Agreement and the other Transaction Documents and
its duties thereunder, upon advice of counsel selected by it and
upon all other matters pertaining to this Agreement and the other
Transaction Documents and its duties thereunder, upon advice of
other experts selected by it. Anything to the contrary
notwithstanding, the Agent shall have no obligation whatsoever to
any Secured Party to assure that the Collateral exists or is owned
by the Debtors or is cared for, protected or insured or that the
liens granted pursuant to the Agreement have been properly or
sufficiently or lawfully created, perfected, or enforced or are
entitled to any particular priority.
6.
Indemnification. To the extent that the Agent is not
reimbursed and indemnified by the Debtors, the Secured Parties will
jointly and severally reimburse and indemnify the Agent, in
proportion to their initially purchased respective principal
amounts of Notes, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the Agent
in performing its duties hereunder or under the Agreement or any
other Transaction Document, or in any way relating to or arising
out of the Agreement or any other Transaction Document except for
those determined by a final judgment (not subject to further
appeal) of a court of competent jurisdiction to have resulted
solely from the Agent’s own gross negligence or willful
misconduct. Prior to taking any action hereunder as Agent, the
Agent may require each Secured Party to deposit with it sufficient
sums as it determines in good faith is necessary to protect the
Agent for costs and expenses associated with taking such
action.
7.
Resignation by the
Agent.
(a) The
Agent may resign from the performance of all its functions and
duties under the Agreement and the other Transaction Documents at
any time by giving 30 days’ prior written notice (as provided
in the Agreement) to the Debtors and the Secured Parties. Such
resignation shall take effect upon the appointment of a successor
Agent pursuant to clauses (b) and (c) below.
(b)
Upon any such notice of resignation, the Secured Parties, acting by
a Majority in Interest, shall appoint a successor Agent
hereunder.
(c) If
a successor Agent shall not have been so appointed within said
30-day period, the Agent shall then appoint a successor Agent who
shall serve as Agent until such time, if any, as the Secured
Parties appoint a successor Agent as provided above. If a successor
Agent has not been appointed within such 30-day period, the Agent
may petition any court of competent jurisdiction or may interplead
the Debtors and the Secured Parties in a proceeding for the
appointment of a successor Agent, and all fees, including, but not
limited to, extraordinary fees associated with the filing of
interpleader and expenses associated therewith, shall be payable by
the Debtors on demand.
8.
Rights with respect to
Collateral. Each
Secured Party agrees with all other Secured Parties and the Agent
(i) that it shall not, and shall not attempt to, exercise any
rights with respect to its security interest in the Collateral,
whether pursuant to any other agreement or otherwise (other than
pursuant to this Agreement), or take or institute any action
against the Agent or any of the other Secured Parties in respect of
the Collateral or its rights hereunder (other than any such action
arising from the breach of this Agreement) and (ii) that such
Secured Party has no other rights with respect to the Collateral
other than as set forth in this Agreement and the other Transaction
Documents. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent
shall be discharged from its duties and obligations under the
Agreement. After any retiring Agent’s resignation or removal
hereunder as Agent, the provisions of the Agreement including this
Annex B shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent.
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS
INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “Agreement”), dated as of
November 27, 2019, by Exactus, Inc., a Nevada corporation (the
“Grantor”), in favor of
3i, LP, as a secured lender and Agent, and the other Secured
Parties signatory to the Security Agreement (collectively, the
“Secured
Party”).
WHEREAS:
A. Reference
is made to that certain Security Agreement (the “Security Agreement”),
entered into by and among the Grantor, the other
“Guarantors” party thereto, and the Secured Party,
which secures certain now existing and future arising obligations
owing to the Secured Party (as defined in the Security Agreement)
under the Transaction Documents (as defined in the Purchase
Agreement (as defined below)), as provided in the Security
Agreement;
B. Pursuant
to the Security Agreement and that certain Securities Purchase
Agreement (the “Purchase Agreement”),
entered into between the Grantor and Secured Party, the Grantor is
required to execute and deliver to the Secured Party this
Agreement;
C. Pursuant
to the terms of the Security Agreement, the Grantor has granted to
the Secured Party (as defined in the Security Agreement), a
security interest in substantially all the assets of the Grantor,
including all right, title and interest of the Grantor in, the IP
Collateral (as defined below);
D. Capitalized
terms used and not otherwise defined herein that are defined in the
Security Agreement or the Purchase Agreement shall have the
meanings given such terms in the Security Agreement or the Purchase
Agreement.
NOW, THEREFORE, in consideration of the
mutual agreements set forth herein and for good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the Grantor hereby grants to the Secured Party, for
the benefit of the Secured Party (as defined in the Security
Agreement), to secure the Obligations (as defined in the Security
Agreement), a continuing security interest in all of the
Grantor’s right, title and interest in, to and under the
following, whether presently existing or hereafter created or
acquired:
1. Each
United States and foreign trademark and trademark application,
including, without limitation, each United States federally
registered trademark and trademark application referred to in
Schedule 1 annexed
hereto, together with any reissues, continuations or extensions
thereof and all goodwill associated therewith;
2. Each
trademark license, including, without limitation, each trademark
license listed on Schedule
1 annexed hereto, together with all goodwill associated
therewith;
3. All
products and proceeds of the foregoing items 1 through 2,
including, without limitation, any claim by the Grantor against
third parties for past, present or future infringement,
misappropriation, dilution, violation or other impairment of any
trademark, including, without limitation, any trademark referred to
in Schedule 1
annexed hereto, any trademark issued pursuant to a trademark
application referred to in Schedule 1 and any trademark
licensed under any trademark license listed on Schedule 1 annexed hereto
(items 1 through 3 being herein collectively referred to as the
“Trademark
Collateral”);
4. Each
United States and foreign patent and patent application, including,
without limitation, each United States federally registered patent
and patent application referred to in Schedule 2 annexed hereto,
together with any reissues, continuations or extensions thereof and
all goodwill associated therewith;
5. Each
patent license, including, without limitation, each patent license
listed on Schedule
2 annexed hereto, together with all goodwill associated
therewith;
6. All
products and proceeds of the foregoing items 4 through 5,
including, without limitation, any claim by the Grantor against
third parties for past, present or future infringement,
misappropriation, dilution, violation or other impairment of any
patent, including, without limitation, any patent referred to in
Schedule 2 annexed
hereto, any trademark issued pursuant to a patent application
referred to in Schedule
2 and any patent licensed under any patent license listed on
Schedule 2 annexed
hereto (items 4 through 6 being herein collectively referred to as
the “Patent
Collateral”);
7. If
applicable, each United States and foreign copyright and copyright
application, including, without limitation, each United States
federally registered copyright and copyright application referred
to in Schedule 3
annexed hereto, together with any reissues, continuations or
extensions thereof and all goodwill associated
therewith;
8. If
applicable, each copyright license, including, without limitation,
each copyright license listed on Schedule 3 annexed hereto,
together with all goodwill associated therewith;
9. All
products and proceeds of the foregoing items 7 through 8,
including, without limitation, any claim by the Grantor against
third parties for past, present or future infringement,
misappropriation, dilution, violation or other impairment of any
copyright, including, without limitation, any copyright referred to
in Schedule 3
annexed hereto, any copyright issued pursuant to a copyright
application referred to in Schedule 3 and any copyright
licensed under any copyright license listed on Schedule 3 annexed hereto
(items 7 through 9 being herein collectively referred to as the
“Copyright
Collateral”; items 1 through 9 being herein (i.e., the
Trademark Collateral, the Patent Collateral, and the Copyright
Collateral) collectively referred to as the “IP Collateral”).
This
security interest is granted in conjunction with the security
interests granted to the Secured Party, pursuant to the Security
Agreement and the other Transaction Documents (as defined in the
Purchase Agreement). The Grantor hereby acknowledges and affirms
that the rights and remedies of the Secured Party with respect to
the security interest in the IP Collateral made and granted hereby
are more fully set forth in the Transaction Documents (as defined
in the Purchase Agreement), the terms and provisions of which are
incorporated by reference herein as if fully set forth herein.
Capitalized terms used but not defined herein have the respective
meanings ascribed thereto in the Transaction Documents (as defined
in the Purchase Agreement).
Grantor
shall give Secured Party prior written notice of no less than five
(5) Business Days before filing any additional application for
registration of any trademark and prompt notice in writing of any
additional trademark registrations, patent registration, or
copyright registrations granted therefor after the date hereof.
Without limiting Grantor’s obligations under this paragraph,
Grantor hereby authorizes Secured Party unilaterally to modify this
Agreement by amending Schedules 1, 2, or 3 to include any future
United States registered trademarks, patents, copyrights or
applications therefor of Grantor. Notwithstanding the foregoing, no
failure to so modify this Agreement or amend Schedules 1, 2, or 3
shall in any way affect, invalidate or detract from Secured
Party’s continuing security interest in all Collateral,
whether or not listed on Schedule 1, 2, or 3.
Grantor
hereby agrees that, anything herein to the contrary
notwithstanding, such Grantor shall assume full and complete
responsibility for the prosecution, defense, enforcement or any
other necessary or desirable actions in connection with their
trademarks subject to the security interest hereunder.
This
Agreement may be executed in any number of counterparts and by
different parties in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Signature
pages may be detached from multiple separate counterparts and
attached to a single counterpart.
This
Agreement is a Transaction Document (as defined in the Purchase
Agreement).
This
Agreement shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation
and performance of this Agreement and all disputes arising
hereunder shall be governed by, the laws of the State of New York,
without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The parties hereto
(a) agree that any legal action or proceeding with respect to this
Agreement or any other agreement, document, or other instrument
executed in connection herewith or therewith, shall be brought in
any state or federal court located within the City of New York, New
York, (b) irrevocably waive any objections which either may now or
hereafter have to the venue of any suit, action or proceeding
arising out of or relating to this Agreement, or any other
agreement, document, or other instrument executed in connection
herewith, brought in the aforementioned courts and (c) further
irrevocably waive any claim that any such suit, action, or
proceeding brought in any such court has been brought in an
inconvenient forum.
Each of
the Grantor and the Secured Party hereby acknowledges and affirms
that Section 18 and Section 19 of the Security Agreement are
incorporated by reference herein as if fully set forth herein. It
is the intention of the parties that such Sections and the terms
and provisions of the previous paragraph are to the extent feasible
meant to be read together for the purpose of achieving the utmost
consistency.
[Remainder of Page Intentionally Left Blank; Signature Page
Follows]
The
Grantor has caused this Intellectual Property Security Agreement to
be duly executed by its duly authorized officer thereunto as of the
date first set forth above.
EXACTUS, INC., a Nevada
corporation
Name: Emiliano Aloi
Title: President
& CEO
Acknowledged:
3I, LP
as
Secured Party and Agent
Name:
Maier Tarlow
Title:
Authorized Signer
SCHEDULE 1
to
INTELLECTUAL PROPERTY SECURITY AGREEMENT
Trademark Collateral
SCHEDULE 2
to
INTELLECTUAL PROPERTY SECURITY AGREEMENT
Patent Collateral
SCHEDULE 3
to
INTELLECTUAL PROPERTY SECURITY AGREEMENT
Copyright Collateral
Exhibit
10.7
WARRANT
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE
OF THESE SECURITIES 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 APPLICABLE
STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (II) 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 OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
EXACTUS, INC.
WARRANT TO PURCHASE COMMON STOCK
|
Warrant No. A1
|
Original Issue Date: November 27, 2019
|
Exactus Inc., a Nevada corporation (the “Company”),
hereby certifies that, for value received, Alliance Global
Partners, or its permitted registered assigns (the
“Holder”),
is entitled to purchase from the Company shares of common stock,
$0.0001 par value (the “Common
Stock”), of the Company
(each such share, a “Warrant
Share” and all such
shares, the “Warrant
Shares”) as determined in
accordance with the terms herein, at the Exercise Price (as defined
below) at any time and from time to time from on or after the date
hereof (the “Trigger
Date”) and through and
including 5:00 P.M., prevailing Eastern time, on November __, 2023
(the “Expiration
Date”), and subject to
the following terms and conditions:
This Warrant (this “Warrant”)
is issued pursuant to that certain Engagement Agreement dated
October 25, 2019 between the Company and the Holder (the
“Engagement
Agreement”).
1. Definitions
. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the
meanings given to such terms in as set forth in that certain
Securities Purchase Agreement (as may be amended from time to time,
the “Purchase
Agreement”), dated
November 27, 2019, among the Company and the purchasers signatory
thereto.
2. Exercise
Price
. For purposes of this Warrant, the “Exercise
Price” shall be equal to
110% of the of the then Closing Sale Price of the Company’s
Common Stock as of the Initial Closing Date (as adjusted from time
to time as provided in Section 11 herein).
3. Number
of Warrant Shares
. The aggregate number of Warrant Shares shall be equal to 8% of
the aggregate number of shares of Common Stock issued by the
Company upon conversion of of Eight Hundred and
Thirty Three Thousand Three Hundred Thirty Three and 33/100 Dollars
($833,333.33) in Principal Amount of Notes (the
“Initial
Notes”).
4. Registration
of Warrants
. 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 (which shall include the initial Holder or, as
the case may be, any registered assignee to which this Warrant is
permissibly assigned hereunder) 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.
5. Transfers;
Lock-Up Period
.
(a) The
Company shall register the transfer of all or any portion of this
Warrant in the Warrant Register, upon (i) surrender of this
Warrant, with the Form of Assignment attached as
Schedule
2 hereto duly completed and
signed, to the Company’s transfer agent or to the Company at
its address specified herein (ii) delivery, at the request of the
Company, of an opinion of counsel reasonably satisfactory to the
Company to the effect that the transfer of such portion of this
Warrant may be made pursuant to an available exemption from the
registration requirements of the Securities Act of 1933
(“Securities
Act”) and all applicable
state securities or blue sky laws and (iii) delivery by the
transferee of a written statement to the Company certifying that
the transferee is an “accredited investor” as defined
in Rule 501(a) under the Securities Act and making the
representations and certifications as the Company may reasonably
request to procure an exemption from Section 5 of the Securities
Act. Upon any such registration or transfer, a new warrant to
purchase Common Stock in substantially the form of this Warrant
(any such new warrant, a “New
Warrant”) evidencing the
portion of this Warrant so transferred shall be issued to the
transferee, and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a Holder of a
Warrant.
(b) The
Holder agrees that in the event of a public offering of the
Company’s securities, pursuant to the Lock-Up Period (as
defined below) contained in Rule 5110(g)(1) of the Financial
Industry Regulatory Authority, Inc. (“FINRA”),
it will not (a) sell, transfer, assign, pledge, hypothecate or
otherwise transfer the Warrant (including any Warrant Shares issued
or issuable hereunder) other than to a bona fide officer, partner
or other associated person of the Holder or any selected dealer (or
any officer, partner or other associated person thereof) in
connection with the initial public offering, in each case in
accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause the
Warrant or any Warrant Shares issued or issuable hereunder to be
the subject of any hedging, short sale, derivative, put or call
transaction that would result in the effective economic disposition
of the Warrant or any Warrant Shares issued or issuable hereunder,
except as provided for in FINRA Rule 5110(g)(2). As used herein,
the term “Lock-Up
Period” means the period
beginning on the date that a registration statement of the Company
under the Securities Act is declared effective by the Securities
and Exchange Commission (the “Effective
Date”) and ending on the
one hundred eighty day anniversary of the Effective
Date.
6. Exercise
and Duration of Warrants.
(a) All
or any part of this Warrant shall be exercisable by the registered
Holder at any time and from time to time on or after the Trigger
Date and through and including 5:00 P.M. prevailing Pacific
time on the Expiration Date. At 5:00 P.M., prevailing Pacific time,
on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value and this
Warrant shall be terminated and no longer outstanding.
(b) The
Holder may exercise this Warrant by delivering to the Company
(i) an exercise notice, in the form attached as Schedule 1
hereto (the “Exercise
Notice”), appropriately
completed and duly signed, (ii) payment of the Exercise Price for
the number of Warrant Shares as to which this Warrant is being
exercised (which may take the form of a “cashless
exercise” if so indicated in the Exercise Notice and if a
“cashless exercise” may occur at such time pursuant
to Section 12
below), and the date such items are
delivered to the Company (as determined in accordance with the
notice provisions hereof) is an “Exercise
Date.” The Holder shall
not be required to deliver the original Warrant in order to effect
an exercise hereunder, but shall do so reasonably shortly
thereafter. Execution and delivery of the Exercise Notice shall
have the same effect as cancellation of the original Warrant and
issuance of a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
(c) The
Holder may not exercise this Warrant at any time that Holder is
unable to establish to the Company’s reasonable satisfaction
that the exercise complies with an exemption from the registration
provisions of Section 5 of the Securities Act.
7. Delivery
of Warrant Shares
. Upon exercise of this Warrant, the Company shall promptly issue
or cause to be issued and cause to be delivered to or upon the
written order of the Holder and in such name or names as the Holder
may designate a certificate for the Warrant Shares issuable upon
such exercise, with an appropriate restrictive legend. The Holder,
or any Person permissibly so designated by the Holder to receive
Warrant Shares, shall be deemed to have become the holder of record
of such Warrant Shares as of the Exercise Date.
8. Charges,
Taxes and Expenses
. Issuance and delivery of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, transfer agent fee or other
incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in
the registration of any certificates for Warrant Shares or Warrants
in a name other than that of the Holder or an Affiliate thereof.
The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.
9. Replacement
of Warrant
. If this Warrant is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss,
theft or destruction (in such case) and, in each case, a customary
and reasonable indemnity (which shall not include a surety bond),
if requested. Applicants for a New Warrant under such circumstances
shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the
Company may prescribe. If a New Warrant is requested as a result of
a mutilation of this Warrant, then the Holder shall deliver such
mutilated Warrant to the Company as a condition precedent to the
Company’s obligation to issue the New Warrant.
10. Reservation
of Warrant Shares
. The Company covenants that it will at all times reserve and keep
available out of the aggregate of its authorized but unissued and
otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant
as herein provided, the number of Warrant Shares which are then
issuable and deliverable upon the exercise of this entire Warrant,
free from preemptive rights or any other contingent purchase rights
of persons other than the Holder (taking into account the
adjustments and restrictions of Section
11). The Company covenants that
all Warrant Shares so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with
the terms hereof, be duly and validly authorized, issued and fully
paid and nonassessable. The Company will take all such action as
may be necessary to assure that such shares of Common Stock may be
issued as provided herein without violation of any applicable law
or regulation, or of any requirements of any securities exchange or
automated quotation system upon which the Common Shares may be
listed.
11. Certain
Adjustments
. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 11.
(a) Stock
Dividends and Splits. If the
Company, at any time while this Warrant is outstanding, (i) pays a
stock dividend on its Common Stock or otherwise makes a
distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides its outstanding shares
of Common Stock into a larger number of shares, or
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately before
such event and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to clause (i) of this paragraph shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii)
of this paragraph shall become effective immediately after the
effective date of such subdivision or
combination.
(b) Fundamental
Transactions. If, at any time
while this Warrant is outstanding (i) the Company effects any
merger or consolidation of the Company with or into another Person,
in which the Company is not the survivor, (ii) the Company effects
any sale of all or substantially all of its assets or a majority of
its Common Stock is acquired by a third party, in each case, in one
or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is
completed pursuant to which all or substantially all of the holders
of Common Stock are permitted to tender or exchange their shares
for other securities, cash or property, or (iv) the Company effects
any reclassification 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
(other than as a result of a subdivision or combination of shares
of Common Stock covered by Section 11(a)
above) (in any such case, a
“Fundamental
Transaction”), then the
Holder shall have the right thereafter to receive, upon exercise of
this Warrant (including payment of the Exercise Price), the same
amount and kind of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant without regard to
any limitations on exercise contained herein (the
“Alternate
Consideration”). The
Company shall not effect any such Fundamental Transaction unless
prior to or simultaneously with the consummation thereof, any
successor to the Company, surviving entity or the corporation
purchasing or otherwise acquiring such assets or other appropriate
corporation or entity shall assume the obligation to deliver to the
Holder, such Alternate Consideration as, in accordance with the
foregoing provisions, the Holder may be entitled to purchase and/or
receive (as the case may be), and the other obligations under this
Warrant. The provisions of this paragraph (c) shall similarly apply
to subsequent transactions analogous to a Fundamental
Transaction.
(c) Number
of Warrant Shares.
Simultaneously with any adjustment to the Exercise Price pursuant
to paragraph (a) of this Section, the number of Warrant Shares that
may be purchased upon exercise of this Warrant shall be increased
or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the increased or
decreased number of Warrant Shares shall be the same as the
aggregate Exercise Price in effect immediately prior to such
adjustment.
(d) Calculations.
All calculations under this Section 11
shall be made to the nearest cent or
the nearest 1/100th of a share, as applicable. The number of shares
of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the
sale or issuance of any such shares shall be considered an issue or
sale of Common Stock.
(e) Notice
of Adjustments. Upon the
occurrence of each adjustment pursuant to this Section
11, the Company at its expense
will, at the written request of the Holder, promptly compute such
adjustment, in good faith, in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment,
including a statement of the adjusted Exercise Price and adjusted
number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail
the facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s transfer
agent.
(f) Notice
of Corporate Events. If, while
this Warrant is outstanding, the Company (i) declares a dividend or
any other distribution of cash, securities or other property in
respect of its Common Stock, including, without limitation, any
granting of rights or warrants to subscribe for or purchase any
capital stock of the Company, (ii) authorizes or approves, enters
into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the
Company, then, except if such notice and the contents thereof shall
be deemed to constitute material non-public information, the
Company shall deliver to the Holder a notice describing the
material terms and conditions of such transaction at least ten (10)
Trading Days prior to the applicable record or effective date on
which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the
Company will take all steps reasonably necessary in order to insure
that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate
action required to be described in such notice.
12. Payment
of Exercise Price
. The Holder shall pay the Exercise Price in immediately available
funds; provided, however, the Holder may, in its sole discretion,
commencing on the date that is 18 months from the date of this
Warrant, satisfy its obligation to pay the Exercise Price through a
“cashless exercise”, in which event the Company shall
issue to the Holder the number of Warrant Shares determined as
follows:
X =
Y [(A-B)/A]
where:
X =
the number of Warrant Shares to be issued to the
Holder.
Y =
the total number of Warrant Shares with respect to which this
Warrant is being exercised.
A =
the average of the Closing Sale Prices of the shares of Common
Stock (as reported by Bloomberg Financial Markets) for the five
Trading Days ending on the date immediately preceding the Exercise
Date.
B =
the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
For purposes of this Warrant, “Closing
Sale Price” means, for
any security as of any date, the last trade price for such security
on the principal securities exchange or trading market for such
security, as reported by Bloomberg Financial Markets, or, if such
exchange or trading market begins to operate on an extended hours
basis and does not designate the last trade price, then the last
trade price of such security prior to 4:00:00 p.m., New York Time,
as reported by Bloomberg Financial Markets, or if the foregoing do
not apply, the last trade price of such security in the
over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg Financial Markets, or, if no last
trade price is reported for such security by Bloomberg Financial
Markets, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC. If the Closing Sale
Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Sale Price of such security
on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then
the Company shall, within two business days submit via facsimile
(a) the disputed determination of the Warrant Exercise Price to an
independent, reputable investment bank selected by the Company and
approved by the Holder or (b) the disputed arithmetic
calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall cause at its
expense the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the
Company and the Holder of the results no later than ten business
days from the time it receives the disputed determinations or
calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error. All such determinations
to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the
applicable calculation period.
For purposes of Rule 144 promulgated under the Securities Act, it
is intended, understood and acknowledged that the Warrant Shares
issued in a cashless exercise transaction shall be deemed to have
been acquired by the Holder, and the holding period for the Warrant
Shares shall be deemed to have commenced, on the date this Warrant
was originally issued pursuant to the Consulting Agreement
(provided that the Commission continues to take the position that
such treatment is proper at the time of such
exercise).
13. Limitation on Exercises. The
Company shall not effect the exercise of this Warrant, and the
Holder shall not have the right to exercise this Warrant, to the
extent that after giving effect to such exercise, the Holder
(together with such Holder’s affiliates) would beneficially
own in excess of 4.99% (“Maximum
Percentage”) of the shares of Common Stock outstanding
immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by such Holder and its affiliates shall
include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock
which would be issuable upon (A) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such
Holder and its affiliates and (B) exercise or conversion of
the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Person and its affiliates
(including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for purposes
of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. To the extent that the limitation contained in
this Section 13 applies, the
determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder together with any
affiliate) 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
affiliate) and of which portion of this Warrant is exercisable, in
each case subject to such aggregate percentage limitation, and the
Company shall have no obligation to verify or confirm the accuracy
of the determination. For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company’s most recent Form 10-K, Form
10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a
more recent public announcement by the Company or (3) any other
notice by the Company setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or
oral request of the Holder, the Company shall within one (1)
business day confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the
Company, including this Warrant, by the Holder and its affiliates
since the date as of which such number of outstanding shares of
Common Stock was reported. By written notice to the Company, any
Holder may decrease the Maximum Percentage to any other percentage
specified in such notice; provided that such decrease will apply
only to the Holder sending such notice and not to any other holder
of Warrants. In addition, by written notice to the Company, any
Holder may remove the limitations on exercises provided in this
Section 13
entirely; provided that (i) any such removal will not be
effective until the 61st day after such notice is delivered to the
Company, and (ii) any such removal will apply only to the Holder
sending such notice and not to any other holder of Warrants. The
provisions of this paragraph shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this
Section 13 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.
14. No
Fractional Shares
. No fractional Warrant Shares will be issued in connection with
any exercise of this Warrant. In lieu of any fractional shares
which would otherwise be issuable, the number of Warrant Shares to
be issued shall be rounded up to the next whole
number.
15. Notices
. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice)
shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or
communication is delivered via email at the email address specified
in the Engagement Agreement prior to 5:00 p.m. (prevailing Pacific
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via
email at the email address specified in the Engagement Agreement t
on a day that is not a Trading Day or later than 5:00 p.m.
(prevailing Pacific time) on any Trading Day, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized
overnight courier service specifying next business day delivery, or
(iv) upon actual receipt by the party to whom such notice is
required to be given, if by hand delivery. The address and
facsimile number of a party for such notices or communications
shall be as set forth in the Engagement Agreement unless changed by
such party by two Trading Days’ prior notice to the other
party in accordance with this Section
15.
16. Warrant
Agent
. The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days’ notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company
or any new warrant agent may be merged or any corporation resulting
from any consolidation to which the Company or any new warrant
agent shall be a party or any corporation to which the Company or
any new warrant agent transfers substantially all of its corporate
trust or shareholders’ services business shall be a successor
warrant agent under this Warrant without any further act. Any such
successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed (by first class mail,
postage prepaid) to the Holder at the Holder’s last address
as shown on the Warrant Register.
17. Registration
Rights
(a) Demand
Registration. Reference is made
to the Registration Rights Agreement, as referred to in the
Purchase Agreement. The Company agrees to include the Warrant
Shares of the Holder in the Registration Statement (as defined in
the Registration Rights Agreement), which shall be filed and
maintained effective as and to the extent provided in the
Registration Rights Agreement, all at no cost or expense to the
Holder (other than any costs or commissions which would be borne by
the Holder under the terms of the Registration Rights Agreement
were the Warrant Shares deemed to be Registrable Securities under
that agreement).
(b) Piggyback
Registration. In addition to
the registration rights referred to in the preceding provisions of
Section 17(a), effective after the expiration of the effectiveness
of the Registration Statement as contemplated by the Registration
Rights Agreement, the Holder shall have piggy-back registration
rights with respect to the Warrant Shares then held by the Holder
or then subject to issuance upon exercise of this Warrant
(collectively, the “Remaining Warrant Shares”), subject
to the conditions set forth below. If, at any time after the
Registration Statement has ceased to be effective, the Company
participates (whether voluntarily or by reason of an obligation to
a third party) in the registration of any shares of the
Company’s stock (other than a registration on Form S-8 or on
Form S-4), the Company shall give written notice thereof to the
Holder and the Holder shall have the right, exercisable within ten
(10) Trading Days after receipt of such notice, to demand inclusion
of all or a portion of the Holder’s Remaining Warrant Shares
in such registration statement. If the Holder exercises such
election, the Remaining Warrant Shares so designated shall be
included in the registration statement at no cost or expense to the
Holder (other than any costs or commissions which would be borne by
the Holder under the terms of the Registration Rights Agreement).
The Holder’s rights under this Section 17 shall expire at
such time as the Holder can sell all of the Remaining Warrant
Shares under Rule 144 without volume or other restrictions or
limit.
18. Miscellaneous
(a) The
Holder, solely in such Person’s capacity as a holder of this
Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose,
nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person’s capacity as the
Holder of this Warrant, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, amalgamation,
conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities
(upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this
Section
18(a), the Company shall
provide the Holder with copies of the same notices and other
information given to the shareholders of the Company,
contemporaneously with the giving thereof to the
shareholders.
(b) Subject
to the restrictions on transfer set forth on the first page hereof,
and compliance with applicable securities laws, this Warrant may be
assigned by the Holder. This Warrant may not be assigned by the
Company except to a successor in the event of a Fundamental
Transaction. This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and
assigns. Subject to the preceding sentence, nothing in this Warrant
shall be construed to give to any Person other than the Company and
the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing
signed by the Company and the Holder, or their successors and
assigns.
(c) GOVERNING
LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. 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 SUIT, ACTION 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. 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 MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL
BY JURY.
(d) The
headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of
the provisions hereof.
(e) In
case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this
Warrant shall not in any way be affected or impaired thereby, and
the parties will attempt in good faith to agree upon a valid and
enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Warrant.
(f) Except
as otherwise set forth herein, prior to exercise of this Warrant,
the Holder hereof shall not, by reason of by being a Holder, be
entitled to any rights of a stockholder with respect to the Warrant
Shares.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated
above.
|
|
COMPANY
Exactus, Inc.
By: /s/ Kenneth
Puzder
Name:
Kenneth Puzder
Title: CFO
|
SCHEDULE 1
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase
shares of
Common Stock under the foregoing Warrant)
Ladies and Gentlemen:
(1) The
undersigned is the Holder of Warrant No. _______ (the
“Warrant”) issued by Exactus, Inc. (the
“Company”). Capitalized terms used herein and not
otherwise defined herein have the respective meanings set forth in
the Warrant.
(2) The
undersigned hereby exercises its right to purchase _______ Warrant
Shares pursuant to the Warrant.
(3) The
Holder intends that payment of the Exercise Price shall be made as
(check one):
Cash Exercise
“Cashless Exercise” under
Section
12
(4) If
the Holder has elected a Cash Exercise, the Holder shall pay the
sum of $_______ in immediately available funds to the Company in
accordance with the terms of the Warrant.
(5) Pursuant
to this Exercise Notice, the Company shall deliver to the Holder
_______ Warrant Shares in accordance with the terms of the
Warrant.
(Signature must conform in all respects to name of Holder as
specified on the face of the Warrant)
SCHEDULE 2
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of
Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _______ (the “Transferee”
the right represented by the within Warrant to purchase _______
shares of Common Stock of Exactus, Inc. (the
“Company”)
to which the within Warrant relates and appoints _______ attorney
to transfer said right on the books of the Company with full power
of substitution in the premises. In connection therewith, the
undersigned represents, warrants, covenants and agrees to and with
the Company that:
(a)
the offer and sale of the Warrant contemplated
hereby is being made in compliance with Section 4(a)(1) of the
United States Securities Act of 1933, as amended (the
“Securities
Act”) or another valid
exemption from the registration requirements of Section 5 of the
Securities Act and in compliance with all applicable securities
laws of the states of the United States;
(b)
the
undersigned has not offered to sell the Warrant by any form of
general solicitation or general advertising, including, but not
limited to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media
or broadcast over television or radio, and any seminar or meeting
whose attendees have been invited by any general solicitation or
general advertising;
(c)
the
undersigned has read the Transferee’s investment letter
included herewith, and to its actual knowledge, the statements made
therein are true and correct; and
(d)
the
undersigned understands that the Company may condition the transfer
of the Warrant contemplated hereby upon the delivery to the Company
by the undersigned or the Transferee, as the case may be, of a
written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such transfer may be made without
registration under the Securities Act and under applicable
securities laws of the states of the United States.
(Continued on Next Page)
|
Dated: ,
[Company]
By:
(Signature must conform in all respects to name of Holder as
specified on the face of the Warrant)
|
Address of Transferee
|
|
In the presence of:
|
|
Exhibit
10.8
REGISTRATION RIGHTS AGREEMENT
This
Registration Rights Agreement (this “Agreement”) is made and
entered into as of
November
27, 2019 by and among Exactus,
Inc., a Nevada corporation (the “Company”), and each
purchaser identified on the signature pages hereto (including its
successors and assigns, the “Purchaser”).
This
Agreement is being entered into pursuant to the Securities Purchase
Agreement dated as of the date hereof between the Company and the
Purchaser (the “Purchase
Agreement”).
The
Company and each Purchaser hereby agrees as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have
the meanings given such terms in the Purchase Agreement. As used in
this Agreement, the following terms shall have the following
meanings:
“Advice” shall have
meaning set forth in Section 3(m).
“Affiliate” means, with
respect to any Person, any other Person which directly or
indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person. For
the avoidance of doubt, with respect to a Purchaser which is a
general or limited partnership, an Affiliate shall be deemed to
include affiliated partnerships managed by the same management
company or managing general partner or by an entity which controls,
is controlled by, or is under common control with, such management
company or managing general partner.
“Board” shall have meaning
set forth in Section 3(n).
“Business Day” means any
day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New
York generally are authorized or required by law or other
government actions to close.
“Closing Date” means the
date of the closing of the purchase and sale of the Securities
pursuant to the Purchase Agreement.
“Commission” means the
Securities and Exchange Commission.
“Common Stock” means the
Company’s common stock, par value $0.0001 per
share.
“Conversion Shares” means
the Common Stock issuable upon conversion of the
Notes.
“Control” (including the
terms “controlling”, “controlled by” or
“under common control with”) means the possession,
direct or indirect, of the power to direct or cause the direction
of the management and policies of a Person, whether through the
ownership of voting securities, by contract or
otherwise.
“Effectiveness Date” means
with respect to the Registration Statement under Section 2(a), the
earlier of (A) the ninetieth (90th) day following the Closing Date,
or (B) the date which is within three (3) Business Days after the
date on which the Commission informs the Company (i) that the
Commission will not review the Registration Statement or
(ii) that the Company
may request the acceleration of the effectiveness of the
Registration Statement; provided, however, that, if the Effectiveness Date
falls on a Saturday, Sunday or any other day which shall be a legal
holiday or a day on which the Commission is authorized or required
by law or other government actions to close, the Effectiveness Date
shall be the following Business Day.
“Effectiveness Period”
shall have the meaning set forth in Section 2(a).
“Event” shall have the
meaning set forth in Section 7(f).
“Event Date” shall have
the meaning set forth in Section 7(f).
“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
“Filing Date” means with
respect to a Registration Statement under Section 2(a), the date
that is the forty-fifth (45th) day following the Closing Date;
provided,
however that if the
Filing Date falls on a Saturday, Sunday or any other day which
shall be a legal holiday or a day on which the Commission is
authorized or required by law or other government actions to close,
the Filing Date shall be the following Business Day.
“Holder” or
“Holders” means the holder
or holders, as the case may be, from time to time of Registrable
Securities.
“Indemnified Party” shall
have the meaning set forth in Section 5(c).
“Indemnifying Party” shall
have the meaning set forth in Section 5(c).
“Losses” shall have the
meaning set forth in Section 5(a).
“Notes” means the original
issue discount 8% Senior Secured Convertible Notes issued or to be
issued to the Purchaser pursuant to the Purchase Agreement and such
additional original issue discount 8% Senior Secured Convertible
Notes as may thereafter be issued and sold to the Purchaser
pursuant to the terms and conditions of the Purchase
Agreement.
“Offering” means the
offering made pursuant to Section 4(a)(2) of the Securities Act and
Rule 506 promulgated thereunder of the Securities of the Company
pursuant to the Purchase Agreement.
“Person” means an
individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
“Proceeding” means an
action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
“Prospectus” means the
prospectus included in the Registration Statement (including,
without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
“Purchase Agreement” means
the Securities Purchase Agreement, dated the date hereof by and
between the Company and the Purchaser.
“Registrable Securities”
means, collectively (i) the Conversion Shares; (ii) the Warrant
Shares; (iii) any other securities of the Company subsequently
acquired by the Purchaser pursuant to the Purchase Agreement; (iv)
any securities issued or issuable upon any stock split, dividend or
other distribution, recapitalization or similar event with respect
to the foregoing; provided, that the Holder has
completed and delivered to the Company a Selling Stockholder
Questionnaire; and provided, further, that the Conversion
Shares and Warrant Shares shall cease to be Registrable Securities
upon the sale pursuant to a Registration Statement or Rule 144
under the Securities Act (in which case, only such security sold
shall cease to be a Registrable Security).
“Registration Statement”
means either (a) an appropriate Registration Statement that
register the Registrable Securities, or (b) a registration
statement and any additional registration statements contemplated
by Section 2, including (in each case) the Prospectus, amendments
and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration
statement.
“Required Registration
Amount” means the number
of shares of Common Stock equal to the Required
Minimum.
“Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
“Rule 158” means Rule 158
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
“Rule 415” means Rule 415
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
“Rule 424” means Rule 424
promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
“Securities” means the
Note, the Conversion Shares, the Warrant and the Warrant
Shares.
“Securities Act” means the
Securities Act of 1933, as amended.
“SEC Guidance” means (i)
any publicly available written or oral guidance of the Commission
staff, or any comments, requirements or requests of the Commission
staff and (ii) the Securities Act.
“Selling Stockholder
Questionnaire” means a questionnaire in the form
attached as Exhibit
B hereto, or such other form of questionnaire as may
reasonably be adopted by the Company from time to
time.
“Warrants” means the
warrants to purchase the Warrant Shares issued to the Purchaser
pursuant to the Purchase Agreement.
“Warrant Shares” means the
shares of Common Stock issuable upon exercise of the
Warrant.
2. Resale
Registration.
(a) On
or prior to the Filing Date, the Company shall prepare and file
with the Commission a “resale” Registration Statement
providing for the resale of all Registrable Securities by means of
an offering to be made on a continuous basis pursuant to Rule 415
provided that such initial
Registration Statement shall register for resale at least the
number of shares of Common Stock equal to the Required Registration
Amount as of the date such Registration Statement is initially
filed with the Commission. The Registration Statement shall
be on Form S-1 (or another appropriate form in accordance
herewith). The Company shall (i) not permit any securities other
than the Registrable Securities to be included in the Registration
Statement and (ii) use its commercially reasonable efforts to cause
the Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof,
but in any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities
Act until such date when all Registrable Securities covered by such
Registration Statement have been sold (the “Effectiveness Period”).
The Company shall request that the effective time of the
Registration Statement be 4:00 p.m. Eastern Time on the
Effectiveness Date. If at any time and for any reason, an
additional Registration Statement is required to be filed because
at such time the actual number of Registrable Securities exceeds
the number of Registrable Securities remaining under the
Registration Statement, the Company shall have thirty (30) Business
Days to file such additional Registration Statement, and the
Company shall use its commercially reasonable efforts to cause such
additional Registration Statement to be declared effective by the
Commission as soon as possible, but in no event later than ninety
(90)) days after such filing; provided, however that if the prior
Registration Statement was filed within six months of such sixty
(60) or ninety (90) day period, then the sixty (60) and ninety (90)
days shall commence immediately after the expiration of the date
that is six months after the filing of the prior Registration
Statement, unless then current securities laws permit the earlier
registration of same.
(b) Notwithstanding
anything to the contrary set forth in this Section 2, in the event
the Commission does not permit the Company to register all of the
Registrable Securities in the Registration Statement because of the
Commission’s application of Rule 415, the number of
Registrable Securities to be registered on such Registration
Statement will be reduced in the order of the Registrable
Securities represented by the total number of Conversion Shares and
Warrant Shares owned by the Holders, applied on a pro rata basis.
In the event the number of shares available under any Registration
Statement is insufficient to cover all of the Registrable
Securities required to be covered by such Registration Statement,
the Company shall amend such Registration Statement (if
permissible), or file with the Commission a new Registration
Statement (on the short form available therefor, if applicable), or
both, so as to cover at least the Required Registration Amount as
of the Trading Day immediately preceding the date of the filing of
such amendment or new Registration Statement twenty (20)) days
after the necessity therefor arises (but taking account of any
Commission position with respect to the date on which the
Commission will permit such amendment to the Registration Statement
and/or such new Registration Statement (as the case may be) to be
filed with the Commission). The Company shall use its reasonable
best efforts to cause such amendment to such Registration Statement
and/or such new Registration Statement (as the case may be) to
become effective as soon as practicable following the filing
thereof with the Commission, but in no event later than the
applicable Effectiveness Date for such Registration Statement. For
purposes of the foregoing provision, the number of shares available
under a Registration Statement shall be deemed “insufficient
to cover all of the Registrable Securities” if at any time
the number of shares of Common Stock available for resale under the
applicable Registration Statement is less than the Required
Registration Amount. The calculation set forth in the foregoing
sentence shall be made without regard to any limitations on
conversion, amortization and/or redemption of the Notes (and such
calculation shall assume (A) that the Notes are then convertible in
full into shares of Common Stock at the then prevailing Conversion
Rate (as defined in the Notes), and (B) the initial outstanding
principal amount of the Notes remains outstanding through the
scheduled Maturity Date (as defined in the Notes) and no
redemptions of the Notes occur prior to the scheduled Maturity
Date).
For
purposes of this Section 2(b), “Effectiveness Date” means
with respect to each subsequent Registration Statement filed
pursuant hereto, the earlier of (A) the sixtieth (60th) day following the
filing date of such Registration Statement (or in the event such
Registration Statement receives a “full review” by the
Commission, the ninetieth (90th) day following such
filing date) or (B) the date which is within three (3) Business
Days after the date on which the Commission informs the Company (i)
that the Commission will not review such Registration Statement or
(ii) that the Company
may request the acceleration of the effectiveness of such
Registration Statement; provided, that, if the
Effectiveness Date falls on a Saturday, Sunday or any other day
which shall be a legal holiday or a day on which the Commission is
authorized or required by law or other government actions to close,
the Effectiveness Date shall be the following Business
Day.
(c) Each
Holder agrees to furnish to the Company a completed Selling
Stockholder Questionnaire not more than ten (10) Business Days
prior to the filing of a Registration Statement. Each Holder
further agrees that it shall not be entitled to be named as a
selling security holder in the Registration Statement or use the
Prospectus for offers and resales of Registrable Securities at any
time, unless such Holder has returned to the Company a completed
and signed Selling Stockholder Questionnaire. If a Holder of
Registrable Securities returns a Selling Stockholder Questionnaire
after the deadline specified in the previous sentence, the Company
shall use its commercially reasonable efforts to take such actions
as are required to name such Holder as a selling security holder in
the Registration Statement or any pre-effective or post-effective
amendment thereto and to include (to the extent not theretofore
included) in the Registration Statement the Registrable Securities
identified in such late Selling Stockholder Questionnaire;
provided that the
Company shall not be required to file an additional Registration
Statement solely for such shares. Each Holder acknowledges and
agrees that the information in the Selling Stockholder
Questionnaire will be used by the Company in the preparation of the
Registration Statement and hereby consents to the inclusion of such
information in the Registration Statement.
3.
Registration Procedures.
In
connection with the Company’s registration obligations
hereunder, the Company shall:
(a) Prepare
and file with the Commission, on or prior to the Filing Date, a
Registration Statement on Form S-1 (or another appropriate form in
accordance herewith) in accordance with the plan of distribution as
set forth on Exhibit
A hereto and in accordance with applicable law, and cause
the Registration Statement to become effective and remain effective
as provided herein; provided, however, that not less than
five (5) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall (i) furnish to the Holders copies of all
such documents proposed to be filed, which documents will be
subject to the review of such Holders, and (ii) cause its officers
and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary to conduct a
reasonable review of such documents. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Purchasers shall reasonably object
in writing within three (3) Business Days of their receipt
thereof.
(b) (i)
Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective
as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional
Registration Statements as necessary in order to register for
resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions
then in force) promulgated under the Securities Act; (iii) respond
as promptly as possible, but in no event later than twenty (20)
Business Days, to any comments received from the Commission with
respect to the Registration Statement or any amendment thereto and
as promptly as possible provide the Holders true and complete
copies of all correspondence from and to the Commission relating to
the Registration Statement; (iv) file the final prospectus pursuant
to Rule 424 of the Securities Act no later than two (2) Business
Days following the date the Registration Statement is declared
effective by the Commission; and (v) comply in all material
respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the Effectiveness
Period in accordance with the intended methods of disposition by
the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify
the Holders of Registrable Securities as promptly as possible (i)
when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is filed; with respect to
the Registration Statement or any post-effective amendment, when
the same has become effective; (ii)of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable
Securities or the initiation or threatening of any Proceedings for
that purpose; (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities
for sale in any jurisdiction, or the initiation or threatening of
any Proceeding for such purpose; and (iv) of the occurrence of any
event that makes any statement made in the Registration Statement
or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the
Registration Statement or the Prospectus, as the case may be, it
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein (in the case of the Prospectus, in
the light of the circumstances under which they were made) not
misleading.
(d)
Use its
commercially reasonable efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, as promptly as possible, (i) any
order suspending the effectiveness of the Registration Statement or
(ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction.
(e) If
requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration
Statement such information as the Company reasonably agrees should
be included therein and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(f) If
requested by any Holder, furnish to such Holder, without charge, at
least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules,
all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person
(including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the
Commission.
(g) Promptly
deliver to each Holder, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and
each amendment or supplement thereto as such Persons may reasonably
request; and subject to the provisions of Sections 3(m) and 3(n),
the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement
thereto.
(h) Prior
to any resale of Registrable Securities, use its commercially
reasonable efforts to register or qualify or cooperate with the
selling Holders in connection with the registration or
qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder requests in writing, to keep each
such registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all
other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, however, that the Company shall
not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any
action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the
Company to any material tax in any such jurisdiction where it is
not then so subject.
(i) Cooperate
with the Holders to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold
pursuant to a Registration Statement, which certificates, to the
extent permitted by the Purchase Agreement and applicable federal
and state securities laws, shall be free of all restrictive
legends, and to enable such Registrable Securities to be in such
denominations and registered in such names of the Holder in
connection with any sale of Registrable Securities.
(j) Upon
the occurrence of any event contemplated by Section 3(c)(iv), as
promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated
or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, neither
the Registration Statement nor such Prospectus will contain an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in the light of
the circumstances under which they were made) not
misleading.
(k) Use
its commercially reasonable efforts to cause all Registrable
Securities relating to the Registration Statement, to continue to
be quoted or listed on a securities exchange, quotation system or
market, if any, on which similar securities issued by the Company
are then listed or traded as and when required pursuant to the
Purchase Agreement.
(l) Comply
in all material respects with all applicable rules and regulations
of the Commission and make generally available to its security
holders all documents filed or required to be filed with the
Commission, including, but not limited, to, earning statements
satisfying the provisions of Section 11(a) of the Securities Act
and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such
period is a fiscal year) commencing on the first day of the first
fiscal quarter of the Company after the effective date of the
Registration Statement, which statement shall conform to the
requirements of Rule 158.
(m) The
Company may require each selling Holder to furnish to the Company a
certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and the natural persons thereof
that have voting and dispositive control over the Registrable
Securities. During any periods that the Company is unable to meet
its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish
such information within five (5) Business Days of the
Company’s request, any liquidated damages that are accruing
at such time as to such Holder only shall be tolled and any Event
that may otherwise occur solely because of such delay shall be
suspended as to such Holder only, until such information is
delivered to the Company.
If the
Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name
or otherwise is not required by the Securities Act or any similar
federal statute then in force) the deletion of the reference to
such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each
Holder covenants and agrees that it will not sell any Registrable
Securities under the Registration Statement until the Company has
electronically filed the Prospectus as then amended or supplemented
as contemplated in Section 3(e) and notice from the Company that
the Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section
3(c).
Each
Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Section 3(c)(ii), 3(c)(iii),
or 3(c)(iv)or 3(n), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration
Statement until such Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(e), or until it is advised in writing
(the “Advice”) by the Company
that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental
filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration
Statement.
(n) If
(i) there is material non-public information regarding the Company
which the Company’s Board of Directors (the
“Board”) determines not to
be in the Company’s best interest to disclose and which the
Company is not otherwise required to disclose, (ii) there is a
significant business opportunity (including, but not limited to,
the acquisition or disposition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender
offer or other similar transaction) available to the Company which
the Board determines not to be in the Company’s best interest
to disclose, or (iii) the Company is required to file a
post-effective amendment to the Registration Statement to
incorporate the Company’s quarterly and annual reports and
audited financial statements on Forms 10-Q and 10-K, then the
Company may (x) postpone or suspend filing of a registration
statement for a period not to exceed thirty (30) consecutive days
or (y) postpone or suspend effectiveness of a registration
statement for a period not to exceed thirty (30) consecutive days;
provided that the
Company may not postpone or suspend effectiveness of a registration
statement under this Section 3(n) for more than sixty (60) days in
the aggregate during any three hundred sixty (360) day period;
provided,
however, that no
such postponement or suspension shall be permitted for consecutive
twenty (20) day periods arising out of the same set of facts,
circumstances or transactions.
4.
Registration
Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company, except as and
to the extent specified in this Section 4, shall be borne by the
Company whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings
required to be made with any securities exchange or market on which
Registrable Securities are required hereunder to be listed, if any,
(B) with respect to filing fees required to be paid to the
Financial Industry Regulatory Authority, Inc. (including, without
limitation, pursuant to FINRA Rule 5110) and (C) in compliance with
state securities or Blue Sky laws (including, without limitation,
fees and disbursements of one counsel for the Holders up to a
maximum amount of $5,000), (ii) printing expenses (including,
without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing
of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) Securities
Act liability insurance, if the Company so desires such insurance,
and (v) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the
Company’s independent public accountants (including the
expenses of any comfort letters or costs associated with the
delivery by independent public accountants of a comfort letter or
comfort letters). In addition, the Company shall be responsible for
all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the
expense of any annual audit, the fees and expenses incurred in
connection with the listing of the Registrable Securities on any
securities exchange if required hereunder. The Company shall not be
responsible for any discounts, commissions, transfer taxes or other
similar fees incurred by the Holders in connection with the sale of
the Registrable Securities.
5.
Indemnification.
(a) Indemnification
by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each
Holder, the officers, directors, managers, partners, members,
shareholders, agents, brokers, investment advisors and employees of
each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, agents and employees of
each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs
of preparation and attorneys’ fees) and expenses
(collectively, “Losses”), as incurred,
arising out of or relating to any violation of securities laws or
untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus,
or arising out of or relating to any omission of a material fact
required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which
they were made) not misleading, except to the extent, but only to
the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder or such other
Indemnified Party furnished in writing to the Company by such
Holder for use therein. The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) Indemnification
by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of
the Exchange Act), and the directors, officers, agents and
employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as
incurred, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising out of or based upon any omission of
a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in the light of the circumstances
under which they were made) not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained
in any information so furnished in writing by such Holder or other
Indemnifying Party to the Company specifically for inclusion in the
Registration Statement or such Prospectus. Notwithstanding anything
to the contrary contained herein, each Holder shall be liable under
this Section 5(b) only for the lesser of (a) the actual damages
incurred or (b) that amount as does not exceed the gross proceeds
to such Holder as a result of the sale of his/her/its Registrable
Securities pursuant to such Registration Statement.
(c) Conduct
of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity
hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in
writing, and the Indemnifying Party shall be entitled to assume the
defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees
and expenses incurred in connection with defense thereof; provided
that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and
materially adversely prejudiced the Indemnifying
Party.
An
Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party or Parties unless: (1) the Indemnifying
Party has agreed in writing to pay such fees and expenses; or (2)
the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or
(3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such parties shall have been advised by
counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable for
any settlement of any such Proceeding effected without its written
consent, which consent shall not be unreasonably withheld or
delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any
pending or threatened Proceeding in respect of which any
Indemnified Party is a party and indemnity has been sought
hereunder, unless such settlement includes an unconditional release
of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
(d) Contribution.
If a claim for indemnification under Section 5(a) or 5(b) is due
but unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification
in accordance with its terms (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative benefits
received by the Indemnifying Party on the one hand and the
Indemnified Party on the other from the offering of the Note and
Warrants. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to
reflect not only the relative benefits referred to in the foregoing
sentence but also the relative fault, as applicable, of the
Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as
well as any other relevant equitable considerations. The relative
fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action
in question, including any untrue statement of a material fact or
omission of a material fact, has been taken or made by, or relates
to information supplied by, such Indemnifying Party or Indemnified
Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys’ or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was
available to such party in accordance with its terms. In no event
shall any selling Holder be required to contribute an amount under
this Section 5(d) in excess of the gross proceeds received by such
Holder upon sale of such Holder’s Registrable Securities
pursuant to the Registration Statement giving rise to such
contribution obligation.
The
parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent
misrepresentation.
The
indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties pursuant to applicable law.
6. Filing
Obligations. The Company covenants 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 Section 13(a) or 15(d) of the Exchange Act.
As long as any Holder owns Warrants or Registrable Securities, if
the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to
the Holders and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act, annual and quarterly
financial statements, together with a discussion and analysis of
such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in
reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period
that such filings would have been required to have been made under
the Exchange Act. The Company further covenants that it will take
such further action as any Holder may reasonably request, all to
the extent reasonably required from time to time to enable such
Person to sell the Conversion Shares and the Warrant Shares without
registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities
Act, including providing any legal opinions relating to such sale
pursuant to Rule 144. Upon the request of any Holder, the Company
shall deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such
requirements.
7. Miscellaneous.
(a) Remedies.
In the event of a breach by the Company or by a Holder of any of
their obligations under this Agreement, such Holder or the Company,
as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery
of damages, will be entitled to specific performance of its rights
under this Agreement.
Each of the Company and each Holder agrees that monetary damages
would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such
breach, it shall waive the defense that a remedy at law would be
adequate.
(b) No
Inconsistent Agreements. The Company has not entered into,
and shall not enter into on or after the date of this Agreement,
any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement that is currently in effect
granting any registration rights with respect to any of its
securities to any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority
of the then outstanding Registrable Securities, the Company shall
not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the
prior rights in full of the Holders set forth herein, and are not
otherwise in conflict with the provisions of this
Agreement.
(c) No
Piggyback on Registrations for Other Securities. Neither the
Company nor any of its security holders may include securities of
the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such
right to any of its security holders, unless the right so granted
is subject in all respects to the prior rights in full of the
Holders set forth herein, and is not otherwise in conflict with the
provisions of this Agreement.
(d) Piggy-Back
Registrations for Registrable Securities. If at any time
when there is not an effective Registration Statement covering the
Conversion Shares and Warrant Shares, the Company shall determine
to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition
of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the
Company shall send to each Holder of Registrable Securities written
notice of such determination and, if within ten (10) calendar days
after receipt of such notice, or within such shorter period of time
as may be specified by the Company in such written notice as may be
necessary for the Company to comply with its obligations with
respect to the timing of the filing of such registration statement,
any such Holder shall so request in writing (which request shall
specify the Registrable Securities intended to be disposed of by
the such Holder), the Company will cause the registration under the
Securities Act of all Registrable Securities which the Company has
been so requested to register by the Holder, to the extent
requisite to permit the disposition of the Registrable Securities
so to be registered, provided that if at any time after giving
written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for
any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice
of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay expenses
in accordance with Section 4 hereof), and (ii) in the case of a
determination to delay registering, shall be permitted to delay
registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering
such other securities. The Company shall include in such
registration statement all or any part of such Registrable
Securities such Holder requests to be registered; provided, however, that the Company shall
not be required to register any Registrable Securities pursuant to
this Section 7(d) that are eligible for sale pursuant to Rule 144
of the Securities Act. In the case of an underwritten public
offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in
such registration statement, then if the Company after consultation
with the managing underwriter should reasonably determine that the
inclusion of such Registrable Securities would materially adversely
affect the offering contemplated in such registration statement,
and based on such determination recommends inclusion in such
registration statement of fewer or none of the Registrable
Securities of the Holders, then (x) the number of Registrable
Securities of the Holders included in such registration statement
shall be reduced among such Holders based upon the number of
Registrable Securities requested to be included in the registration
in the order set forth in Section 2(b) hereof, if the Company after
consultation with the underwriter(s) recommends the inclusion of
fewer Registrable Securities, or (y) none of the Registrable
Securities of the Holders shall be included in such registration
statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable
Securities; provided, however, that if securities are
being offered for the account of other persons or entities as well
as the Company, such reduction shall not represent a greater
fraction of the number of Registrable Securities intended to be
offered by the Holders than the fraction of similar reductions
imposed on such other persons or entities (other than the Company).
For purposes of this Section 7(d), Registrable Securities shall
include any shares actually issued to the Purchasers pursuant to
the Securities Escrow Agreement.
(e) Intentionally
Left Blank.
(f) Failure
to File Registration Statement and Other Events. The Company
and the Holders agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date
and not declared effective by the Commission on or prior to the
Effectiveness Date and maintained in the manner contemplated herein
during the Effectiveness Period or if certain other events occur.
The Company and the Holders further agree that it would not be
feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or
prior to the Filing Date, or (B) the Registration Statement is not
declared effective by the Commission on or prior to the
Effectiveness Date, or (C) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461
promulgated under the Securities Act within three (3) Business Days
of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration
Statement will not be “reviewed,” or not subject to
further review, or (D) the Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities at any time prior to the
expiration of the Effectiveness Period, without being succeeded
immediately by a subsequent Registration Statement filed with and
declared effective by the Commission in accordance with Section
2(a) hereof, or (E) the Company has breached Section 3(n) of this
Agreement, or (F) trading in the Common Stock shall be suspended or
if the Common Stock is no longer quoted on or is delisted from the
OTCQB (or other principal exchange on which the Common Stock is
traded) for any reason for more than three (3) consecutive Business
Days or twelve (12) Business Days in the aggregate for any twelve
month period, (any such failure or breach being referred to as an
“Event,” and for purposes
of clauses (A) and (B) the date on which such Event occurs, or for
purposes of clauses (C) and (F) the date on which such three (3)
Business Day period is exceeded, or for purposes of clause (D)
after more than fifteen (15) Business Days, being referred to as
“Event
Date”), then the Company shall pay to each Holder for
liquidated damages an amount of cash equal to 2% of the product of
(i) the number of Registrable Securities and (ii) the Closing Sale Price or Closing Bid Price as of
the trading
day immediately prior to the Event
Date, such payments to be made on the Event Date and every thirty (30) day anniversary
thereafter with a maximum penalty of 12% until the applicable Event
is cured; provided,
however, that in
the event the Commission does not permit all of the Registrable
Securities to be included in the Registration Statement because of
its application of Rule 415, liquidated damages payable pursuant to
this Section shall only be payable by the Company based on the
portion of the Holder’s initial investment in the Securities
that corresponds to the number of such Holder’s Registrable
Securities permitted to be registered by the Commission in such
Registration Statement pursuant to Rule 415. For further
clarification, the parties understand that no liquidated damages
shall be payable pursuant to this Section with respect to any
Registrable Securities that the Company is not permitted to include
on such Registration Statement due to the Commission’s
application of Rule 415. In addition, no liquidated damages shall
be payable with respect to Registrable Securities that may be sold
pursuant to Rule 144. Notwithstanding anything to the contrary in
this paragraph (e), if (a) any of the Events described in clauses
(A), (B), (C), (D) or (F) shall have occurred, (b) on or prior to
the applicable Event Date, the Company shall have exercised its
rights under Section 3(n) hereof and (c) the postponement or
suspension permitted pursuant to such Section 3(n) shall remain
effective as of such applicable Event Date, then the applicable
Event Date shall be deemed instead to occur on the second Business
Day following the termination of such postponement or suspension.
Liquidated damages payable by the Company pursuant to this Section
7(f) shall be payable on the Event Date and the first (1st)
Business Day of each thirty (30) day period following the Event
Date. Notwithstanding anything to the contrary contained herein, in
no event shall any liquidated damages be payable with respect to
the Warrants or the Warrant Shares.
(g) Amendments
and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in
writing and signed by the Company and the Holders of a majority of
the then outstanding Registrable Securities.
(h) Notices.
Whenever notice is required to be given under this Agreement,
unless otherwise provided herein, such notice shall be given in
accordance with Section 5.4 of the Purchase Agreement.
(i) Successors
and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of each Holder and its
successors and assigns. The Company may not assign this Agreement
or any of its rights or obligations hereunder without the prior
written consent of each Holder. Each Purchaser may assign its
rights hereunder in the manner and to the Persons as permitted
under the Purchase Agreement.
(j)
Assignment of Registration
Rights. The rights of each Holder hereunder, including the
right to have the Company register for resale Registrable
Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Person who acquires
all or a portion of the
Warrants or the Registrable Securities if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and
a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within
a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of
such securities by the transferee or assignees is restricted under
the Securities Act and applicable state securities laws unless such
securities are registered in a Registration Statement under this
Agreement (in which case the Company shall be obligated to amend
such Registration Statement to reflect such transfer or assignment)
or are otherwise exempt from registration, (iv) at or before the
time the Company receives the written notice contemplated by clause
(ii) of this Section, the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions of this
Agreement, and (v) such transfer shall have been made in accordance
with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent)
successors and assigns.
(k) Counterparts.
This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and,
all of which taken together shall constitute one and the same
Agreement and shall become effective when counterparts have been
signed by each party and delivered to the other parties hereto, it
being understood that all parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.
(l) Governing
Law; Jurisdiction. 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 or Proceeding, any claim that it
is not personally subject to the jurisdiction of any such court,
that such 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 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 any party shall commence an Action or Proceeding to enforce
any provisions of the Transaction Documents, then, in addition to
the obligations of the Company elsewhere in this Agreement, the
prevailing party in such Action or Proceeding shall be reimbursed
by the non-prevailing party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Action or
Proceeding.
(m) Cumulative
Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(n) Severability.
If any term, provision, covenant or restriction of this Agreement
is held to be invalid, illegal, void or unenforceable in any
respect, 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 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.
(o) 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.
(p) Shares
Held by the Company and its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by
the Company or its Affiliates (other than any Holder or transferees
or successors or assigns thereof if such Holder is deemed to be an
Affiliate solely by reason of its holdings of such Registrable
Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required
percentage.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
EXACTUS,
INC.
By:
/s/ Emiliano
Aloi
Name:
Emiliano Aloi
Title:
President & CEO
PURCHASER:
3I,
LP
By:
/s/ Maier
Tarlow
Name:
Maier Tarlow
Title:
Authorized Signer
[Signature
Page to Registration Rights Agreement]
Exhibit A
Plan of Distribution
The
selling security holders and any of their pledgees, donees,
assignees and successors-in-interest may, from time to time, sell
any or all of their shares of common stock being offered under this
prospectus on any stock exchange, market or trading facility on
which shares of our common stock are traded or in private
transactions. These sales may be at fixed or negotiated prices. The
selling security holders may use any one or more of the following
methods when disposing of shares:
●
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
●
block
trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
●
purchases
by a broker-dealer as principal and resales by the broker-dealer
for its account;
●
an
exchange distribution in accordance with the rules of the
applicable exchange;
●
privately
negotiated transactions;
●
to
cover short sales made after the date that the registration
statement of which this prospectus is a part is declared effective
by the Commission;
●
broker-dealers
may agree with the selling security holders to sell a specified
number of such shares at a stipulated price per share;
●
a
combination of any of these methods of sale; and
●
any
other method permitted pursuant to applicable law.
The
shares may also be sold under Rule 144 under the Securities Act of
1933, as amended (“Securities Act”), if available,
rather than under this prospectus. The selling security holders
have the sole and absolute discretion not to accept any purchase
offer or make any sale of shares if they deem the purchase price to
be unsatisfactory at any particular time.
The
selling security holders may pledge their shares to their brokers
under the margin provisions of customer agreements. If a selling
security holder defaults on a margin loan, the broker may, from
time to time, offer and sell the pledged shares.
Broker-dealers
engaged by the selling security holders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holders (or, if
any broker-dealer acts as agent for the purchaser of shares, from
the purchaser) in amounts to be negotiated, which commissions as to
a particular broker or dealer may be in excess of customary
commissions to the extent permitted by applicable law.
If
sales of shares offered under this prospectus are made to
broker-dealers as principals, we would be required to file a
post-effective amendment to the registration statement of which
this prospectus is a part. In the post-effective amendment, we
would be required to disclose the names of any participating
broker-dealers and the compensation arrangements relating to such
sales.
The
selling security holders and any broker-dealers or agents that are
involved in selling the shares offered under this prospectus may be
deemed to be “underwriters” within the meaning of the
Securities Act in connection with these sales. Commissions received
by these broker-dealers or agents and any profit on the resale of
the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Any
broker-dealers or agents that are deemed to be underwriters may not
sell shares offered under this prospectus unless and until we set
forth the names of the underwriters and the material details of
their underwriting arrangements in a supplement to this prospectus
or, if required, in a replacement prospectus included in a
post-effective amendment to the registration statement of which
this prospectus is a part.
The
selling security holders and any other persons participating in the
sale or distribution of the shares offered under this prospectus
will be subject to applicable provisions of the Exchange Act, and
the rules and regulations under that act, including Regulation M.
These provisions may restrict activities of, and limit the timing
of purchases and sales of any of the shares by, the selling
security holders or any other person. Furthermore, under Regulation
M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and other activities
with respect to those securities for a specified period of time
prior to the commencement of such distributions, subject to
specified exceptions or exemptions. All of these limitations may
affect the marketability of the shares.
If
any of the shares of common stock offered for sale pursuant to this
prospectus are transferred other than pursuant to a sale under this
prospectus, then subsequent holders could not use this prospectus
until a post-effective amendment or prospectus supplement is filed,
naming such holders. We offer no assurance as to whether any of the
selling security holders will sell all or any portion of the shares
offered under this prospectus.
We have
agreed to pay all fees and expenses we incur incident to the
registration of the shares being offered under this prospectus.
However, each selling security holder and purchaser is responsible
for paying any discounts, commissions and similar selling expenses
they incur.
We and
the selling security holders have agreed to indemnify one another
against certain losses, damages and liabilities arising in
connection with this prospectus, including liabilities under the
Securities Act.
Exhibit B
Selling Stockholder Questionnaire
(a)
Full Legal Name of
Selling Stockholder:
(b)
Full Legal Name of
Registered Holder (if not the same as (a) above) through which
Registrable Securities Listed in Item 3 below are
held:
(c)
Full Legal Name of
Natural Control Person (which means a natural person who directly
or indirectly alone or with others has power to vote or dispose of
the securities covered by the questionnaire):
2.
Address
for Notices to Selling Stockholder:
|
Telephone:
|
|
Fax:
|
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Contact
Person:
|
|
E-mail
address of Contact
Person:________________________________________________
|
3.
Beneficial
Ownership of Registrable Securities:
(a)
Type
and Number of Registrable Securities beneficially
owned:
|
___________________________________________________________________________
|
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___________________________________________________________________________
|
|
___________________________________________________________________________
|
(b)
Number
of shares of Common Stock to be registered pursuant to this Notice
for resale:
|
___________________________________________________________________________
|
|
___________________________________________________________________________
|
|
___________________________________________________________________________
|
(a)
Are you
a broker-dealer?
Yes
☐ No
☐
(b) If “yes” to Section 4(a),
did you receive your Registrable Securities as compensation for
investment banking services to the Company?
Yes
☐ No
☐
Note:
If no,
the Commission’s staff has indicated that you should be
identified as an underwriter in the Registration
Statement.
(c)
Are you
an affiliate of a broker-dealer?
Yes
☐ No
☐
Note:
If yes,
provide a narrative explanation below:
(d)
If you
are an affiliate of a broker-dealer, do you certify that you bought
the Registrable Securities in the ordinary course of business, and
at the time of the purchase of the Registrable Securities to be
resold, you had no agreements or understandings, directly or
indirectly, with any person to distribute the Registrable
Securities?
Yes
☐ No
☐
Note:
If no,
the Commission’s staff has indicated that you should be
identified as an underwriter in the Registration
Statement.
5.
Beneficial
Ownership of Other Securities of the Company Owned by the Selling
Stockholder.
Except as set forth below in this Item 5, the undersigned is not
the beneficial or registered owner of any securities of the Company
other than the Registrable Securities listed above in Item
3.
Type
and amount of other securities beneficially owned:
______________________________________________________________________________
______________________________________________________________________________
6.
Relationships
with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners
of 5% of more of the equity securities of the undersigned) has held
any position or office or has had any other material relationship
with the Company (or its predecessors or affiliates) during the
past three years.
State
any exceptions here:
______________________________________________________________________________
______________________________________________________________________________
The undersigned has reviewed the form of Plan of Distribution
attached as Exhibit A to the Agreement, and hereby confirms that,
except as set forth below, the information contained therein
regarding the undersigned and its plan of distribution is correct
and complete.
State
any exceptions here:
______________________________________________________________________________
______________________________________________________________________________
***********
The
undersigned agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein that may
occur subsequent to the date hereof and prior to the effective date
of any applicable Resale Registration Statement. All notices
hereunder shall be made in writing, by hand delivery, confirmed or
facsimile transmission, first-class mail or air courier
guaranteeing overnight delivery at the address set forth below. In
the absence of any such notification, the Company shall be entitled
to continue to rely on the accuracy of the information in this
Notice and Questionnaire.
By
signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items (1) through
(7) above and the inclusion of such information in the Resale
Registration Statement and the Prospectus. The undersigned
understands that such information will be relied upon by the
Company in connection with the preparation or amendment of any such
Registration Statement and the Prospectus.
By
signing below, the undersigned acknowledges that it understands its
obligation to comply, and agrees that it will comply, with the
provisions of the Exchange Act and the rules and regulations
thereunder, particularly Regulation M in connection with any
offering of Registrable Securities pursuant to the Resale
Registration Statement. The undersigned also acknowledges that it
understands that the answers to this Questionnaire are furnished
for use in connection with Registration Statements filed pursuant
to the Agreement and any amendments or supplements thereto filed
with the Commission pursuant to the Securities Act.
The
undersigned hereby acknowledges and is advised of the following
Interpretation A.65 of the July 1997 SEC Manual of Publicly
Available Telephone Interpretations regarding short
selling:
“An Issuer filed a Form S-3 registration statement for a
secondary offering of common stock which is not yet effective. One
of the selling stockholders wanted to do a short sale of common
stock “against the box” and cover the short sale with
registered shares after the effective date. The issuer was advised
that the short sale could not be made before the registration
statement become effective, because the shares underlying the short
sale are deemed to be sold at the time such sale is made. There
would, therefore, be a violation of Section 5 if the shares were
effectively sold prior to the effective date.”
By
returning this Questionnaire, the undersigned will be deemed to be
aware of the foregoing interpretation.
I
confirm that, to the best of my knowledge and belief, the foregoing
statements (including without limitation the answers to this
Questionnaire) are correct.
IN WITNESS WHEREOF, the undersigned, by authority duly
given, has caused this Questionnaire to be executed and delivered
either in person or by its duly authorized agent.
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Dated:_________________________
|
|
Beneficial
Owner:
_______________
|
|
|
|
|
|
|
|
By:__________________________
|
|
|
|
Name:
|
|
|
|
Title:
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Exhibit
99.1
Exactus, Inc. Announces Closing of $2 Million Convertible
Note
DELRAY BEACH, Fla., December 4, 2019 (GLOBE NEWSWIRE) –
Exactus, Inc. (OTCQB:EXDI) (the “Company”), an
industrial hemp farm operator and manufacturer of hemp-derived
phytocannabinoid products, today announced the closing of the
initial tranche of a $2 million senior secured convertible note
financing from a single institutional investor.
The
aggregate net proceeds from the note are approximately $1.94
million, after deducting the initial purchaser’s discount,
commissions and estimated offering expenses. The note consists of
three tranches where the initial financing consists of the issuance
of a note in the principal amount of $833,333.33, to be followed by
a $277,777.77 tranche upon the filing of an S-1 and concludes with
the remaining $833,333.33 to be distributed pending the S-1
becoming effective with 25% warrant coverage priced at 105% of the
closing price on the subsequent closings
The
maturity of the note is 12-months from issuance and it bears an
interest rate of 8% per annum. The conversion price of the note is
$0.50 per share and proceeds will be used primarily for working
capital and general corporate purposes. The note is senior to all
other debt and secured by a first priority lien on all of the
assets of Exactus. In connection with the note issuance, the
Company also issued 275,612 warrants to purchase up to 275,612
shares of the Company’s common stock, which warrant are
exercisable at an exercise price of $0.756 per share of common
stock at any time before the close of business on November 27,
2021
“We
are pleased to have successfully completed this financing which we
believe has strengthened our balance sheet and provided us with
growth capital to complete the processing of flower from our
successful harvest, the buildout of our manufacturing facility, the
expansion of our salesforce, as well as the launching of new
products”, stated Emiliano Aloi, President and CEO of
Exactus. “We anticipate our fourth quarter revenue to exceed
$750,000, as we build out our product lines and continue to build
brand awareness. Looking out to 2020, we expect to see continued
momentum with the growth of product sales and anticipate working
capital to be a source of cash.”
To
learn more about Exactus, Inc., visit the website at www.exactushemp.com.
# # #
About Exactus
Exactus Inc. is dedicated to introducing hemp-derived
phytocannabinoid products that meet the highest standards of
quality and traceability into mainstream consumer markets. The
Company has made investments in farming and has over 200 acres of
CBD-rich hemp in Southwest Oregon. The Company is introducing a
range of consumer brands, such as Green Goddess
Extracts™, Levor Collection,
Phenologie, Paradise CBD and Exactus.
Hemp is a federally legal type of cannabis plant containing less
than 0.3% THC (tetrahydrocannabinol), which is the psychoactive
component of the cannabis plant. After over 40 years of
prohibition, the Agricultural Improvement Act of 2018, known as the
2018 Farm Bill, legalized hemp at the federal level. Hemp
production will be regulated by the United States Department of
Agriculture (USDA) and the States. As a result, in 2019 hemp was
generally removed from the Controlled Substances Act (CSA) and
enforcement by the Drug Enforcement Administration
(DEA).
Investor Notice
Investing in our securities involves a high degree of risk. Before
making an investment decision, you should carefully consider the
risks, uncertainties and forward-looking statements described under
"Risk Factors" in Item 1A of our most recent Form 10-K for the
fiscal year ended December 31, 2018 filed with the Securities and
Exchange Commission (the "SEC") on March 29, 2019, and in other
periodic and current reports we file with the SEC. If any of
these risks were to occur, our business, financial condition, or
results of operations would likely suffer. In that event, the value
of our securities could decline, and you could lose part or all of
your investment. The risks and uncertainties we describe are not
the only ones facing us. Additional risks not presently known to us
or that we currently deem immaterial may also impair our business
operations. In addition, our past financial performance may not be
a reliable indicator of future performance, and historical trends
should not be used to anticipate results in the future. See "Safe
Harbor" below.
Safe Harbor - Forward-Looking Statements
The information provided in this press release may include
forward-looking statements relating to future events or the future
financial performance of the Company. Because such statements are
subject to risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking
statements. Words such as "anticipates," "plans," "expects,"
"intends," "will," "potential," "hope" and similar expressions are
intended to identify forward-looking statements.
These forward-looking statements are
based upon current expectations of the Company and involve
assumptions that may never materialize or may prove to be
incorrect, including its ability to complete the processing of its
flower and the buildout of its manufacturing facility, to expand
its sales force, to launch new products, to increase brand
awareness, as well as expectations with respect to future revenues
and cash flow. Actual results and the
timing of events could differ materially from those anticipated in
such forward-looking statements as a result of various risks and
uncertainties. Detailed information regarding factors that may
cause actual results to differ materially from the results
expressed or implied by statements in this press release relating
to the Company may be found in the Company's periodic and current
filings with the SEC, including the factors described in the
sections entitled "Risk Factors", copies of which may be obtained
from the SEC's website at www.sec.gov. Any forward-looking
statement speaks only as of the date on which such statement is
made, and the Company does not intend to correct or update any
forward-looking statement, whether as a result of new information,
future events or otherwise.
Company Contact
Andrew Johnson
Chief Strategy Officer
Exactus Inc.
509-999-9695
ir@exactusinc.com