Exhibit 10.1
This
Settlement Agreement (the “Agreement”) is made and
entered into by and among Alto Opportunity Master Fund, SPC –
Segregated Master Portfolio B (“Alto B”), GT Biopharma
Inc. (“GT
Biopharma”), Anthony Cataldo (“Cataldo”) and Paul
Kessler (“Kessler”). Alto B, GT
Biopharma, Cataldo and Kessler are each referred to as a
“Party”
and, collectively, as “Parties.”
WHEREAS, on January 22, 2018, Alto B and
GT Biopharma executed a Securities Purchase Agreement (the
“SPA”)
pursuant to which Alto B purchased from GT Biopharma a senior
convertible note in an original
principal amount of $2,200,002.20 (the “Original Note”) and
warrants (the “Original Warrants” and,
together with the Original Note, the “Original Securities”) to
purchase shares of GT Biopharma’s common stock, par value
$0.001 per share (the “Common
Stock”);
WHEREAS, Anthony Cataldo was during
certain relevant times Chairman of GT Biopharma’s Board of
Directors, and Paul Kessler was and is a shareholder of GT
Biopharma;
WHEREAS, a dispute arose between GT
Biopharma and Alto B regarding GT Biopharma’s obligations
under the terms of the SPA and the Original Securities issued
thereunder;
WHEREAS, on August 1, 2018, GT Biopharma
commenced an action against Alto B and Empery Asset Master Ltd. and
certain of its related funds (collectively, the “Empery Funds”) captioned
GT Biopharma Inc., v. Empery Asset
Master LTD., et al., Case No. 1:18-cv-06970 (GDB) (S.D.N.Y.)
(the “SDNY
Action”), alleging, inter alia, that Alto B had improperly
sold short GT Biopharma securities;
WHEREAS, on August 27, 2018, Cataldo
commenced an action against Alto B and the Empery Funds captioned
Anthony Cataldo v. Empery Asset
Master LTD., et al., Case No. SC129731 (Sup. Ct. Cal.) (the
“California
Action”), alleging, inter alia, that Alto B had tortuously
interfered with Cataldo’s employment agreement by suggesting
to GT Biopharma’s placement agent that GT Biopharma should
“bolster” its management, and by engaging in the short
selling alleged in the SDNY Action;
WHEREAS, Alto B provided GT Biopharma
with trading records and third-party affidavits, showing that Alto
B had not engaged in any of the trading alleged in either of the
SDNY Action or California Action;
WHEREAS, on October 3, 2018, GT
Biopharma voluntarily dismissed the SDNY Action against Alto B and
the Empery Funds without prejudice;
WHEREAS, on December 24, 2018, the
Empery Funds commenced an action against GT Biopharma captioned
Empery Asset Master LTD., et al.,
v. GT Biopharma, Inc., Index No. 656408/2018 (Sup. Ct. N.Y.
Cnty.) (as amended, the “New York Action”),
alleging, inter alia, that
GT Biopharma was in breach of certain of its obligations under the
SPA (the New York Action, together with the SDNY Action and the
California Action, are referred to herein as the
“Litigations”);
WHEREAS, the New York Action was amended
by the Empery Funds to assert claims against Kessler for tortious
interference with the SPA and defamation;
WHEREAS, on February 8, 2019, Cataldo
dismissed the California Action with prejudice against Alto B and
the Empery Funds;
WHEREAS, on June 24, 2020, Alto B
delivered a demand letter to GT Biopharma asserting identical or
nearly identical claims to those asserted in the New York Action
(the “Demand
Letter”);
WHEREAS, the Parties desire to fully
settle and resolve all remaining issues, disputes, claims and
causes of action that were raised, or that could have been raised,
relating in every and any way to the Litigations or the Demand
Letter and their relationship to each other, to avoid further
expense and inconvenience of litigation, without any admission of
liability or wrongdoing on the part of GT Biopharma, Cataldo or
Kessler;
WHEREAS, GT Biopharma, Cataldo, and
Kessler deny each and every one of Alto B's allegations of wrongful
conduct, and deny that any conduct challenged by Alto B caused any
damage whatsoever, and have asserted a number of defenses to Alto
B’s claims;
WHEREAS, the Parties agree that this
Agreement shall not be deemed or construed to be an admission or
evidence of any violation of any statute or law or of any liability
or wrongdoing by GT Biopharma, Cataldo or Kessler, or of the truth
of any claim or allegation or a waiver of any defenses
thereto;
AND WHEREAS, the Parties, each acting on
his, her or its own behalf, have approved of the settlement terms
described below.
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, including in return for the promises and covenants
undertaken by the Parties herein and the releases given herein, the
Parties agree as follows:
1. Settlement
Exchange:
a. Settlement Payment: Within ten
(10) Business Days of the date on which this Agreement is fully
executed, GT Biopharma shall pay to Alto B a cash payment in the
amount of $180,000 (the “Settlement Payment”)
solely in exchange for the releases and other covenants set forth
in Section 2 of this Agreement. The Settlement Payment will be made
to Alto B via wire transfer of immediately available funds in
accordance with the wire transfer information to be provided by
Alto B.
b. Settlement Shares and Settlement
Note: Within five (5) Business Days of the date on which
this Agreement is fully executed, GT Biopharma shall (i) credit
960,000 shares of Common Stock to the balance account of Alto B
with The Depository Trust Company through its Deposit / Withdrawal
at Custodian system in accordance with the DWAC Instructions set
forth in Schedule
1 attached hereto and (ii) issue and deliver to Alto B
a senior convertible note in the amount of $500,000, in the form
attached hereto as Exhibit
A (the “Settlement Note” and,
together with the Settlement Shares, the “Settlement Securities”),
to the address set forth on Schedule 1 attached
hereto, in each case, solely in exchange for the Original
Securities held by Alto B. The date on which the Settlement
Securities are delivered to Alto B is hereinafter referred to as
the “Exchange
Date.” As used herein, “Business Day” means any
day other than a Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required to remain
closed.
c. Original Note and Original
Warrants: Effective upon receipt of, and solely in exchange
for, the Settlement Securities, the Original Securities held by
Alto B, and the SPA, will be deemed cancelled and extinguished and
all rights of Alto B and obligations of GT Biopharma and others
thereunder will terminate. Promptly following the Exchange Date,
but in any event within ten (10) Business Days thereafter unless
delayed due to force majeure—including pandemic related
restrictions or disruptions—Alto B shall return the Original
Securities to GT Biopharma for cancellation. The Parties
acknowledge and agree that the exchange of the Original Securities
for the Settlement Securities is being made in reliance upon the
exemption from registration provided by Section 3(a)(9) of the
Securities Act of 1933, as amended (the “1933 Act”).
2. Releases
and Covenant Not to Sue:
a. Alto B Releases: Alto B on its
own behalf, and for and on behalf of its parent companies,
subsidiaries, and direct or indirect affiliates, and any and all of
their respective present, former, and future general partners,
limited partners, officers, directors, shareholders, managers,
members, trustees, employees, consultants, attorneys, and other
agents in their respective capacities as such, and the heirs,
executors, administrators, successors, and assigns of each of them
(collectively, the “Alto B Releasors”),
hereby completely and irrevocably releases and forever and finally
discharges any and all Claims (as defined below), rights, demands,
obligations, causes of action, counterclaims, defenses, rights of
setoff, rights of rescission, liens, disputes, damages,
liabilities, debts, costs, expenses (including attorneys’
fees), payments, capital contributions, fees, bonds, covenants,
contracts, agreements, judgments, charges, or losses of any kind or
character whatsoever, in law or equity, whether presently known or
unknown, asserted or unasserted, fixed or contingent, in contract,
tort, or otherwise, that any of the Alto B Releasors had, presently
may have or may have in the future against GT Biopharma, Cataldo,
or Kessler, as well as, to the extent applicable, each of their
respective parent companies, subsidiaries, direct and indirect
affiliates, and any and all of their respective present, former and
future officers, directors, shareholders, managers, members,
partners, employees, consultants, attorneys, and other agents in
their respective capacities as such (collectively, the
“GT Biopharma and
Individual Released Parties”), arising out of or by
reason of any cause, matter, or thing relating or ancillary to the
Litigations or the Demand Letter. The release shall apply to Claims
whether arising under any statute, rule or regulation, or under the
law of any country, state, province, territory, or any other
jurisdiction, or under principles of contract law, common law, or
equity; provided that, and consistent with Section 3(f) of this
Agreement, nothing herein shall release Claims arising out of this
Agreement or any Settlement Documents (as defined
below).
b. GT Biopharma’s Releases.
GT Biopharma on its own behalf, and for and on behalf of its parent
companies, subsidiaries, and direct or indirect affiliates, and any
and all of their respective present, former, and future general
partners, limited partners, officers, directors, shareholders,
managers, members, trustees, employees, consultants, attorneys, and
other agents in their respective capacities as such, and the heirs,
executors, administrators, successors, and assigns of each of them
(collectively, the “GT Biopharma Releasors”),
hereby completely and irrevocably releases and forever and finally
discharges any and all Claims, rights, demands, obligations, causes
of action, counterclaims, defenses, rights of setoff, rights of
rescission, liens, disputes, damages, liabilities, debts, costs,
expenses (including attorneys’ fees), payments, capital
contributions, fees, bonds, covenants, contracts, agreements,
judgments, charges, or losses of any kind or character whatsoever,
in law or equity, whether presently known or unknown, asserted or
unasserted, fixed or contingent, in contract, tort, or otherwise,
that any of the GT Biopharma Releasors had, presently may have or
may have in the future against Alto B, as well as each of Alto
B’s investment managers, subsidiaries, and direct or indirect
affiliates, and any and all of their respective direct or indirect
present, former and future officers, directors, shareholders,
managers, members, partners, employees, consultants, attorneys, and
other agents in their respective capacities as such (collectively,
the “Alto B Released
Parties”), arising out of or by reason of any cause,
matter, or thing relating or ancillary to the Litigations or the
Demand Letter (including Alto B's status as holder of the Original
Securities and the status of Alto B as a holder of the Settlement
Securities). The releases shall apply to Claims whether arising
under any statute, rule or regulation, or under the law of any
country, state, province, territory, or any other jurisdiction, or
under principles of contract law, common law, or equity; provided
that, consistent with Section 3(f) of this Agreement, nothing in
this release shall release Claims arising out of this Agreement or
any Settlement Documents. For the avoidance of doubt, the release
in this Section 3(b) shall have the same effect as a dismissal with
prejudice.
c. Cataldo and Kessler Releases.
Cataldo and Kessler on their own behalf and for and on behalf of
each of their respective present, former, and future general
partners, limited partners, employees, consultants, attorneys, and
other agents in their respective capacities as such, and the heirs,
executors, administrators, successors, and assigns of each of them
(collectively, the “Individual Releasors”),
hereby completely and irrevocably release and forever and finally
discharge any and all Claims, rights, demands, obligations, causes
of action, counterclaims, defenses, rights of setoff, rights of
rescission, liens, disputes, damages, liabilities, debts, costs,
expenses (including attorneys’ fees), payments, capital
contributions, fees, bonds, covenants, contracts, agreements,
judgments, charges, or losses of any kind or character whatsoever,
in law or equity, whether presently known or unknown, asserted or
unasserted, fixed or contingent, in contract, tort, or otherwise,
that any of the Individual Releasors had, presently may have or may
have in the future against Alto B Released Parties, arising out of
or by reason of any cause, matter, or thing relating or ancillary
to the Litigations or the Demand Letter (including Alto B's status
as a holder of the Original Securities the status of Alto B as a
holder of the Settlement Securities). The releases shall apply to
Claims whether arising under any statute, rule or regulation, or
under the law of any country, state, province, territory, or any
other jurisdiction, or under principles of contract law, common
law, or equity; provided that nothing in this release shall release
Claims arising out of this Agreement or any Settlement
Document.
d. Covenant Not to Sue; Defense:
Except as necessary to enforce this Agreement and the Settlement
Documents, each Party on its own behalf and on behalf of any other
Person purporting to act by, through or on behalf of such Party,
hereby covenants, represents, and warrants that it will forever
refrain from suing to enforce or to recover, directly or
indirectly, under any Claims released by this Agreement, to the
extent such releases become effective. This Agreement may be
pleaded as a full and complete defense to, and may be used as the
basis for an injunction against any action, suit or other
proceeding which may be instituted, prosecuted or attempted in
breach of the undertakings contained here. As used herein,
“Person” means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization,
any other entity and any government or any department or agency
thereof.
e. Unknown Claims: The Parties
each acknowledge that he, she or it may discover facts in addition
to or different from those that he, she or it now knows or believes
to be true with respect to the matters released herein, but that it
is the express intention of the Parties, except as necessary to
enforce this Agreement and the Settlement Documents, to fully,
finally and forever settle and release any and all claims released
hereby, known or unknown, suspected or unsuspected, which now
exists or heretofore existed, and without regard to the subsequent
discovery or existence of such additional or different facts with
respect to the matters released hereby. Except that Alto B and its
affiliated entities do not release or discharge any future Claims,
arising out of future events, that they may have against GT
Biopharma, Cataldo, and Kessler unrelated to the Litigations or the
Demand Letter. And except that Bristol Investment Fund, Ltd., and
its affiliated entities, do not release or discharge any Claims
they may have, now or in the future, as to GT Biopharma and
unrelated to the Litigations or the Demand Letter. In furtherance
of this intention, the Parties each acknowledge that they have been
advised of and expressly waive any and all provisions, rights and
benefits of California Civil Code Section 1542, which
provides:
A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR
RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER
FAVOR AT THE TIME OF EXECUTING THE RELEASE, AND THAT, IF KNOWN BY
HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT
WITH THE DEBTOR OR RELEASED PARTY.
The
Parties shall also be deemed expressly to have waived any and all
provisions, rights and benefits conferred by any law of any state
or territory of the United States, or principle of common law,
which is similar, comparable, or equivalent to California Civil
Code Section 1542 or that would otherwise limit the releases and
waivers contained in this Agreement.
The
Parties each acknowledge that the foregoing waiver was separately
bargained for and an integral aspect of the settlement of which
this release is a part.
f. Enforcement of This Agreement:
For the avoidance of doubt, notwithstanding the foregoing or any
other provisions of this Agreement, the releases and covenants not
to sue in this Section 2 shall not apply to any disputes or claims
that may arise in the future relating to the enforcement of the
terms of this Agreement or the Settlement Documents issued pursuant
thereto.
3. Acknowledgment of Alto B's Alleged
Trading: GT Biopharma, Cataldo and Kessler each hereby
acknowledge that Alto B did not engage in short selling alleged in
the SDNY Action or the California Action.
4. No Admission: It is understood
and agreed that this Agreement is a compromise and settlement of
the Claims released herein, and it shall not be construed as an
admission, concession, or indication of the validity of any Claim,
defense, liability, obligation, or wrongdoing. For the avoidance of
doubt, the Acknowledgment of Alto B's Alleged Trading in Section 3
of this Agreement does not modify in any way the releases and
covenants not to sue in Section 2 of this Agreement, and,
accordingly, the acknowledgment in Section 3 of this Agreement
shall not serve as the basis for any future Claim. Nor will the
Parties argue in or before any court, administrative agency,
tribunal, or make any public statement whatsoever, that this
Agreement or the acknowledgment in Section 3 of this Agreement is
or may be construed as an admission by GT Biopharma, Cataldo, or
Kessler of any wrongdoing or liability.
5. Representations
and Covenants of GT Biopharma
a. Authorization; Enforcement;
Validity. GT Biopharma has the requisite corporate power and
authority to enter into and perform its obligations under this
Agreement, the Settlement Note and each of the other agreements,
instruments, certificates or documents entered into by the parties
hereto in connection with the transactions contemplated by this
Agreement (collectively, the “Settlement Documents”)
and to issue the Settlement Securities in exchange for the Original
Securities, all in accordance with the terms hereof and thereof.
The execution and delivery of this Agreement and the other
Settlement Documents by GT Biopharma and the consummation by GT
Biopharma of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Settlement
Securities, have been duly authorized by GT Biopharma’s Board
of Directors, and no further filing, consent, or authorization is
required by GT Biopharma, its Board of Directors or its
stockholders. This Agreement and the other Settlement Documents are
duly executed and delivered (or will be delivered) by GT Biopharma,
and constitute (or will constitute) the legal, valid and binding
obligations of GT Biopharma, enforceable against GT Biopharma in
accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally,
the enforcement of applicable creditors’ rights and
remedies.
b. Issuance of Securities. In each
case subject to the terms of the Settlement Documents, the issuance
of the Settlement Securities are duly authorized and, upon issuance
in accordance with the terms hereof, shall be validly issued, fully
paid and free from all preemptive or similar rights, taxes, liens
and charges and other encumbrances with respect to the issue
thereof and the Settlement Conversion Shares (when issued) shall be
validly issued, fully paid and non-assessable and free from all
preemptive or similar rights, taxes, liens, charges and other
encumbrances with respect to the issue thereof, with the holder of
the Settlement Shares and the Settlement Conversion Shares (when
issued) being entitled to all rights accorded to a holder of Common
Stock. In connection with the issuance of the Settlement
Securities, Alto B represents that it has continuously held the
Original Securities Since January 22, 2018 for purposes of Rule 144
under the 1933 Act. As of the Exchange Date, a number of shares of
Common Stock shall have been duly authorized and reserved for
issuance which equals or exceeds (the “Required Reserved
Amount”) the sum of 150% of the maximum number of
shares of Common Stock issuable pursuant to the terms of the
Settlement Note (the “Settlement Conversion
Shares”) based on the initial Conversion Price (as
defined in the Settlement Note) (without taking into account any
limitations on the issuance thereof pursuant to the terms of the
Settlement Note). As of the date hereof, there are 672,834,264
shares of Common Stock authorized and unissued. So long as Alto B
holds the Settlement Note, GT Biopharma shall use all necessary
actions and efforts to at all times have authorized, and reserved
for the purpose of issuance, no less than the Required Reserve
Amount. If at any time the number of shares of Common Stock
authorized and reserved for issuance is not sufficient to meet the
Required Reserved Amount, GT Biopharma will promptly take all
corporate action necessary to authorize and reserve a sufficient
number of shares, including, without limitation, calling a special
meeting of stockholders to authorize the reservation of additional
shares to meet the GT Biopharma’s obligations under this
Section 5(b), and, in the case of an insufficient number of
authorized shares, obtain stockholder approval of an increase in
such authorized number of shares, and voting the management shares
of GT Biopharma in favor of an increase in the authorized shares of
GT Biopharma to ensure that the number of authorized shares is
sufficient to meet the Required Reserved Amount.
c. No Conflicts. The execution,
delivery and performance of the Settlement Documents by GT
Biopharma and the consummation by GT Biopharma of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance of the Settlement Securities) will not (i) result in a
violation of the restated certificate of incorporation of GT
Biopharma or its bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both
would become a default) in any respect under, or give to others any
rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which GT Biopharma or any
of its Subsidiaries is a party or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree applicable to
GT Biopharma or any of its Subsidiaries, or by which any property
or asset of GT Biopharma or any of its Subsidiaries is bound or
affected, except, in the case of clauses (ii) and (iii) above,
where such conflict, violation or default would not result,
individually or in the aggregate, in a Material Adverse Effect. For
purposes of this Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties,
assets, liabilities, operations, results of operations or condition
(financial or otherwise) of GT Biopharma and its Subsidiaries,
taken as a whole, or on the transactions contemplated hereby or on
the other Settlement Documents or by the agreements and instruments
to be entered into in connection herewith or therewith, or on the
authority or ability of GT Biopharma to perform any of its
obligations under any of the Settlement Documents.
d. Consents. GT Biopharma is not
required to obtain any consent, authorization or order of, or make
any filing or registration with, any court, governmental agency or
any regulatory or self-regulatory agency or any other Person in
order for it to execute, deliver or perform any of its obligations
under or contemplated by the Settlement Documents, in each case in
accordance with the terms hereof or thereof, other than (i) the
filings required pursuant to Section 5(h) of this Agreement, (ii)
the notice and/or application(s), if any, required to be delivered
pursuant to Section 5(i) of this Agreement, (iii) any filings
required to be made under applicable state securities laws and
(iii) those already obtained or effected on or prior to the date
hereof. GT Biopharma is not in violation of the listing
requirements of the Principal Market and has no knowledge of any
facts or circumstances that would reasonably lead to delisting or
suspension of the Common Stock on the Principal Market in the
foreseeable future. The issuance by GT Biopharma of the Settlement
Shares, the Settlement Warrants or Settlement Notes shall not have
the effect of delisting or suspending the Common Stock from the
Principal Market.
e. FAST
Compliance. While any Settlement Shares or Settlement Note
are outstanding, GT Biopharma shall maintain a transfer agent that
participates in the DTC Fast Automated Securities Transfer
Program.
f. (i)
Right of Participation. Until the first date that (i) less
than 10% of the aggregate amount of the Settlement Notes are
outstanding and (ii) no Event of Default (as defined in the
Settlement Notes) nor an event which with the passage of time or
the giving of notice could become an Event of Default is pending,
upon any proposed financing through the issuance by GT Biopharma or
any of its Subsidiaries of Common Stock, Common Stock Equivalents,
Indebtedness (as defined in Section 5(o) below) or a combination
thereof, other than (i) a rights offering to all holders of Common
Stock which does not include extending such rights offering to
holders of Settlement Notes or (ii) an Exempt Issuance (each a
“Subsequent Financing”), Alto-B shall have the right to
participate in up to an amount of the Subsequent Financing equal to
100% of the Subsequent Financing (the “Participation
Maximum”), pro rata (i) to each other in proportion to the
aggregate principal amount of Settlement Notes issued to them
pursuant to this Agreement and (ii) to each other Person holding
Permitted Indebtedness (as defined in the Settlement Notes) and
having a similar right of participation in such Subsequent
Financing, on the conditions and price provided for in the
Subsequent Financing, unless the Subsequent Financing is an
underwritten public offering, in which case GT Biopharma shall
notify Alto-B of such public offering when it is lawful for GT
Biopharma to do so, but Alto-B shall be entitled to purchase any
particular amount of such public offering without the approval of
the lead underwriter of such underwritten public
offering.
(ii) At
least ten (10) Trading Days (as defined in the Settlement Notes)
prior to the closing of the Subsequent Financing, GT Biopharma
shall deliver to Alto-B a written notice of its intention to effect
a Subsequent Financing (“Pre-Notice”), which Pre-Notice
shall Alto-B if it wants to review the details of such financing
(such additional notice, a “Subsequent Financing
Notice”). Upon the request of Alto-B for a Subsequent
Financing Notice, GT Biopharma shall promptly, but no later than
one (1) Trading Day after such request, deliver a Subsequent
Financing Notice to Alto-B. Alto-B shall be deemed to have
acknowledged that the Subsequent Financing Notice may contain
material non-public information. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised
thereunder and the Person or Persons through or with whom such
Subsequent Financing is proposed to be effected and shall include a
term sheet or similar document relating thereto as an
attachment.
iii.
If Alto-B desires to participate in such Subsequent Financing, it
must provide written notice to GT Biopharma by not later than 5:30
p.m. (New York City time) on the tenth (10th) Trading Day after it
received the Pre-Notice, that it is willing to participate in the
Subsequent Financing, the amount of such participation, and
representing and warranting that it has such funds ready, willing,
and available for investment on the terms set forth in the
Subsequent Financing Notice. If GT Biopharma receives no such
notice from Alto-B as of such tenth (10th) Trading Day, Alto-B
shall be deemed to have notified GT Biopharma that it does not
elect to participate.
iv.
If by 5:30 p.m. (New York City time) on the fifteenth (15th)
Trading Day after Alto-B received the Pre-Notice, notification by
Alto-B of its willingness to participate in the Subsequent
Financing (or to cause their designees to participate) is, in the
aggregate with similar notifications from all other Persons holding
Permitted Indebtedness and having similar rights of participation
in the Subsequent Financing, less than the total amount of the
Participation Maximum of the Subsequent Financing, then GT
Biopharma may affect the remaining portion of such Subsequent
Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice and Alto-B shall simultaneously affect
their portion of such Subsequent Financing as set forth in their
notifications to GT Biopharma consistent with the terms set forth
in the Subsequent Financing Notice.
v.
If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day
after Alto-B received the Pre-Notice, GT Biopharma receives
responses to a Subsequent Financing Notice from Alto-B seeking to
purchase more than the aggregate amount of the Participation
Maximum, Alto-B shall have the right to purchase its Pro Rata
Portion (of the Participation Maximum. “Pro Rata
Portion” means the ratio of (x) the principal amount of the
Settlement Notes issued hereunder to Alto-B participating under
this Section 5(f) and (y) the sum of the aggregate principal amount
of Permitted Indebtedness held by other Persons who have elected to
participate in the Subsequent Financing under rights of
participation similar to this Section 5(f).
vi.
GT Biopharma must provide Alto-B with a second Subsequent Financing
Notice, and Alto-B will again have the right of participation set
forth above in this Section 5(f), if the Subsequent Financing
subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such
Subsequent Financing Notice within sixty (60) Trading Days after
the date of the initial Subsequent Financing Notice.
vii.
GT Biopharma and Alto-B agree that if any Alto-B elects to
participate in the Subsequent Financing, the transaction documents
related to the Subsequent Financing shall not include any term or
provision whereby Alto-B shall be required to agree to any
restrictions on trading as to any of the securities issued
hereunder (for avoidance of doubt, the securities purchased in the
Subsequent Financing shall not be considered securities purchased
hereunder) or be required to consent to any amendment to or
termination of, or grant any waiver, release or the like under or
in connection with, this Agreement, without the prior written
consent of Alto-B.
viii.
Notwithstanding anything to the contrary in this Section 5(f) and
unless otherwise agreed to by Alto-B, GT Biopharma shall either
confirm in writing to Alto-B that the transaction with respect to
the Subsequent Financing has been abandoned or shall publicly
disclose its intention to issue the securities in the Subsequent
Financing, in either case in such a manner such that Alto-B will
not be in possession of any material, non-public information, by
the seventeenth (17th) Trading Day following delivery of the
Subsequent Financing Notice. If by such seventeenth (17th) Trading
Day, no public disclosure regarding a transaction with respect to
the Subsequent Financing has been made, and no notice regarding the
abandonment of such transaction has been received by Alto-B such
transaction shall be deemed to have been abandoned and Alto-B shall
not be deemed to be in possession of any material, non-public
information with respect to GT Biopharma or any of its
Subsidiaries.
ix.
For the purposes of this Section 5(f): (x) “Common Stock
Equivalents” means any securities of GT Biopharma or its
Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including, without limitation, any debt,
preferred stock, right, option, warrant or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock;
(y)”Exempt Issuance” means the issuance of (A) shares
of Common Stock or options to employees, officers or directors of
GT Biopharma pursuant to any stock or option plan duly adopted for
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, (B) securities
exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement,
provided that such securities and any term thereof have not been
amended since the date of this Agreement to increase the number of
such securities or to decrease the issue price, exercise price,
exchange price or conversion price of such securities and which
securities and the principal terms thereof are described in the SEC
Documents (as defined below), (C) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of
the disinterested directors of GT Biopharma, provided that any such
issuance shall only be to a Person (or to the equity holders of a
Person) which is, itself or through its subsidiaries, an operating
company or an owner of an asset in a business synergistic with the
business of GT Biopharma and shall be intended to provide to GT
Biopharma substantial additional benefits in addition to the
investment of funds, but shall not include a transaction in which
GT Biopharma is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing
in securities, (D) as set forth on Schedule 5(f), and (e)
securities issued or issuable to Alto-B and its assigns pursuant to
the Settlement Documents including without limitation, this Section
5(f), or upon exercise, conversion or exchange of any such
securities.
g. Solvency:
As of the date hereof, neither GT
Biopharma nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does GT Biopharma
have knowledge that its creditors or its Subsidiaries’
creditors intend to initiate involuntary bankruptcy proceedings or
knowledge of any fact which would reasonably lead a creditor to do
so. GT Biopharma, individually, and GT Biopharma and its
subsidiaries, on a consolidated basis, are not as of the date
hereof, and after giving effect to the transactions contemplated
hereby will not be, Insolvent. As used herein,
“Insolvent”
means, with respect to any Person, (i) the present fair saleable
value of such Person’s assets is less than the amount
required to pay such Person’s total Indebtedness (as defined
in Section 5(o)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured, (iii) such Person
intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person
has unreasonably small capital with which to conduct the business
in which it is engaged as such business is now conducted and is
proposed to be conducted.
h. Shell
Company Status. GT
Biopharma is not, and has never been,
an issuer identified in Rule 144(i)(1) of the 1933
Act.
i. SEC Filings. As of their
respective filing dates, GT Biopharma’s filings with the
United States Securities and Exchange Commission (the
“SEC”)
under the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”) since January 1, 2019 (the “SEC Documents”), complied
in all material respects with the requirements of the Exchange Act
and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, 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. GT
Biopharma represents that, as of the date hereof, no material event
or circumstance has occurred which would be required to be publicly
disclosed or announced on a Current Report on Form 8-K, either as
of the date hereof or solely with the passage of time by GT
Biopharma but which has not been so publicly announced or
disclosed.
j. Disclosure of Transactions and Other
Material Information. GT Biopharma shall file a
current report on Form 8-K reasonably acceptable to Alto B (the
“8K
Filing”) on or before 8:30 a.m., New York City time,
on the first Business Day after this Agreement has been duly
executed and delivered, in the form required by the 1934 Act,
relating to the transactions contemplated by this Agreement and
attaching a form of this Agreement and the form of Settlement Note
(including, without limitation, all schedules and exhibits to such
agreements to the extent required by the rules of the SEC) as an
exhibit to such filing. From and after the filing of the 8-K
Filing with the SEC, Alto B shall not be in possession of any
material, nonpublic information received from GT Biopharma, any of
its Subsidiaries or any of their respective officers, directors,
employees or agents that is not disclosed in the 8-K Filing. In
addition, effective upon the filing of the 8-K Filing, GT Biopharma
acknowledges and agrees that any and all confidentiality or similar
obligations under any agreement, whether written or oral, between
GT Biopharma, any of its Subsidiaries or any of their respective
officers, directors, employees or agents, on the one hand, and Alto
B or any of its respective affiliates, on the other hand, shall
terminate and be of no further force or effect. GT Biopharma shall
not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents, not to,
provide Alto B with any material, nonpublic information regarding
GT Biopharma or any of its Subsidiaries from and after the date
hereof without the express prior written consent of Alto B or as
otherwise contemplated hereby. . GT Biopharma understands
and confirms that Alto B will rely on the foregoing representations
in effecting transactions in securities of GT
Biopharma.
k. Listing. GT Biopharma
shall, if applicable, take all steps necessary to promptly secure
the listing or quotation of all of (i) Settlement Shares and
Settlement Conversion Shares without regard to any limitation on
the conversion of the Settlement Note and (ii) any capital stock of
GT Biopharma issued or issuable with respect to the Settlement
Shares and the Settlement Note or the Settlement Conversion Shares,
as applicable, as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise (the
“Listed
Securities”) upon the OTCQB (the “Principal Market”) or any
other national securities exchange or automated quotation system,
if any, upon which the Common Stock is then listed and shall
maintain such listing of all Listed Securities. GT Biopharma
shall pay all fees and expenses in connection with satisfying its
obligations under this Section 5(i).
l. No Integration Actions. None of
GT Biopharma, any of its affiliates or any Person acting on behalf
of GT Biopharma or such affiliate will sell, offer for sale or
solicit offers to buy in respect of any security (as defined in the
1933 Act) that would be integrated with the issuance of the
Settlement Shares and Settlement Note in a manner that would
require the registration under the 1933 Act of the issuance to Alto
B or require shareholder approval under the rules and regulations
of the Principal Market, and GT Biopharma will take all action that
is appropriate or necessary to assure that its offerings of other
securities will not be integrated for purposes of the 1933 Act or
the rules and regulations of the Principal Market with the issuance
of the Settlement Shares and Settlement Note contemplated
hereby.
m. Variable Securities. For so
long as any Settlement Note remains outstanding, GT Biopharma shall
not, in any manner, (i) issue or sell any rights, warrants or
options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed
price, unless the conversion, exchange or exercise price of any
such security cannot be less than the then applicable Conversion
Price with respect to the Common Stock into which any Settlement
Note is convertible (collectively, “Variable Rate
Transactions”) or (ii) enter into any agreement, or
issue any securities pursuant to any agreement, including, without
limitation, an equity line of credit, at-the-market offering or
similar agreement, whereby GT Biopharma may issue securities at a
future determined price.
n. Preservation of Corporate
Existence. The Company shall preserve and maintain its
corporate existence, rights, privileges and franchises in the
jurisdiction of its incorporation, and qualify and remain
qualified, as a foreign entity in each jurisdiction in which such
qualification is necessary in view of its business or operations
and where the failure to qualify or remain qualified might
reasonably have a Material Adverse Effect upon the financial
condition, business or operations of GT Biopharma, taken as a
whole.
o. Indebtedness. Schedule 5(m) sets forth as of
the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For purposes of this Agreement: (x)
“Indebtedness” of any
Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business consistent
with past practice and deferred compensation payable to officers,
directors and employees of GT Biopharma and its Subsidiaries), (C)
all reimbursement or payment obligations with respect to letters of
credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar
instruments, (E) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the
rights and remedies of the seller or bank under such agreement in
the event of default are limited to repossession or sale of such
property), (F) all monetary obligations under any leasing or
similar arrangement which, in connection with U.S. generally
accepted accounting principles, consistently applied for the
periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage,
deed of trust, lien, pledge, charge, security interest or other
encumbrance of any nature whatsoever in or upon any property or
assets (including accounts and contract rights) with respect to any
asset or property owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness referred to in clauses (A)
through (G) above; and (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any
Indebtedness if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such
liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with
respect thereto;
p. Indemnification. To the fullest
extent permitted by law, GT Biopharma will, and hereby does,
indemnify, hold harmless and defend Alto B, the directors,
officers, partners, members, employees, agents, representatives of,
and each Person, if any, who controls any Investor within the
meaning of the 1933 Act or the 1934 Act (each, an
“Indemnified
Person”), against any losses, Claims, damages,
liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys’ fees, amounts paid in settlement or
expenses, joint or several (collectively, “Claims”), incurred in
investigating, preparing or defending any action, Claim, suit,
inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or
other regulatory agency, body or the SEC, whether pending or
threatened, whether or not an indemnified party is or may be a
party thereto (“Indemnified Damages”), to
which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of, relate to, or are based upon: (a) any
misrepresentation or breach of any representation or warranty made
by GT Biopharma in the Settlement Documents, (b) any breach of any
covenant, agreement or obligation of GT Biopharma contained in the
Settlement Documents or (c) any cause of action, suit or claim
brought or made against such Indemnified Person by a third party
(including for these purposes a
derivative action brought on behalf of GT Biopharma) and
arising out of, resulting from, or ancillary to (I) the status of
Alto B as a holder of the Original Securities (II) the execution,
delivery, performance or enforcement of the transactions
contemplated by the Settlement Documents (III) the status of Alto B
as a holder of the Settlement Securities or (IV) the status of Alto
B as a party to this Agreement and/or the SPA any cause of action,
suit or claim brought or made against such Indemnified Person by a
third party and arising out of, resulting from, or ancillary to the
transactions contemplated by the Settlement Documents (unless such
action is based upon a breach of such Indemnified Person’s
representations, warranties or covenants under the Settlement
Documents. For the avoidance of doubt,
the violations set forth in this Section 5(p) are intended to
apply, and shall apply, to direct claims between asserted by or
against any Indemnified Person, on the one hand, and GT Biopharma,
on the other, as well as any third party claims asserted by or
against an Indemnified Person. GT Biopharma shall reimburse
the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any reasonable and invoiced legal fees or
other reasonable and invoiced expenses incurred by them in
connection with investigating or defending any such
Claim.
6. Representations and Covenants of
Cataldo and Kessler:
a. Authorization; Enforcement;
Validity. Each of Cataldo and Kessler has the legal capacity
and right to execute, deliver, enter into and perform his
obligations under this Agreement and each of the other Settlement
Documents in accordance with the terms hereof and thereof. This
Agreement and the other Settlement Documents are duly executed and
delivered by each of Cataldo and Kessler, and constitute the legal,
valid and binding obligations of each of Cataldo and Kessler,
enforceable against Cataldo and Kessler in accordance with their
respective terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.
7. Non Disparagement. Each of Alto
B, GT Biopharma, Cataldo, and Kessler, severally and not jointly,
agrees that, from and after the execution of this Agreement, each
of them shall not make, publish or communicate, or encourage any
other Person to make, publish or communicate, any Disparaging (as
defined below) remarks, comments, or statements concerning any
other Person that is subject to, or a signatory of, this Agreement.
As used herein, “Disparaging” remarks,
comments or statements are those that impugn the character,
honesty, integrity, morality, or business acumen or abilities in
connection with any aspect of the operation of business of, or
reflect negatively upon, the individual or entity being disparaged.
Each of Alto B, GT Biopharma, Cataldo, and Kessler, severally and
not jointly, further agrees that, from the execution of this
Agreement, they shall not encourage any other Person to consider,
threaten, or file any action, Claim, suit, inquiry, or proceeding
against any Person that is subject to, or a signatory of, this
Agreement. This provision shall in no way limit the ability of any
party to enforce the Settlement Documents.
8. Confidentiality. The Parties
agree that the negotiations that resulted in this Agreement, are
confidential and they will not disclose them to any third party
except: (i) to their respective attorneys, accountants and
insurers; (ii) as required by, or for use in, any court of
competent jurisdiction or regulatory body or agency; (iii) as
required by any federal, state or municipal rule, regulation or
law; (iv) to any tax preparation professional and to the extent
necessary to accurately file city, state and federal taxes; and,
(v) with respect to Alto B only, to any limited partner, potential
investor or any other Person if, in Alto B’s own judgment,
disclosure is necessary to explain, for any business purpose, the
background, circumstances, and/or results of the Litigations or the
Demand Letter.
9. Entire Agreement; Amendments.
This Agreement and any schedules and exhibits hereto constitute the
entire agreement among the Parties as to the settlement and
supersede any prior agreements among the Parties with respect to
the subject matter of this Agreement. No representations,
warranties or inducements have been made or relied upon by any
Party concerning this Agreement or its exhibits, other than the
representations, warranties and covenants expressly set forth in
such documents. This Agreement shall not be modified or amended in
any way except in writing executed by or on behalf of each Party to
be bound thereby or by their respective successors-in-interest.
10. Voluntary and Informed Assent.
Each Party to this Agreement represent and agree that the Party has
read and fully understood the provisions of this Agreement, that
they are fully competent to enter into and sign this Agreement, and
that they are executing this Agreement voluntarily, free of any
duress or coercion.
11. Construction. The language of
all parts of this Agreement shall in all cases be construed as a
whole, according to its fair meaning, and not strictly for or
against any Party. This Agreement was prepared jointly by the
Parties, and no presumptions or rules of interpretation based upon
the identity of the Party preparing or drafting the Agreement, or
any part thereof, shall be applicable or invoked.
12. Headings. The section headings
contained in each section of this Agreement are intended solely for
convenience of reference and shall not limit or expand the express
terms of this Agreement or otherwise be used in its
construction.
13. Choice of Law. This Agreement
shall be considered to have been negotiated, executed and
delivered, and to be wholly performed in the State of New York, and
the rights and obligations of the Parties to the Agreement shall be
construed and enforced in accordance with, and governed by, the
internal, substantive laws of the State of New York without giving
effect to that State’s choice of law principles.
14. Dispute Resolution. The Parties
agree that the exclusive jurisdiction for any legal proceeding
arising out of or relating to this Agreement shall be the Supreme
Court of the State of New York, New York County, and all Parties
hereby waive any challenge to personal jurisdiction or venue in
that court.
15. Waiver. The waiver by any Party
of any breach of this Agreement by the other shall not be deemed a
waiver of that or any other prior or subsequent breach of any
provision of this Agreement by any other Party.
16. Severability. If any provision
or provisions of this Agreement or the settlement shall be held to
contravene or be invalid under any applicable law, such
contravention or invalidity shall not invalidate the whole
Agreement, but the Agreement shall be construed as not containing
the particular provision or provisions held to be illegal, invalid
or unenforceable, and the remaining rights and obligations of the
Parties shall remain in full force and effect and construed and
enforced accordingly so long as this Agreement as so modified
continues to express, without material change, the original
intentions of the Parties as to the subject matter hereof and the
prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the
respective expectations or reciprocal obligations of the Parties or
the practical realization of the benefits that would otherwise be
conferred upon the Parties. The Parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes
as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
17. Effect of Cancellation or
Termination. If the settlement set forth in this Agreement
does not become effective, or is terminated, reversed or vacated by
a court of competent jurisdiction for any reason, then,
notwithstanding anything herein to the contrary, the settlement set
forth in this Agreement shall be null and void and of no further
force or effect, and each Party shall be restored to his, her or
its respective position as it existed prior to the execution of
this Agreement, including for statute of limitations purposes.
Neither the existence of this Agreement, the facts of its
existence, the terms hereof or any statements or negotiations
between the Parties relating hereto shall be admissible in evidence
or shall be referred to for any purpose in any subsequent
litigation, action or proceeding, except in a proceeding to enforce
its terms.
18. Binding Effect. This Agreement
binds and inures to the benefit of the Parties and their respective
past and present agents, employees, attorneys, representatives,
officers, directors, shareholders, successors, assigns,
transferees, insurers and sureties, and all of their subsidiaries,
parents, predecessors, successors and controlled or affiliated
companies.
19. Notices. Any notices, consents,
waivers or other communications required or permitted to be given
under the terms of this Agreement or any other Settlement Documents
must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon delivery, when
sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the
sending party), (iii) upon delivery, when sent by electronic mail
(provided that the sending party does not receive an automated
rejection notice); or (iv) one Business Day after deposit with an
overnight courier service, in each case properly addressed to the
party to receive the same. The addresses, facsimile numbers and
e-mail addresses for such communications shall be:
If to
GT Biopharma:
GT
Biopharma, Inc.
9350
Wilshire Blvd, Suite 203
Beverly
Hills, CA 90212
Email:
ajc@gtbiopharma.com
With a
copy to (for informational purposes only):
Perrie
Weiner
Baker
McKenzie
1901
Avenue of the Stars Suite 950
Telephone: (310)
201-4709
Facsimile: (310)
201-4721
E-mail:
perrie.weiner@bakermckenzie.com
If to
Cataldo:
c/o GT
Biopharma, Inc.
9350
Wilshire Blvd, Suite 203
Beverly
Hills, CA 90212
Email:
ajc@gtbiopharma.com
With a
copy to (for informational purposes only):
Perrie
Weiner
Baker
McKenzie
1901
Avenue of the Stars Suite 950
Telephone: (310)
201-4709
Facsimile: (310)
201-4721
E-mail:
perrie.weiner@bakermckenzie.com
If to
Kessler:
Amy
Wang
Bristol
Capital Advisors, LLC
662 N.
Sepulveda Blvd., Suite 300
Los
Angeles, California 90049
Main
Line: (310) 331-8480
Direct
Line: (310) 331-8485
Facsimile: (310)
331-8490
E-mail:
amy@bristolcompanies.net
With a
copy to (for informational purposes only):
Perrie
Weiner
Baker
McKenzie
1901
Avenue of the Stars Suite 950
Telephone: (310)
201-4709
Facsimile: (310)
201-4721
E-mail:
perrie.weiner@bakermckenzie.com
If to
Alto B:
c/o
Ayrton Capital LLC
55 Post
Rd West, 2nd Floor
Westport, CT
06880
Attention: Waqas
Khatri
Telephone: (646)
793-9056
Email:
wk@ayrtonllc.com and
mfreidin@ayrtonllc.com
With a
copy (for informational purposes only) to:
Douglas
Hirsch
Sadis
& Goldberg LLP
551
Fifth Avenue, 21st Floor
New
York, New York 10176
Telephone: (212)
947-3793
Facsimile: (212)
947-3796
E-mail:
dhirsch@sglawyers.com
20. Most Favored
Nation: The Company hereby represents and warrants as of the date
hereof and covenants and agrees that none of the terms offered to
any Person with respect to any amendment, modification, waiver or
exchange of any warrant to purchase Common Stock (or other similar
instrument), including, without limitation with respect to any
consent, release, amendment, settlement, or waiver relating thereto
(each an “Settlement Document”), is or will be more
favorable to such Person (other than any reimbursement of legal
fees) than those of the Holder and this Agreement. If, and whenever
on or after the date hereof, the Company enters into a Settlement
Document, then (i) the Company shall provide notice thereof to the
Holder immediately following the occurrence thereof and (ii) the
terms and conditions of this Agreement shall be, without any
further action by the Holder or the Company, automatically amended
and modified in an economically and legally equivalent manner such
that the Holder shall receive the benefit of the more favorable
terms and/or conditions (as the case may be) set forth in such
Settlement Document, provided that upon written notice to the
Company at any time the Holder may elect not to accept the benefit
of any such amended or modified term or condition, in which event
the term or condition contained in this Agreement shall apply to
the Holder as it was in effect immediately prior to such amendment
or modification as if such amendment or modification never occurred
with respect to the Holder. The provisions of this Section 21 shall
apply similarly and equally to each Settlement
Document.
21. Independent Nature
of Holder’s Obligations and Rights. The obligations of the
Holder under this Agreement are several and not joint with the
obligations of any other holder of securities of the Company (each,
an “Other Holder”), and the Holder shall not be
responsible in any way for the performance of the obligations of
any Other Holder under any other agreement by and between the
Company and any Other Holder (each, an “Other
Agreement”). Nothing contained herein or in any Other
Agreement, and no action taken by the Holder pursuant hereto, shall
be deemed to constitute the Holder and Other Holders as a
partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Holder and Other Holders
are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by this Agreement or
any Other Agreement and the Company acknowledges that, to the best
of its knowledge, the Holder and the Other Holders are not acting
in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement or any Other Agreement.
The Company and the Holder confirm that the Holder has
independently participated in the negotiation of the transactions
contemplated hereby with the advice of its own counsel and
advisors. The Holder shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights
arising out of this Agreement, and it shall not be necessary for
any Other Holder to be joined as an additional party in any
proceeding for such purpose.
22. Specific Performance. Each
Party hereto acknowledges and agrees, on behalf of itself, herself
or himself and its, her or his affiliates, that irreparable harm
would occur in the event any of the provisions of this Agreement or
any of the other Settlement Documents were not performed in
accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Parties will be entitled to specific
relief hereunder, including, without limitation, an injunction or
injunctions to prevent and enjoin breaches of the provisions of
this Agreement and/or the other Settlement Documents and to enforce
specifically the terms and provisions hereof and thereof, in
addition to any other remedy to which they may be entitled at law
or in equity.
23. Counterpart Signature Pages:
This Agreement may be executed in any number of counterparts, and
each counterpart shall have the same force and effect as an
original and shall constitute an effective, binding agreement on
the part of each of the undersigned, all counterparts when taken
together shall constitute the entire Agreement.
IN WITNESS WHEREOF, the Parties have
caused this Agreement to be executed by themselves or their duly
authorized representatives on the respective dates set forth
below.
|
Dated:
December 22, 2020
GT BIOPHARMA, INC.
/s/ Anthony
Cataldo
Name:
Anthony Cataldo
Title:
Chief Executive Officer
|
Dated:
December 22, 2020
ALTO OPPORTUNITY MASTER
FUND, SPC – SEGREGATED MASTER
PORTFOLIO B
By:
/s/ Waqas
Khatri
Name:
Waqas Khatri
Title:
Director
|
|
Dated:
December 22, 2020
/s/ Anthony
Cataldo
Anthony
Cataldo
|
Dated:
December 22, 2020
/s/ Paul
Kessler
Paul
Kessler
|
EXHIBIT A
FORM OF SETTLEMENT NOTE
SCHEDULE 1
|
|
|
|
|
|
|
|
Amount of Settlement Payment
|
Wire Instructions for Delivery of Settlement Payment
|
Number of Settlement Shares
|
DWAC Instructions for Delivery of Settlement Shares
|
PrincipalAmount of Settlement Note
|
Address for Delivery of Settlement Note
|
|
$180,000
|
Wire
instructions previously provided to GT Biopharma
|
960,000
|
DWAC
instructions previously provided to GT Biopharma
|
$500,000
|
Ayrton
Capital LLC, 55 Post Rd West, 2nd Floor, Westport, CT
06880
|
SCHEDULE 5(m)
Existing Indebtedness
1.
Indebtedness incurred with respect to the $25,647,227 aggregate
principal amount of convertible notes and 10% senior convertible
debentures outstanding on the date hereof (including additional
Indebtedness constituting default amounts and accrued interest with
respect to such convertible note and debentures).
2.
Indebtedness incurred with respect to the lease agreement, dated
October 1, 2018, between the Company and Sheffield Properties of
Illinois, Inc. relating to the Company’s principal officers
in Westlake Village, California.
3.
Indebtedness incurred with respect to the financing agreement,
dated November 8, 2010, with Gemini Pharmaceuticals, Inc. relating
to a purchase order line of credit facility.
Exhibit
10.2
Original
Issue Date: December 22,
2020
Principal Amount: $500,000
Original Conversion Price (subject to adjustment herein):
$0.20
CONVERTIBLE NOTE
DUE JANUARY 31, 2021
THIS
CONVERTIBLE NOTE is a duly authorized and validly issued Note of
GT BIOPHARMA, INC., a
Delaware corporation, (“Borrower”), having its
principal place of business at 9350 Wilshire Blvd, Suite 203,
Beverly Hills, CA 90212, due
January 31, 2021 (the “Maturity Date”) (this
note, the “Note”).
FOR
VALUE RECEIVED, Borrower promises to pay to ALTO OPPORTUNITY MASTER
FUND, SPC – SEGREGATED MASTER PORTFOLIO B or its registered assigns (the
“Holder”), with an address
at: 55 Post Rd West, 2nd Floor, Westport, CT 06880, or shall have
paid pursuant to the terms hereunder, the principal sum of FIVE
HUNDRED THOUSAND DOLLARS ($500,000) on the Maturity Date or such
earlier date as this Note is required or permitted to be repaid as
provided hereunder, and to pay interest, if any, to the Holder on
the aggregate unconverted and then outstanding principal amount of
this Note in accordance with the provisions hereof.
This
Note is subject to the following additional
provisions:
Section
1. Definitions.
For the purposes hereof, in addition to the terms defined elsewhere
in this Note, (a) capitalized terms not otherwise defined herein
shall have the meanings set forth in the Settlement Agreement and
(b) the following terms shall have the following
meanings:
“July 7, 2019
Debentures” means the convertible debentures issued by the
Borrower in the aggregate principal amount of $3,190,000 on July 7,
2019.
“Affiliate” of any
specified Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this
definition, “control” (including, with correlative
meanings, the terms “controlling,” “controlled
by” and “under common control with”), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the
ownership of voting securities, by agreement or
otherwise.
“Alternate Consideration”
shall have the meaning set forth in Section 5(e).
“Attribution Parties”
shall have the meaning set forth in Section 4(e).
“Bankruptcy Event” means
any of the following events: (a) Borrower or any Subsidiary thereof
commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to Borrower or any Subsidiary thereof, (b)
there is commenced against Borrower or any Subsidiary thereof any
such case or proceeding that is not dismissed within 60 days after
commencement, (c) Borrower or any Subsidiary thereof is adjudicated
insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered, (d) Borrower or
any Subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such
appointment, (e) Borrower or any Subsidiary thereof makes a general
assignment for the benefit of creditors, (f) Borrower or any
Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts
(g) Borrower or any Subsidiary thereof
admits in writing that it is generally unable to pay its debts as
they become due, or (h) Borrower or any Subsidiary thereof,
by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the
foregoing.
“Base Conversion Price”
shall have the meaning set forth in Section 5(b).
“Beneficial Ownership
Limitation” shall have the meaning set forth in
Section 4(e).
“Business Day” means any
day except any Saturday, any Sunday, any day which is a federal
legal holiday in the United States or any day on which banking
institutions in the State of New York are required by law or other
governmental action to close.
“Buy-In” shall have the
meaning set forth in Section 4(d)(v).
“Change of Control
Transaction” means, other than by means of conversion
or exercise of this Note and the securities issued together with
this Note, the occurrence after the date hereof of any of (a) an
acquisition by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of effective control (whether through legal or beneficial
ownership of capital stock of Borrower, by contract or otherwise)
of in excess of 50% of the voting securities of Borrower, (b)
Borrower merges into or consolidates with any other Person, or any
Person merges into or consolidates with Borrower and, after giving
effect to such transaction, the stockholders of Borrower
immediately prior to such transaction own less than 50% of the
aggregate voting power of Borrower or the successor entity of such
transaction, (c) Borrower sells or transfers all or substantially
all of its assets to another Person and the stockholders of
Borrower immediately prior to such transaction own less than 50% of
the aggregate voting power of the acquiring entity immediately
after the transaction, (d) a replacement at one time or within a
three year period of more than one-half of the members of the Board
of Directors which is not approved by a majority of those
individuals who are members of the Board of Directors on the
Original Issue Date (or by those individuals who are serving as
members of the Board of Directors on any date whose nomination to
the Board of Directors was approved by a majority of the members of
the Board of Directors who are members on the date hereof), or (e)
the execution by Borrower of an agreement to which Borrower is a
party or by which it is bound, providing for any of the events set
forth in clauses (a) through (d) above.
“Common Stock Equivalents”
means any securities of Borrower or its subsidiaries which would
entitle the holder thereof to acquire at any time Common
Stock.
“Conversion”
shall have the meaning ascribed to such term in Section
4.
“Conversion Date” shall
have the meaning set forth in Section 4(a).
“Conversion Price” shall
have the meaning set forth in Section 4(c).
“Conversion Shares” means,
collectively, the shares of Common Stock issuable upon conversion
of this Note in accordance with the terms hereof.
“Dilutive Issuance” shall
have the meaning set forth in Section 5(b).
“Event of Default” shall
have the meaning set forth in Section 8(a).
“Exempt Issuance” means
the issuance of (a) shares of Common Stock or options to employees,
officers or directors of Borrower or its Subsidiaries pursuant to
any equity or option plan duly adopted for 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, (b) the Conversion Shares upon
conversion of this Note and/or other securities exercisable or
exchangeable for, or convertible into, Common Stock issued and
outstanding on the Original Issue Date; provided that such securities
and any term thereof have not been amended since the Original Issue
Date to increase the number of such securities or to decrease the
issue price, exercise price, exchange price or conversion price of
such securities (except pursuant to provisions providing for
automatic adjustment to such terms upon the occurrence of certain
events similar to those set forth in Section 5) and (c) securities
issued pursuant to acquisitions or strategic transactions approved
by a majority of the disinterested directors of Borrower,
provided that any
such issuance shall only be to a Person (or to the equity holders
of a Person) which is, itself or through its Subsidiaries, an
operating company or an owner of an asset in a business synergistic
with the business of Borrower and shall be intended to provide to
Borrower substantial additional benefits in addition to the
investment of funds, but shall not include a transaction in which
Borrower is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in
securities.
“Fundamental Transaction”
shall have the meaning set forth in Section 5(e).
“Interest Payment Date”
shall have the meaning set forth in Section 2(
a).
“Liens” means a lien,
charge, pledge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.
“Mandatory Default Amount”
means the sum of (a) 130% of the outstanding principal amount of
this Note and (b) all other amounts, costs, and expenses due in
respect of this Note.
“New York Courts” shall
have the meaning set forth in Section 9(d).
“Note Register” shall have
the meaning set forth in Section 3(c).
“Notice of Conversion”
shall have the meaning set forth in Section 4(a).
“Option of Holder to Elect
Purchase” shall have the meaning set forth in Section
2(h).
“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 (a) the Indebtedness set forth on Schedule A attached hereto; (b)
any liabilities for borrowed money or amounts owed not in excess of
$10,000 in the aggregate (other than trade accounts payable
incurred in the ordinary course of business); (c) all guaranties,
endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be
reflected in Borrower's consolidated balance sheet (or the notes
thereto) not affecting more than $10,000 in the aggregate, except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business; (d) the present value of any lease payments not in excess
of $100,000 due under leases required to be capitalized in
accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods
involved ("GAAP");
(e) any liabilities for borrowed money that are junior to this Note
pursuant to an intercreditor agreement, and the holders of which
are not granted any security interest; (f) up to $7,500,000
aggregate principal amount of liability for borrowed money incurred
after the Original Issue Date that rank pari passu to this Note and the holders
of which are not granted any security interest; and (g) any other
liability for borrowed money incurred on or after the Repurchase
Offer Trigger Date; provided that Borrower shall
comply (or shall have previously complied) with the requirements of
Section 2(h).
“Permitted Lien” means the
individual and collective reference to the following: (a) Liens for
taxes, assessments and other governmental charges or levies not yet
due or Liens for taxes, assessments and other governmental charges
or levies being contested in good faith and by appropriate
proceedings for which adequate reserves (in the good faith judgment
of the management of Borrower) have been established in accordance
with GAAP, (b) Liens imposed by law which were incurred in the
ordinary course of Borrower's business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens,
and other similar Liens arising in the ordinary course of
Borrower's business, and which (x) do not individually or in the
aggregate materially detract from the value of such property or
assets or materially impair the use thereof in the operation of the
business of Borrower and its consolidated Subsidiaries or (y) are
being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing for the foreseeable
future the forfeiture or sale of the property or asset subject to
such Liens, and (c) Liens in connection with Permitted Indebtedness
under clauses (a), (b), (c) and (g) thereunder.
“Person” means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization,
any other entity and a government or any department or agency
thereof.
“Repurchase Amount” shall
have the meaning set forth in Section 2(h).
“Repurchase Date” has the
meaning set forth in Section 2(h).
“Repurchase Notice” shall
have the meaning set forth in Section 2(h).
“Repurchase Offer” shall
have the meaning set forth in Section 2(h).
“Repurchase Offer Trigger
Date” means the date upon which Borrower consummates a
capital raising transaction, or the last in a series of capital
raising transactions, in each case, consisting of the sale by
Borrower or its Subsidiaries of Common Stock, Common Stock
Equivalents, Indebtedness or a combination thereof, which
transaction, or series of transactions, result in aggregate gross
proceeds to Borrower of $7,500,000 or more.
“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Settlement Agreement”
means that certain Settlement Agreement, dated as of December 22,
2020, by and among Borrower, the Holder, Anthony
Cataldo and Paul Kessler.
“Share Delivery Date”
shall have the meaning set forth in Section 4(d)(ii).
“Subsidiary” means, with
respect to any Person, any corporation, partnership, limited
liability company, association, joint venture or other business
entity of which more than 50% of the total voting power of shares,
stock or other ownership interests entitled (without regard to the
occurrence of any contingency) to vote in the election of the
Person or Persons (whether directors, managers, trustees or other
Persons performing similar functions) having the power to direct or
cause the direction of the management and policies thereof is at
the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a
combination thereof; provided, in determining the
percentage of ownership interests of any Person controlled by
another Person, no ownership interest in the nature of a
“qualifying share” of the former Person shall be deemed
to be outstanding. Unless the context otherwise requires,
references herein to a “Subsidiary” refer to a
Subsidiary of Borrower.
“Successor Entity” shall
have the meaning set forth in Section 5(e).
“Trading Day” means a day
on which the principal Trading Market is open for
trading.
“Trading Market” means any
of the following markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the NYSE
American, the Nasdaq Capital Market, the Nasdaq Global Market, the
Nasdaq Global Select Market, the New York Stock Exchange, the OTC
Bulletin Board, the OTCQB, the OTCQX or the OTC Pink Marketplace
(or any successors to any of the foregoing).
Section
2.
Interest and General
Provisions.
a) Payment
of Interest in Cash or Kind. Borrower shall pay interest to
the Holder on the aggregate unconverted and then outstanding
principal amount of this Note at the rate of 10% per annum, payable
on each Conversion Date (as to that principal amount then being
converted), on the Repurchase Date and on the Maturity Date (each
such date, an “Interest Payment Date”)
(if any Interest Payment Date is not a Business Day, then the
applicable payment shall be due on the next succeeding Business
Day), in cash or, at the Holder’s option in connection with
an Interest Payment Date occurring on a Conversion Date, the
Repurchase Date or the Maturity Date, in duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock based
on the Conversion Price then in effect. Borrower may not pay any
interest in shares of Common Stock to the extent such payment shall
cause the Holder to exceed the Beneficial Ownership
Limitation. Following
the occurrence and during the continuance of an Event of Default,
then from the first date of such occurrence, the annual interest
rate on this Note shall be eighteen percent (18%). Such interest
shall be due and payable on each Interest Payment Date or upon any
redemption or acceleration of this Note.
b) Payment
Grace Period. Except as described in this Note, Borrower
shall not have any grace period to pay any monetary amounts due
under this Note.
c)
Conversion
Privileges. The Conversion Rights set forth in Section 4
shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the
occurrence of an Event of Default. This Note shall be payable in
full on the Repurchase Date, if applicable, or the Maturity Date,
unless previously converted into Common Stock in accordance with
Section 4 hereof.
d)
Application of
Payments. Interest on this Note shall be calculated on the
basis of a 360-day year and the actual number of days elapsed.
Payments made in connection with this Note shall be applied first
to amounts due hereunder other than principal and interest,
thereafter to interest and finally to principal.
e)
Pari Passu. Except
as otherwise set forth herein, the Borrower shall treat this Note
pari passu with the
Permitted Indebtedness set forth on Schedule A or any other
Permitted Indebtedness of 10% convertible notes. All payments made,
or actions taken on the Permitted Indebtedness set forth on
Schedule A or any other Permitted Indebtedness of 10% convertible
notes, shall be made or taken pari
passu with this Note.
f) Manner
and Place of Payment. Principal and interest on this Note
and other payments in connection with this Note shall be payable at
the Holder’s offices as designated above in lawful money of
the United States of America in immediately available funds without
set-off, deduction or counterclaim. Upon assignment of the interest
of Holder in this Note, Borrower shall instead make its payment
pursuant to the assignee’s instructions upon receipt of
written notice thereof. Except as set forth herein, this Note may
not be prepaid without the consent of the Holder.
g) Prepayment.
Except pursuant to Section 2(h) or as otherwise set forth in this
Note, Borrower may not prepay any portion of the principal amount
of this Note without the prior written consent of the
Holder.
h) Mandatory
Repurchase Offer. Within five (5) Trading Days following the
Repurchase Offer Trigger Date, Borrower shall cause to be delivered to the Holder
at its last address as it shall appear upon the Note Register, a
notice (a “Repurchase
Notice”) stating that
such Repurchase Offer Trigger Date has occurred and making an offer
to repurchase the Note (the “Repurchase
Offer”) on a date
(the “Repurchase
Date”) specified by in
the Repurchase Notice, which may be no earlier than ten (10)
Trading Days and no later than Twenty (20) Trading Days after the
date of the Repurchase Notice, at a price in cash equal to 100% of
the aggregate principal amount of the Note plus accrued and unpaid
interest, if any, to, but excluding, the Repurchase Date (the
“Repurchase
Amount”). For a Note to
be repurchased at the option of the Holder pursuant to this Section
2(h), the Holder must deliver to Borrower, prior to the close of
business on the second (2nd)
Trading Day immediately prior to the Repurchase Date, written
notice of such election to participate (an
“Option of
Holder to Elect Purchase”). Following deliver by the
Holder of an Option of Holder to Elect to Purchase, the Repurchase
Amount shall be due and payable to the Holder in the manner set
forth in Section 2(f) on the Repurchase Date. Effective upon
receipt of the Repurchase Amounts by the Holder, the Note will be
deemed cancelled and extinguished and all rights of the Holder and
obligations of GT Biopharma and others thereunder hereunder will
terminate. Promptly following the Repurchase Date, but in any event
within ten (10) Trading Days thereafter unless delayed due to force
majeure—including pandemic related restrictions or
disruptions—the Holder shall return the original of this Note
to Borrower.
Section
3.
Registration of Transfers and
Exchanges.
a)
Different Denominations. This
Note is exchangeable for an equal aggregate principal amount of
Notes of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be payable for
such registration of transfer or exchange.
b)
Investment Representations.
This Note has been issued subject to certain representations of the
original Holder set forth in the Settlement Agreement and may be
transferred or exchanged only in compliance with the Settlement
Agreement and applicable federal and state securities laws and
regulations.
c)
Reliance on Note Register.
Prior to due presentment for transfer to Borrower of this Note,
Borrower and any agent of Borrower may treat the Person in whose
name this Note is duly registered on the register of Notes (the
“Note
Register”) as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes,
whether or not this Note is overdue, and neither Borrower nor any
such agent shall be affected by notice to the
contrary.
Section
4.
Conversion.
a)
Voluntary Conversion. At any
time after the Original Issue Date until this Note is no longer
outstanding, this Note, including interest accrued hereon, 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(e) hereof). The Holder shall effect conversions by
delivering to Borrower a Notice of Conversion, the form of which is
attached hereto as Annex
A (each, a “Notice of Conversion”),
specifying therein the principal amount of this Note and accrued
interest, if any, to be converted and the date on which such
conversion shall be effected (such date, the “Conversion Date”). If no
Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
deemed delivered hereunder. To effect conversions hereunder, the
Holder shall not be required to physically surrender this Note to
Borrower unless the entire principal amount of this Note has been
so converted, in which case the Holder shall deliver the original
of this Note to Borrower no later than ten (10) Trading Days after
conversion. Conversions hereunder shall have the effect of lowering
the outstanding principal amount of this Note in an amount equal to
the applicable conversion. The Holder and Borrower shall maintain
records showing the principal amount(s) converted and the date of
such conversion(s). Borrower may deliver an objection to any Notice
of Conversion within one (1) Business Day of delivery of such
Notice of Conversion. In the event of any dispute or discrepancy,
the records of the Holder shall be controlling and determinative in
the absence of manifest error. The
Holder, and any assignee by acceptance of this Note, acknowledges
and agrees 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)
[Reserved].
c) Conversion
Price. The conversion price for the principal and interest,
if any, in connection with voluntary conversions by the Holder
shall be $0.20 per share of
Common Stock, subject to adjustment herein (the “Conversion
Price”).
d)
Mechanics of
Conversion.
i.
Conversion
Shares Issuable Upon Conversion of Principal Amount. The
number of Conversion Shares issuable upon a conversion hereunder
shall be determined by the quotient obtained by dividing (x) the
outstanding principal amount of this Note to be converted plus
interest, if any, elected by the Holder to be converted by (y) the
Conversion Price.
ii. Delivery
of Conversion Shares Upon Conversion. In connection with
sales of the Conversion Shares, not later than two (2) Trading Days
after each Conversion Date (the “Share Delivery Date”),
Borrower shall deliver, or cause to be delivered, to the Holder the
Conversion Shares by crediting the Holder's or its designee's
balance account with The Depository Trust Company's Deposit /
Withdrawal At Custodian system, which Conversion Shares shall be
free of restrictive legends and trading restrictions representing
the number of Conversion Shares being acquired upon the conversion
of this Note.
iii. Failure
to Deliver Conversion Shares. If, in the case of any Notice
of Conversion, such Conversion Shares are not delivered to or as
directed by the applicable Holder by the Share Delivery Date, the
Holder shall be entitled to elect by written notice to Borrower at
any time on or before its receipt of such Conversion Shares, to
rescind such Conversion, in which event Borrower shall promptly
return to the Holder any original Note delivered to Borrower and
the Holder shall promptly return to Borrower the Conversion Shares
issued to such Holder pursuant to the rescinded Conversion
Notice.
iv. Obligation
Absolute. Borrower’s obligations to issue and deliver
the Conversion Shares upon conversion of this Note in accordance
with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to Borrower or any
violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might
otherwise limit such obligation of Borrower to the Holder in
connection with the issuance of such Conversion Shares;
provided,
however, that such
delivery shall not operate as a waiver by Borrower of any such
action Borrower may have against the Holder. In the event the
Holder of this Note shall elect to convert any or all of the
outstanding principal amount hereof, Borrower may not refuse
conversion based on any claim that the Holder or anyone associated
or affiliated with the Holder has been engaged in any violation of
law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion
of all or part of this Note shall have been sought and obtained,
and Borrower posts a surety bond for the benefit of the Holder in
the amount of 150% of the outstanding principal amount of this
Note, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the
underlying dispute and the proceeds of which shall be payable to
the Holder to the extent it obtains judgment. In the absence of
such injunction, Borrower shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. Nothing
herein shall limit a Holder’s right to pursue actual damages
or declare an Event of Default pursuant to Section 8 hereof for
Borrower’s failure to deliver Conversion Shares within the
period specified herein and the Holder shall have the right to
pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.
v. Compensation
for Buy-In on Failure to Timely Deliver Conversion Shares Upon
Conversion. In addition to any other rights available to the
Holder, if Borrower fails for any reason to deliver to the Holder
such Conversion Shares by the Share Delivery Date pursuant to
Section 4(d)(ii), and if after such Share Delivery Date the Holder
is required by its brokerage firm to purchase (in an open market
transaction or otherwise), or the Holder or Holder’s
brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion
relating to such Share Delivery Date (a “Buy-In”), then Borrower
shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount, if any,
by which (x) the Holder’s total purchase price (including any
brokerage commissions) for the Common Stock so purchased exceeds
(y) the product of (1) the aggregate number of shares of Common
Stock that the Holder was entitled to receive from the conversion
at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed
(including any brokerage commissions) and (B) at the option of the
Holder, either reissue (if surrendered) this Note in a principal
amount equal to the principal amount of the attempted conversion
(in which case such conversion shall be deemed rescinded) or
deliver to the Holder the number of shares of Common Stock that
would have been issued if Borrower had timely complied with its
delivery requirements under Section 4(d)(ii). For example, if the
Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion
of this Note with respect to which the actual sale price of the
Conversion Shares (including any brokerage commissions) giving rise
to such purchase obligation was a total of $10,000 under clause (A)
of the immediately preceding sentence, Borrower shall be required
to pay the Holder $1,000. The Holder shall provide Borrower written
notice indicating the amounts payable to the Holder in respect of
the Buy-In and, upon request of Borrower, evidence of the amount of
such loss. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to
Borrower’s failure to timely deliver Conversion Shares upon
conversion of this Note as required pursuant to the terms
hereof.
vi. Reservation
of Shares Issuable Upon Conversion. Borrower covenants that
it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose
of issuance upon conversion of this Note as herein provided, free
from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder, not less than 150% of the
aggregate number of shares of the Common Stock as shall be issuable
(taking into account the adjustments and restrictions of Section 5)
upon the conversion of the then outstanding principal amount of
this Note and interest which has accrued and would accrue on such
principal amount assuming such principal amount was not converted
through the Maturity Date. Borrower covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and
non-assessable.
vii. Fractional
Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Note.
As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such conversion, Borrower shall at its
election, either pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the
Conversion Price or round up to the next whole share.
viii. Transfer
Taxes and Expenses. The issuance of Conversion Shares on
conversion of this Note shall be made without charge to the Holder
hereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such Conversion
Shares; provided
that, Borrower shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and
delivery of any such Conversion Shares upon conversion in a name
other than that of the Holder of this Note so converted and
Borrower shall not be required to issue or deliver such Conversion
Shares unless or until the Person or Persons requesting the
issuance thereof shall have paid to Borrower the amount of such tax
or shall have established to the satisfaction of Borrower that such
tax has been paid. Borrower shall pay all Transfer Agent fees
required for same-day processing of any Notice of
Conversion.
e)
Holder’s
Conversion Limitations. Borrower shall not effect any
conversion of this Note, and a Holder shall not have the right to
convert any portion of this Note, to the extent that after giving
effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s
Affiliates, and any Persons acting as a group together with the
Holder or any of the Holder’s Affiliates (such Persons,
“Attribution
Parties”)) would beneficially own in excess of the
Beneficial Ownership Limitation. For purposes of the
foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include
the number of shares of Common Stock held by the Holder and its
Affiliates and Attribution Parties plus the number of shares of
Common Stock issuable upon conversion of this Note with respect to
which such determination is being made, but shall exclude the
number of shares of Common Stock which are issuable upon (i)
conversion of the remaining, unconverted principal amount of this
Note beneficially owned by the Holder or any of its Affiliates and
Attribution Parties and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of
Borrower subject to a limitation on conversion or exercise
analogous to the limitation contained herein 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(e), 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(e) applies, the
determination of whether this Note is convertible (in relation to
other securities owned by the Holder together with any Affiliates)
and of which principal amount of this Note is convertible shall be
in the sole discretion of the Holder, and the submission of a
Notice of Conversion shall be deemed to be the Holder’s
determination of whether this Note may be converted (in relation to
other securities owned by the Holder together with any Affiliates
and 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 Borrower each time it delivers a
Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and Borrower
shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status
as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 4(e), in
determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock
as stated in the most recent of the following: (i) Borrower’s
most recent periodic or annual report filed with the SEC, as the
case may be, (ii) a more recent public announcement by Borrower, or
(iii) a more recent written notice by Borrower or Borrower’s
transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder,
Borrower shall within two (2) Trading Days confirm orally and in
writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the
conversion or exercise of securities of Borrower, including this
Note, by the Holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The
“Beneficial
Ownership Limitation” shall be 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 may decrease
the Beneficial Ownership Limitation at any time upon prior notice
to Borrower, and may increase the Beneficial Ownership Limitation
provided that the Beneficial Ownership Limitation in no event
exceeds 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of
shares of Common Stock upon conversion of this Note held by the
Holder and the Beneficial Ownership Limitation provisions of this
Section 4(e) shall continue to apply. Any such increase will not be
effective until the 61st day after such
notice is delivered to Borrower. The Beneficial Ownership
Limitation provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with
the terms of this Section 4(e) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the
intended Beneficial Ownership Limitation contained herein or to
make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this
Note.
Section 5.
Certain
Adjustments.
a)
Stock Dividends and Stock
Splits. If Borrower, at any time while this Note is
outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock
issued by Borrower upon conversion of the Notes or any other
Permitted Indebtedness that is convertible into Common Stock), (ii)
subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of a reverse stock
split) outstanding shares of Common Stock into a smaller number of
shares or (iv) issues, in the event of a reclassification of shares
of the Common Stock, any shares of capital stock of Borrower, then
the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding
any treasury shares of Borrower) outstanding immediately before
such event, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the
case of a subdivision, combination or
re-classification.
b) Subsequent
Equity Sales. If, at any time while this Note is
outstanding, Borrower or any Subsidiary, as applicable, otherwise
sells or grants any option to purchase or sells or grants any right
to reprice, or otherwise disposes of or issues (or announces any
sale, grant or any option to purchase or other disposition), any
Common Stock or Common Stock Equivalents entitling any Person to
acquire Common Stock at an effective price per share that is lower
than the then Conversion Price (such lower price, the
“Base Conversion
Price” and such issuances, collectively, a
“Dilutive
Issuance”) (if the holder of the Common Stock or
Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in
connection with such issuance, be entitled to receive Common Stock
at an effective price per share that is lower than the Conversion
Price, such issuance shall be deemed to have occurred for less than
the Conversion Price on such date of the Dilutive Issuance), then
the Conversion Price shall be reduced to equal the Base Conversion
Price, subject to adjustment for reverse and forward stock splits
and the like. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in
respect of an Exempt Issuance. If Borrower enters into a Variable
Rate Transaction, despite the prohibition set forth in the
Settlement Agreement, Borrower shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible
conversion price at which such securities may be converted or
exercised. Borrower shall notify the Holder in writing, no later
than the Trading Day following the issuance of any Common Stock or
Common Stock Equivalents subject to this Section 5(b), indicating
therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such
notice, the “Dilutive Issuance
Notice”). For purposes of clarification, whether or
not Borrower provides a Dilutive Issuance Notice pursuant to this
Section 5(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Conversion Shares based
upon the Base Conversion Price on or after the date of such
Dilutive Issuance, regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of
Conversion.
c)
Subsequent Rights Offerings.
In addition to any adjustments
pursuant to Sections 5(a) and (b) above, if at any time Borrower
grants, issues or sells any Common Stock Equivalents or rights to
purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of Common Stock (the
“Purchase
Rights”), then the Holder
will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of shares of
Common Stock acquirable upon complete conversion of this Note
(without regard to any limitations on exercise hereof, including
without limitation, the Beneficial Ownership Limitation)
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares
of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights (provided, however, to the extent that the
Holder’s right to participate in any such Purchase Right
would result in the Holder exceeding the Beneficial Ownership
Limitation, then the Holder shall not be entitled to participate in
such Purchase Right to such extent (or beneficial ownership of such
shares of Common Stock as a result of such Purchase Right to such
extent) and such Purchase Right to such extent shall be held in
abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Beneficial
Ownership Limitation).
d) Pro
Rata Distributions. During such time as this Note is
outstanding, if Borrower shall declare or make any dividend whether
or not permitted, or makes any other distribution of its assets (or
rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or
other similar transaction) (a “Distribution”), at any
time after the issuance of this Note, then, in each such case, the
Holder shall be entitled to participate in such Distribution to the
same extent that the Holder would have participated therein if the
Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Note (without regard to any
limitations on exercise hereof, including without limitation, the
Beneficial Ownership Limitation) immediately before the date of
which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares
of Common Stock are to be determined for the participation in such
Distribution (provided, however, to the extent that the
Holder's right to participate in any such Distribution would result
in the Holder exceeding the Beneficial Ownership Limitation, then
the Holder shall not be entitled to participate in such
Distribution to such extent (or in the beneficial ownership of any
shares of Common Stock as a result of such Distribution to such
extent) and the portion of such Distribution shall be held in
abeyance for the benefit of the Holder until such time, if ever, as
its right thereto would not result in the Holder exceeding the
Beneficial Ownership Limitation).
e)
Fundamental Transaction. If, at
any time while this Note is outstanding, (i) Borrower, directly or
indirectly, in one or more related transactions effects any merger
or consolidation of Borrower with or into another Person, (ii)
Borrower, directly or indirectly, effects any sale, lease, license,
assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related
transactions, (iii) any, direct or indirect, purchase offer, tender
offer or exchange offer (whether by Borrower or another Person) is
completed pursuant to which holders of Common Stock are permitted
to sell, tender or exchange their shares for other securities, cash
or property and has been accepted by the holders of 50% or more of
the outstanding Common Stock, (iv) Borrower, directly or
indirectly, in one or more related transactions effects any
reclassification, reorganization or recapitalization of the Common
Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other
securities, cash or property (other than, for the avoidance of
doubt any subdivision, combination or re-classification described
in Section 5(a)), (v) Borrower, directly or indirectly, in one or
more related transactions consummates a stock or share purchase
agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme
of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock
(not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated
with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a
“Fundamental
Transaction”), then, upon any subsequent conversion of
this Note, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction
(without regard to any limitation in Section 4(e) on the conversion
of this Note), the number of shares of Common Stock of the
successor or acquiring corporation or of Borrower, if it is the
surviving corporation, and any additional consideration (the
“Alternate
Consideration”) receivable as a result of such
Fundamental Transaction by a holder of the number of shares of
Common Stock for which this Note is convertible immediately prior
to such Fundamental Transaction (without regard to any limitation
in Section 4(e) on the conversion of this Note). For purposes of
any such conversion, the determination of the Conversion Price
shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration
issuable in respect of one (1) share of Common Stock in such
Fundamental Transaction, and Borrower shall apportion the
Conversion Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given
any choice as to the securities, cash or property to be received in
a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any
conversion of this Note following such Fundamental Transaction.
Borrower shall cause any successor entity in a Fundamental
Transaction in which Borrower is not the survivor (the
“Successor
Entity”) to assume in writing all of the obligations
of Borrower under this Note and the other Settlement Documents in
accordance with the provisions of this Section 5(e) pursuant to
written agreements in form and substance reasonably satisfactory to
the Holder (which approval shall not be unreasonably withheld,
delayed or conditioned) 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 (which
approval shall not be unreasonably withheld, delayed or
conditioned). 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
Settlement Agreement referring to the “Borrower” shall
refer instead to the Successor Entity), and may exercise every
right and power of Borrower and shall assume all of the obligations
of Borrower under this Note and the other Settlement Documents with
the same effect as if such Successor Entity had been named as
Borrower herein.
f) Calculations.
All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 5, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding any treasury
shares of Borrower) issued and outstanding.
i. Adjustment
to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 5, Borrower
shall promptly deliver to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
ii.
Notice to
Allow Conversion by Holder. If (A) Borrower shall declare a
dividend (or any other distribution in whatever form) on the Common
Stock, (B) Borrower shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) Borrower shall
authorize the granting to all holders of the Common Stock of rights
or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any
stockholders of Borrower shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger
to which Borrower is a party, any sale or transfer of all or
substantially all of the assets of Borrower, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) Borrower shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of Borrower, then, in each case, Borrower shall cause to be filed
at each office or agency maintained for the purpose of conversion
of this Note, and shall cause to be delivered to the Holder at its
last address as it shall appear upon the Note Register, at least
twenty (20) calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined
or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange
their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange, provided that the failure
to deliver such notice or any defect therein or in the delivery
thereof shall not affect the validity of the corporate action
required to be specified in such notice. To the extent that any
notice provided hereunder constitutes, or contains, material,
non-public information regarding Borrower or any of the
Subsidiaries, Borrower shall simultaneously file such notice with
the SEC pursuant to a Current Report on Form 8-K. The Holder shall
remain entitled to convert this Note during the 20-day period
commencing on the date of such notice through the effective date of
the event triggering such notice except as may otherwise be
expressly set forth herein.
Section
6.
[Intentionally Omitted]
Section
7.
Negative Covenants.
As long as any portion of this Note remains outstanding, unless the
Holder shall have otherwise given prior written consent, Borrower
shall not directly or indirectly:
a) other
than Permitted Indebtedness, enter into, create, incur, assume,
guarantee or suffer to exist any Indebtedness for borrowed money of
any kind, including, but not limited to, a guarantee, on or with
respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits
therefrom;
b) other
than Permitted Liens, enter into, create, incur, assume or suffer
to exist any Liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest
therein or any income or profits
therefrom;
c) amend
its charter documents, including, without limitation, its restated
certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
provided,
however,
the consent of the Holder shall not be required in connection with
an increase in the authorized shares by
Borrower;
d) repay,
repurchase or offer to repay, repurchase or otherwise acquire any
shares of its Common Stock or Common Stock Equivalents other than
(i) as to the Conversion Shares or such shares of Common Stock that
may be issued upon conversion of Permitted Indebtedness having
terms similar to the Notes, in each case, in connection with the
payment of cash in lieu of fractional shares or (ii) with respect
to Common Stock Equivalents, to the extent permitted by Section
7(e) below;
e) redeem,
defease, repurchase, repay or make any payments in respect of, by
the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private
transactions or otherwise), all or any portion of any Indebtedness
(other than (i) required payment, prepayment or redemption of
principal, premium and interest in respect of Permitted
Indebtedness and the Notes or (ii) other payments with respect to
Permitted Indebtedness or the Notes, if on a pro-rata basis),
whether by way of payment in respect of principal of (or premium,
if any) or interest on, such Indebtedness. The foregoing
restriction shall also apply to Permitted Indebtedness from and
after the occurrence of an Event of Default;
f) declare
or make any dividend or other distribution of its assets or rights
to acquire its assets to holders of shares of Common Stock, by way
of return of capital or otherwise including, without limitation,
any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification,
liquidation, distribution, preferential payments in connection with
any securities or debt issuances, corporate rearrangement, scheme
of arrangement or other similar transaction;
g) enter
into any transaction with any Affiliate of Borrower which would be
required to be disclosed by a company subject to the reporting
requirements of Section 12(g) of the Exchange Act in any public
filing with the SEC, unless such transaction is made on reasonable
commercial terms and expressly approved by either (i) a majority of
the disinterested directors of Borrower (even if less than a quorum
otherwise required for board approval) or (ii) all of the
directors; or
h) enter
into any agreement with respect to any of the foregoing.
Section
8.
Events of
Default.
a)
“Event of
Default” means, wherever used herein, any of the
following events (whatever the reason for such event and whether
such event shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of
any court, or any order, rule or regulation of any administrative
or governmental body):
i. any
default in the payment of (A) the principal amount of this Note and
(B) interest, and other amounts owing to a Holder of this Note, as
and when the same shall become due and payable (whether on a
Conversion Date, the Repurchase Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of a
default under clause (B) above, is not cured within three (3)
Trading Days after Borrower has become aware of such
default;
ii. Borrower
shall fail to observe or perform any other material covenant or
agreement contained in this Note (other than a breach by Borrower
of its obligations to deliver shares of Common Stock to the Holder
upon conversion, which breach is addressed in clause (viii) below)
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 sent by the Holder or by any Other
Holder to Borrower and (B) ten (10) Trading Days after Borrower has
become aware of such failure;
iii. a
material default or event of default (subject to any grace or cure
period provided in the applicable agreement, document or
instrument) shall occur under any material agreement, lease,
document or instrument to which Borrower or any Subsidiary is
obligated (and not covered by clause (vi) below), which would
reasonably be expected to have a Material Adverse
Effect;
iv. any
material representation or
warranty made in this Note, any other Settlement Document or any
other report, financial statement or certificate made or delivered
to the Holder shall be untrue or incorrect in any material respect
as of the date when made or deemed made;
v. Borrower
or any Subsidiary shall be subject to a Bankruptcy
Event;
vi. Borrower
or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any
Indebtedness for borrowed money or money due under any long term
leasing or factoring arrangement that (a) involves an obligation
greater than $50,000, whether such Indebtedness now exists or shall
hereafter be created, and (b) results in such Indebtedness being
declared due and payable prior to the date on which it would
otherwise become due and payable;
vii. Borrower
or any Subsidiary shall default on any note or debt with the Empery
Funds on or after January 31, 2021;
viii.
Borrower shall be a party to any Change of Control Transaction or
Fundamental Transaction or disposition of all or in excess of 30%
of its assets in one transaction or a series of related
transactions (whether or not such sale would constitute a Change of
Control Transaction);
ix.
Borrower shall fail for any reason to deliver Conversion
Shares to a Holder prior to the fifth (5th) Trading Day after
a Conversion Date pursuant to Section 4(d) or Borrower shall
provide at any time notice to the Holder, including by way of
public announcement, of Borrower’s intention to not honor
requests for conversions of any Notes in accordance with the terms
hereof;
x.
Borrower shall fail to observe or perform any material covenant or
agreement set forth in any other Settlement Document, which breach
is not cured within any allowed cure period;
xi.
any monetary judgment, writ or similar final process shall be
entered or filed against Borrower, or any of its respective
property or other assets for more than $50,000, and such judgment,
writ or similar final process shall remain unvacated, unbonded,
unstayed, unsettled, unsatisfied, or unpaid for a period of ninety
(90) calendar days;
xii.
any dissolution, liquidation or winding up by Borrower, of a
substantial portion of its business;
xiii.
cessation of operations by Borrower;
xiv.
the failure by Borrower or any material Subsidiary to maintain any
material intellectual property rights, personal, real property,
equipment, leases or other assets which are necessary to conduct
its business (whether now or in the future) and such breach is not
cured with twenty (20) days after written notice to Borrower from
the Holder;
xv.
the Conversion Shares are no
longer listed, quoted or are otherwise delisted from the then
principal Trading Market;
xvi.
a Commission or judicial stop trade order or suspension from
Borrower’s then principal Trading Market;
xvii.
the restatement after the date hereof of any financial statements
filed by Borrower with the SEC for any date or period from the
Original Issue Date and until this Note is no longer outstanding,
if the result of such restatement would, by comparison to the
unrestated financial statements, have constituted a Material
Adverse Effect. For the avoidance of doubt, any restatement related
to new accounting pronouncements shall not constitute a default
under this Section;
xviii.
Borrower effectuates a reverse split of its Common Stock without
five (5) days prior written notice to the Holder;
xix:
There is an event of default with
respect to any one of the July 7, 2019 Debentures;
or
xx.
any material provision of any Settlement Document shall at any time
for any reason (other than pursuant to the express terms thereof)
cease to be valid and binding on or enforceable against Borrower,
or the validity or enforceability thereof shall be contested by
Borrower, or a proceeding shall be commenced by Borrower or any
governmental authority having jurisdiction over Borrower or Holder,
seeking to establish the invalidity or unenforceability thereof, or
Borrower shall deny in writing that it has any liability or
obligation purported to be created under any Settlement
Document.
In the
event more than one grace, cure or notice period is applicable to
an Event of Default, then the shortest grace, cure or notice period
shall be applicable thereto. If the Event of Default is due to
Borrower or any Subsidiary defaulting on any note or debt with the
Empery Funds on or after January 31, 2021, the Maturity Date on
this Note shall be accelerated to January 31, 2021 and in no case
will Borrower’s debt to Holder be subordinate to
Borrower’s debt to the Empery Funds.
b)
Remedies Upon Event of Default,
Fundamental Transaction and Change of Control Transaction.
If any Event of Default or a Fundamental Transaction or a Change of
Control Transaction occurs, the outstanding principal amount of
this Note, and other amounts owing in respect thereof through the
date of acceleration, shall become, at the Holder’s election,
immediately due and payable in cash at the Mandatory Default
Amount, except that upon an Event of Default pursuant to Section
8(a)(v), Borrower shall immediately pay the Mandatory Default
Amount to the Holder without the requirement for any notice or
demand or other action by the Holder or any other Person;
provided that the
Holder may, in its sole discretion, waive such right to receive
payment upon an Event of Default pursuant to Section 8(a)(v), in
whole or in part, and any such waiver shall not affect any other
rights of the Holder hereunder, including any other rights in
respect of such Event of Default, any right to conversion, and any
right to payment of the Mandatory Default Amount or any other
amount, as applicable. Commencing on the Maturity Date and also
five (5) days after the occurrence of any Event of Default interest
on this Note shall accrue at an interest rate equal to the lesser
of 18% per annum or the maximum rate permitted under applicable
law. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Note to or as directed by
Borrower. In connection with such acceleration described herein,
the Holder need not provide, and Borrower hereby waives, any
presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such
acceleration may be rescinded and annulled by Holder at any time
prior to payment hereunder and the Holder shall have all rights as
a holder of the Note until such time, if any, as the Holder
receives full payment pursuant to this Section 8(b). No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
Section
9.
Miscellaneous.
a)
Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, facsimile, or
electronic mail, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to
be received), or (b) upon receipt, when sent by electronic mail
(provided confirmation of transmission is electronically generated
and keep on file by the sending party), or (c) on the second
business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be: (i) if to Borrower, to: GT
Biopharma, Inc., 9350 Wilshire Blvd, Suite 203, Beverly
Hills, CA 90212, Attn: Chief Executive
Officer (with a copy emailed to ajc@gtbiopharma.com), with a copy
to (which shall not constitute notice): Perrie Weiner at
perrie.weiner@bakermckenzie.com, and (ii) if to the Holder,
to: the address and email indicated on the front page of this
Note.
b)
Absolute Obligation. Except as
expressly provided herein, no provision of this Note shall alter or
impair the obligation of Borrower, which is absolute and
unconditional, to pay (A) the principal amount of this Note and (B)
interest, and other amounts owing to a Holder of this Note, at the
time, place, and rate, and in the coin or currency, herein
prescribed. This Note is a direct debt obligation of Borrower. This
Note ranks pari
passu with all
other Notes now or hereafter issued under the terms set forth
herein.
c)
Lost or Mutilated Note. If this
Note shall be mutilated, lost, stolen or destroyed, Borrower shall
execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal
amount of this Note so mutilated, lost, stolen or destroyed, but
only upon receipt of evidence of such loss, theft or destruction of
such Note, and of the ownership hereof, reasonably satisfactory to
Borrower.
d)
Governing Law. All questions
concerning the construction, validity, enforcement and
interpretation of this Note shall be governed by and construed and
enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws thereof.
Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions
contemplated by any of the Settlement Documents (whether brought
against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York Courts”). Each
party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Settlement Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that
such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any other
manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions
contemplated hereby. If any party shall commence an action or
proceeding to enforce any provisions of this Note, then the
prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorney's fees and other costs and
expenses incurred in the investigation, preparation and prosecution
of such action or proceeding. This
Note shall be deemed an unconditional obligation of Borrower for
the payment of money and, without limitation to any other remedies
of Holder, may be enforced against Borrower by summary proceeding
pursuant to New York Civil Procedure Law and Rules Section 3213 or
any similar rule or statute in the jurisdiction where enforcement
is sought. For purposes of such rule or statute, any other document
or agreement to which Holder and Borrower are parties or which
Borrower delivered to Holder, which may be convenient or necessary
to determine Holder’s rights hereunder or Borrower’s
obligations to Holder are deemed a part of this Note, whether or
not such other document or agreement was delivered together
herewith or was executed apart from this Note.
e)
Waiver. Any waiver by Borrower
or the Holder of a breach of any provision of this Note shall not
operate as or be construed to be a waiver of any other breach of
such provision or of any breach of any other provision of this
Note. The failure of Borrower or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall
not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any
other term of this Note on any other occasion. Any waiver by
Borrower or the Holder must be in writing.
f) Severability.
If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall
nevertheless remain applicable to all other Persons and
circumstances.
g)
Usury. If it shall be found
that any interest or other amount deemed interest due hereunder
violates the applicable law governing usury, the applicable rate of
interest due hereunder shall automatically be lowered to equal the
maximum rate of interest permitted under applicable law. Borrower
covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive Borrower
from paying all or any portion of the principal of or interest on
this Note as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the
performance of this Note, and Borrower (to the extent it may
lawfully do so) hereby expressly waives all benefits or advantage
of any such law, and covenants that it will not, by resort to any
such law, hinder, delay or impede the execution of any power herein
granted to the Holder, but will suffer and permit the execution of
every such as though no such law has been enacted.
h)
Next Business Day. Whenever any
payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next
succeeding Business Day.
i) Headings.
The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or
affect any of the provisions hereof.
j) Amendment.
This Note may be amended and any provisions hereof may be waived by
written consent of Borrower and the
Majority in Interest.
k)
Facsimile Signature. In the
event that Borrower’s signature is delivered by facsimile
transmission, PDF, electronic signature or other similar electronic
means, such signature shall create a valid and binding obligation
of Borrower with the same force and effect as if such signature
page were an original thereof.
*********************
(Signature Page Follows)
IN WITNESS WHEREOF, Borrower has caused
this Note to be signed in its name by an authorized officer as of
the Original Issue Date set out above.
Name:
Anthony Cataldo
Title:
Chief Executive Officer
[Signature Page—Settlement Note]
ANNEX A
NOTICE OF CONVERSION
The
undersigned hereby elects to convert principal under the
Convertible Note due January 31, 2021 of GT Biopharma, Inc., a
Delaware corporation (the “Borrower”), into shares
of common stock (the “Common Stock”), of
Borrower according to the conditions hereof, as of the date written
below. If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by
Borrower in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if
any.
By the
delivery of this Notice of Conversion the undersigned represents
and warrants to Borrower that its ownership of the Common Stock
does not exceed the amounts specified under Section 4(e) 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:
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Date to
Effect Conversion: ____________________________
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Principal
Amount of Note to be Converted: $__________________
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Accrued
Interest to be Converted, if any: $______________
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Conversion
Price: $_________________
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Number
of shares of Common Stock to be issued: ______________
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Signature:
_________________________________________
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Name:
____________________________________________
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DWAC
Instructions: _________________________________
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Broker
No:_____________
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Account
No: _______________
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SCHEDULE A (PERMITTED INDEBTEDNESS)
1.
Indebtedness incurred with respect to the $25,647,227 aggregate
principal amount of convertible notes and 10% senior convertible
debentures outstanding on the Original Issue Date (including
additional Indebtedness constituting default amounts and accrued
interest with respect to such convertible note and
debentures).
2.
Indebtedness incurred with respect the lease agreement, dated
October 1, 2018, between Borrower and Sheffield Properties of
Illinois, Inc. relating to Borrower’s principal officers in
Westlake Village, California.
3.
Indebtedness incurred with respect to the financing agreement,
dated November 8, 2010, with Gemini Pharmaceuticals, Inc. relating
to a purchase order line of credit facility.