EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
November __, 2018, between Esports Entertainment Group, Inc., a Nevada
corporation (the "Company"), and each purchaser identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to an exemption from the registration requirements of Section 5 of
the Securities Act contained in Section 4(a)(2) thereof and/or Rule 506(b)
thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the words and terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:
"Acquiring Person" shall have the meaning ascribed to such term in Section
4.5.
"Action" shall have the meaning ascribed to such term in Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person as such terms are used in and construed under Rule 405 under the
Securities Act.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day except any Saturday, any Sunday, any day which
is a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"Closing" means the closing of the purchase and sale of the Securities
pursuant to Section 2.1(a).
"Closing Date" means the Trading Day on which all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all conditions precedent to (i) the Purchasers' obligations to pay the
Subscription Amount and (ii) the Company's obligations to deliver the Securities
to be issued and sold, in each case, have been satisfied or waived, but in no
event later than the second Trading Day following the date hereof.
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"Common Stock" means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed.
"Common Stock Equivalents" means any securities of the Company or the
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.
"Company Counsel" means Hart & Hart, LLC.
"Escrow Agent" means Nason, Yeager, Gerson, Harris & Fumero, P.A.
"Escrow Agreement" means the escrow agreement, in the form of Exhibit F.
"Evaluation Date" shall have the meaning ascribed to such term in Section
3.1(s).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company, in an aggregate
amount not to exceed 10% of shares of Common Stock outstanding at any given
time, or 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 for services rendered to the Company, (b) securities upon the exercise
or exchange of or conversion of any Securities issued hereunder and/or other
securities issuable pursuant to existing agreements, exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to
decrease the exercise price, exchange price or conversion price of such
securities (other than in connection with stock dividends, stock splits or
combinations) or to extend the term of such securities, (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
directors of the Company, provided that any such issuance shall only be to a
Person (or to the equityholders of a Person) which is, itself or through its
subsidiaries, an operating company or an owner of an asset in a business
synergistic with the business of the Company and shall provide to the Company
additional benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities, (d) securities issued pursuant to any purchase money
equipment loan or capital leasing arrangement approved by the Collateral Agent
under the Security Agreement, purchasing agent or debt financing from a
commercial bank or similar financial institution, (e) subject to Section 4(b) of
the Notes, shares of Common Stock in an underwritten public offering in an
amount in excess of $3 million if the Company utilizes at least 50% of the
proceeds to prepay the Notes in accordance with Section 2(b) of the Notes.
"FCPA" means the Foreign Corrupt Practices Act of 1977, as amended.
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"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"Guaranty Agreement" means the guaranty agreement for the Notes executed by
each Subsidiary in the form attached hereto as Exhibit C.
"Indebtedness" shall have the meaning ascribed to such term in Section
3.1(aa).
"Intellectual Property" means all of the following in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all U.S. and
foreign patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, brand names,
certification marks, trade dress, logos, trade names, domain names, assumed
names and corporate names, together with all colorable imitations thereof, and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all trade
secrets under applicable state laws and the common law and know-how (including
formulas, techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (e) all computer software (including source
code, object code, diagrams, data and related documentation), and (f) all copies
and tangible embodiments of the foregoing (in whatever form or medium).
"Intellectual Property Agreement" has the meaning set forth in Section
3.1(p).
"Lead Investor" means Cavalry Fund I LP.
"Liens" means a lien, charge, pledge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such term in
Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in Section
3.1(n).
"Notes" mean the 10% Original Issue Discount Senior Secured Convertible
Promissory Notes issued to the Purchasers, in the form of Exhibit A attached
hereto, which bear interest at the rate of 5% per annum, shall be secured
pursuant to a Security Agreement and shall be senior as to all Indebtedness.
"Note Conversion Price" means $0.60 per share, subject to adjustment as
provided in the Note.
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"Participation Maximum" shall have the meaning ascribed to such term in
Section 4.11(a).
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Pledge Agreement" means the pledge agreement, in the form of Exhibit D,
pledging the outstanding common stock and other equity instruments of each
Subsidiary.
"Pre-Notice" shall have the meaning ascribed to such term in Section
4.11(a).
"Pro Rata Portion" shall have the meaning ascribed to such term in Section
4.11(d).
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term in Section
4.8.
"Regulation FD" means Regulation FD promulgated by the SEC pursuant to the
Exchange Act, as such Regulation may be amended or interpreted from time to
time, or any similar rule or regulation hereafter adopted by the SEC having
substantially the same purpose and effect as such Regulation.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Shares issuable upon
conversion of the Notes and Warrant Shares issuable upon exercise in full of all
Warrants ignoring any exercise limits set forth therein.
"Rule 144" means Rule 144 promulgated by the SEC pursuant to the Securities
Act, as such Rule may be amended or interpreted from time to time, or any
similar rule or regulation hereafter adopted by the SEC having substantially the
same purpose and effect as such Rule.
"SEC" means the United States Securities and Exchange Commission.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Notes, the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
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"Security Agreement" means the security agreement, in the form of Exhibit
E, providing the Purchasers with a first lien on all of the assets of the
Company other than as provided in this Agreement.
"Shares" means the Common Stock issuable upon conversion of the Notes.
"Short Sales" means all "short sales" as defined in Rule 200 of Regulation
SHO under the Exchange Act (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock).
"Subscription Amount" means, as to each Purchaser, the aggregate amount to
be paid for Notes and Warrants purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement and next to the heading
"Subscription Amount," in United States dollars and in immediately available
funds.
"Subsequent Financing" shall have the meaning ascribed to such term in
Section 4.11(a).
"Subsequent Financing Notice" shall have the meaning ascribed to such term
in Section 4.11(a).
"Subsidiary" means with respect to any entity at any date, any direct or
indirect corporation, limited or general partnership, limited liability company,
trust, estate, association, joint venture or other business entity of which (A)
more than 50% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity, or (B) is under the actual control of the
Company.
"Trading Day" means a day on which the principal Trading Market is open for
trading.
"Trading Market" means any of the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: the
NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange, the OTCQB, the OTCQX, or the
OTC Pink Marketplace (or any successors to any of the foregoing).
"Transaction Documents" means this Agreement, the Notes, the Warrants, the
Security Agreement, the Pledge Agreement, the Guaranty Agreement, the Escrow
Agreement and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
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"Transfer Agent" means Transhare Corporation, and any successor transfer
agent of the Company.
"Underlying Shares" means the Shares and the Warrant Shares.
"Variable Rate Transaction" shall have the meaning ascribed to such term in
Section 4.12.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)) (or a similar organization or agency succeeding to its functions of
reporting prices), (b) if no volume weighted average price of the Common Stock
is reported for the Trading Market, the avergae closing price of the Common
Stock during the ten (10) Trading Days preceding such date, or (c) in all other
cases, the fair market value of a share of Common Stock as determined by the
Board of Directors of the Company.
"Warrants" means, collectively, the Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of
exercise equal to three years from such initial exercise date, in the form of
Exhibit B attached hereto.
"Warrant Exercise Price" means $0.75 per share.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrants at the Warrant Exercise Price.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. (a) On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase an aggregate of
(i) $________ face value of 10% original issue discount Notes for a total
purchase price of $_________, and (ii) _________ Warrants, which is equal to
100% of the Shares issuable upon conversion of the purchased Notes. Each
Purchaser shall deliver to the Escrow Agent, via wire transfer immediately
available funds equal to such Purchaser's Subscription Amount as set forth on
the signature page hereto executed by such Purchaser, and the Company shall
deliver to the Escrow Agent each Purchaser's respective Note and a Warrant as
determined pursuant to Section 2.2(a), and the Company and each Purchaser shall
deliver the other items set forth in Section 2.2(b) deliverable at the Closing.
Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and
2.3, the Closing shall occur at the offices of Company Counsel or such other
location as the parties shall mutually agree. If a Closing is not held on or
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before November 15, 2018, the Escrow Agent will return all Subscription Amounts,
if any such amounts have been funded, without interest or deduction to each
prospective Purchaser.
2.2 Deliveries.
(a) On or prior to Closing Date, the Company shall deliver or cause to
be delivered to the Escrow Agent on behalf of each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) an original Note, convertible at the Note Conversion Price,
registered in the name of such Purchaser;
(iii) an original Warrant, exercisable at the Warrant Exercise
Price, registered in the name of such Purchaser to purchase up to a
number of shares of Common Stock equal to 100% of such Purchaser's
Shares, subject to adjustment as described therein (such Warrant
certificate may be delivered within two Trading Days of the Closing
Date);
(iv) a Security Agreement providing the Purchasers with a lien on
all of the assets of the Company;
(v) a Guaranty Agreement executed by the Company's Subsidiaries
listed on Secdule 3.1(a);
(vi) a Pledge Agreement pledging the Company's outstanding common
stock and other equity instruments of each of the Company's
Subsidiaries;
(vii) the Escrow Agreement duly executed by the Company; and
(viii) a reservation letter executed by the Company's Transfer
Agent and the Company in the form attached as Exhibit G.
(b) On or prior to the Closing Date each Purchaser shall deliver or
cause to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) the Escrow Agreement duly executed by such Purchaser;
(iii) to such Purchaser's Subscription Amount by wire transfer to
the Escrow Agent; and
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The Lead Investor shall deliver to the Escrow Agent the Security Agreement
and Pledge Agreement as collateral agent for the benefit of the Purchasers.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or Material
Adverse Effect, in all respects) on the Closing Date of the
representations and warranties of the Purchasers contained herein
(unless as of a specific date therein in which case they shall be
accurate as of such date);
(ii) all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the Closing Date shall have
been performed; and
(iii) the delivery by each Purchaser of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or Material
Adverse Effect, in all respects) when made and on the Closing Date of
the representations and warranties of the Company contained herein
(unless as of a specific date therein);
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) from the date hereof to the Closing Date trading in the
Common Stock shall not have been suspended by the SEC or the Company's
principal Trading Market, and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg L.P. shall
not have been suspended or limited, or minimum prices shall not have
been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have
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been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity
of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment
of such Purchaser, makes it impracticable or inadvisable to purchase
the Securities at the Closing;
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to each Purchaser as of the date
hereof:
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth in the SEC Reports. The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of them in
the Transaction Documents shall be disregarded. The Subsidiaries are listed
on Schedule 3.1(a).
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and authority to
own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in violation
nor default of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where
the failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in: (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii)
a material adverse effect on the Company's ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and each of the other
Transaction Documents and otherwise to carry out its obligations hereunder
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and thereunder. The execution and delivery of this Agreement and each of
the other Transaction Documents by the Company and the consummation by it
of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company's stockholders in connection herewith or therewith other than in
connection with the Required Approvals. Subject to obtaining the Required
Approvals, this Agreement and each other Transaction Document to which it
is a party has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof and
thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(d) No Conflicts. Except as set forth in Schedule 3.1(d), the
execution, delivery and performance by the Company of this Agreement and
the other Transaction Documents to which it is a party, the issuance and
sale of the Securities and the consummation by it of the transactions
contemplated hereby and thereby do not and will not (i) subject to the
Required Approvals, conflict with or violate any provision of the Company's
or any Subsidiary's certificate or articles of incorporation, bylaws or
other organizational or charter documents, or (ii) constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Except as set forth on Schedule
3.1(e), the Company is not required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.4 of this Agreement,
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(ii) application(s) to each applicable Trading Market for the listing of
the Shares and Warrant Shares for trading thereon in the time and manner
required thereby, (iii) filings necessary to perfect the Liens in favor of
the Purchasers under the Security Agreement, and (iv) such filings as are
required to be made under applicable state securities laws (collectively,
the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company. The Shares, when issued
upon conversion of the Notes, and the Warrant Shares, when issued in
accordance with the terms of the Warrants, will be validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company.
The Company shall reserve from its duly authorized capital stock a number
of shares of Common Stock issuable pursuant to the Notes and the Warrants
equal to the amount set forth in Section 4.9.
(g) Capitalization. The capitalization of the Company is as set forth
in the SEC Reports. The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than as
set forth on Schedule 3.1(g) other than pursuant to the exercise of
employee stock awards under the Company's equity incentive plans, the
issuance of shares of Common Stock to employees pursuant to the Company's
employee stock purchase plans and pursuant to the conversion and/or
exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. No Person has any
right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the
Transaction Documents. Except as set forth in the SEC Reports, as a result
of the purchase and sale of the Securities or as set forth on Schedule
3.1(g), there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock or the capital stock of any Subsidiary,
or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares
of Common Stock or Common Stock Equivalents or capital stock of any
Subsidiary. The issuance and sale of the Securities will not obligate the
Company or any Subsidiary to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in
a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. There are
no outstanding securities or instruments of the Company or any Subsidiary
that contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to redeem a security of the
Company or such Subsidiary. The Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or any similar
plan or agreement. All of the outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder, the
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Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company's capital stock to
which the Company is a party or, to the knowledge of the Company, between
or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by the Company under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the "SEC
Reports"). As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the
periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and
fairly present in all material respects the financial position of the
Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes; Undisclosed Events, Liabilities or Developments.
Other than as set forth on Schedule 3.1(i) since the date of the latest
audited financial statements included within the SEC Reports, except as
specifically disclosed in a subsequent SEC Report filed prior to the date
hereof, (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in
the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or disclosed in filings made with the SEC,
(iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or
other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director
or Affiliate, except pursuant to existing Company equity incentive plans.
The Company does not have pending before the SEC any request for
confidential treatment of information. Except for the issuance of the
Securities contemplated by this Agreement or as set forth on Schedule
3.1(i), no event, liability, fact, circumstance, occurrence or development
12
has occurred or exists or is reasonably expected to occur or exist with
respect to the Company or its Subsidiaries or their respective businesses,
prospects, properties, operations, assets or financial condition that would
be required to be disclosed by the Company under applicable securities laws
at the time this representation is made or deemed made that has not been
publicly disclosed at least one (1) Trading Day prior to the date that this
representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation, inquiry except as set forth in
Schedule 3.1(j) or other similar proceeding of any federal or state
government unit pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the issuance of the Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. The Company has no reason to believe
that an Action will be filed against it in the future. Neither the Company
nor any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the SEC involving the Company
or any current or former director or officer of the Company. The SEC has
not issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act, and the Company has no reason to
believe it will do so in the future.
(k) Labor Relations. No labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the
Company, which could reasonably be expected to result in a Material Adverse
Effect. None of the Company's or its Subsidiaries' employees is a member of
a union that relates to such employee's relationship with the Company or
such Subsidiary, and neither the Company nor any of its Subsidiaries is a
party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that their relationships with their employees are
good. To the knowledge of the Company, no effort is underway to unionize or
organize the employees of the Company or any Subsidiary. To the knowledge
of the Company, no executive officer of the Company or any Subsidiary, is,
or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement
or any restrictive covenant in favor of any third party, and the continued
employment of each such executive officer does not subject the Company or
13
any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. There is no workmen's compensation liability matter,
employment-related charge, complaint, grievance, investigation, inquiry or
obligation of any kind pending, or to the Company's knowledge, threatened,
relating to an alleged violation or breach by the Company or its
Subsidiaries of any law, regulation or contract that could, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Compliance. Except as set forth on Schedule 3.1(l), neither the
Company nor any Subsidiary: (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse
of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim
that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it
is a party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
judgment, decree or order of any court, arbitrator or other governmental
authority or (iii) is or has been in violation of any statute, rule,
ordinance or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality
and safety and employment and labor matters, except in each case as could
not have or reasonably be expected to result in a Material Adverse Effect.
(m) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with all federal, state, local and foreign laws relating to
pollution or protection of human health or the environment (including
ambient air, surface water, groundwater, land surface or subsurface
strata), including laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into
the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees,
demands, or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations, issued, entered,
promulgated or approved thereunder ("Environmental Laws"); (ii) have
received all permits licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses; and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval where in each clause (i), (ii) and (iii), the failure
to so comply could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect.
(n) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not reasonably be expected to result
in a Material Adverse Effect ("Material Permits"), and neither the Company
nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
14
(o) Title to Assets. Subject to the disclosure set forth on Schedule
3.1(o), the Company and the Subsidiaries have good and marketable title in
fee simple to all real property owned by them and good and marketable title
in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for (i) Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and the Subsidiaries, and (ii) Liens for
the payment of federal, state or other taxes, for which appropriate
reserves have been made therefor in accordance with GAAP and, the payment
of which is neither delinquent nor subject to penalties. Any real property
and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance.
(p) Intellectual Property.
(i) Subject to the Existing Liens, the Company owns or possesses
or has the right to use pursuant to a valid and enforceable written
license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the business of the Company as
presently conducted. The Company has provided the Purchaser a true and
complete copy of each such written license, sublicense, agreement or
permission.
(ii) The Intellectual Property does not interfere with, infringe
upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties, and the Company has no
knowledge that facts exist which indicate a likelihood of the
foregoing. The Company has not received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or conflict (including any claim that the Company
must license or refrain from using any Intellectual Property rights of
any third party). To the knowledge of the Company, no third party has
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with, any Intellectual Property rights of the Company.
(iii) The Company and the Subsidiaries have no pending patent
applications or applications for registration that either entity has
made with respect to any Intellectual Property. Schedule 3.1(p)
identifies each license, sublicense, agreement, or other permission
that the Company has granted to any third party with respect to any of
such Intellectual Property (together with any exceptions). The Company
has delivered to the Purchaser correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to
date) ("Intellectual Property Agreements"). Schedule 3.1(p) also
identifies each registered and unregistered trademark, service mark,
trade name, corporate name, URLs or Internet domain name used by the
Company in connection with its business and which is not licensed from
a third party. With respect to each item of Intellectual Property
required to be identified in Schedule 3.1(p):
15
(A) The Company owns and possesses all right, title, and
interest in and to the item, free and clear of any Lien,
license, or other restriction or limitation regarding use or
disclosure;
(B) The item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) No Action, claim, or demand is pending or, to the knowledge
of the Company, is threatened that challenges the legality,
validity, enforceability, use, or ownership by the Company;
and
(D) The Company has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(iv) Schedule 3.1(p)(iv) identifies each item of Intellectual
Property that any third party owns and that the Company uses pursuant
to license, sublicense, agreement, or permission, excluding
off-the-shelf software purchased or licensed by the Company. The
Company has delivered to the Purchaser correct and complete copies of
all such licenses, sublicenses, agreements, and permissions (each as
amended to date) (each, a "Licensed Intellectual Property Agreement").
With respect to each Licensed Intellectual Property Agreement:
(A) the Licensed Intellectual Property Agreement is legal,
valid, binding, enforceable, and in full force and effect;
(B) No party to the Licensed Intellectual Property Agreement is
in breach or default, and no event has occurred that with
notice or lapse of time would constitute a breach or default
or permit termination, modification, or acceleration
thereunder, which as to any such breach, default or event
could have a Material Adverse Effect on the Company;
(C) No party to such Licensed Intellectual Property Agreement
has repudiated any provision thereof;
(D) Except as set forth in such Licensed Intellectual Property
Agreement, the Company has not received written or verbal
notice or otherwise has knowledge that the underlying item
of Intellectual Property is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; and
(E) Except as set forth on Schedule 3.1(p)(iv), the Company has
not granted any sublicense or similar right with respect to
the license, sublicense, agreement, or permission.
16
(v) The Company has complied with and is presently in compliance
with all foreign, federal, state, local, governmental (including, but
not limited to, the Federal Trade Commission and State Attorneys
General), administrative, or regulatory laws, regulations, guidelines,
and rules applicable to any personal identifiable information.
(vi) Each Person who participated in the creation, conception,
invention or development of the Intellectual Property currently used
in the business of the Company (each, a "Developer") which is not
licensed from third parties has executed one or more agreements
containing industry standard confidentiality, work for hire and
assignment provisions, whereby the Developer has assigned to the
Company all copyrights, patent rights, Intellectual Property rights
and other rights in the Intellectual Property, including all rights in
the Intellectual Property that existed prior to the assignment of
rights by such Person to the Company. The Company has provided to the
Purchaser copies of any such agreements and assignments from each such
Developer (collectively, the "Developer Agreements").
(vii) Each Developer has signed a perpetual non-disclosure
agreement with the Company. The Company has provided, or will provide
prior to Closing, to the Purchaser copies any such non-disclosure
agreements from each such Person, if any.
(q) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged. Neither the Company nor
any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(r) Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company or any
Subsidiary and, to the knowledge of the Company, none of the employees of
the Company or any Subsidiary is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, providing for the
borrowing of money from or lending of money to or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director,
trustee, stockholder, member or partner, in each case in excess of $120,000
other than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company
and (iii) other employee benefits, including stock award agreements under
any equity incentive plan of the Company.
17
(s) Sarbanes-Oxley; Internal Accounting Controls. Except as disclosed
in the SEC Reports, the Company and the Subsidiaries are in compliance with
any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the
date hereof and as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls as set forth in the SEC
Reports. The Company's certifying officers have evaluated the effectiveness
of the disclosure controls and procedures of the Company and the
Subsidiaries as of the end of the period covered by the most recently filed
periodic report under the Exchange Act (such date, the "Evaluation Date").
The Company presented in its most recently filed periodic report under the
Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the internal control over financial reporting (as
such term is defined in the Exchange Act) of the Company and its
Subsidiaries that have materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting of the
Company and its Subsidiaries.
(t) Certain Fees. Other than as set forth on Schedule 3.1(t), no
brokerage or finder's fees or commissions are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with
respect to the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become an "investment company"
subject to registration under the Investment Company Act of 1940, as
amended.
(v) Registration Rights. No Person has any right to cause the Company
or any Subsidiary to effect the registration under the Securities Act of
any securities of the Company or any Subsidiary except as disclosed on
Schedule 3.1(v).
(w) Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the SEC is contemplating terminating such registration. The Company
has not, in the 12 months preceding the date hereof, received notice from
any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing
or maintenance requirements of such Trading Market. The Company is, and has
18
no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements. The
Common Stock is currently eligible for electronic transfer through the
Depository Trust Company or another established clearing corporation and
the Company is current in payment of the fees to the Depository Trust
Company (or such other established clearing corporation) in connection with
such electronic transfer.
(x) Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's certificate of incorporation
(or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a
result of the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(y) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with
any information that it believes constitutes or might constitute material,
non-public information which is not otherwise disclosed in the SEC Reports.
The Company understands and confirms that the Purchasers will rely on the
foregoing representation in effecting transactions in securities of the
Company. All of the disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct and does not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
press releases disseminated by the Company during the twelve months
preceding the date of this Agreement do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made and when made, not misleading.
The Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
19
prior offerings by the Company for purposes of any applicable shareholder
approval provisions of any Trading Market on which any of the securities of
the Company are listed or designated.
(aa) Solvency. Based on the consolidated financial condition of the
Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the
fair saleable value of the Company's assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and
other liabilities (including known contingent liabilities) as they mature,
(ii) the Company's assets do not constitute unreasonably small capital to
carry on its business as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, consolidated and
projected capital requirements and capital availability thereof, and (iii)
the current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after taking
into account all anticipated uses of the cash, would be sufficient to pay
all amounts on or in respect of its liabilities when such amounts are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing
and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to
believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from
the Closing Date. The SEC Reports and Schedule 3.1(aa) set 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 the purposes of this Agreement, "Indebtedness" means (x)
any liabilities for borrowed money or amounts owed in excess of $10,000
(other than trade accounts payable incurred in the ordinary course of
business), (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same
are or should be reflected in the Company's consolidated balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (z) the present value of any lease
payments in excess of $10,000 due under leases required to be capitalized
in accordance with GAAP. Except as set forth on Schedule 3.1(aa), neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and its Subsidiaries each (i) has made or filed
all United States federal, state and local income and all foreign income
and franchise tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations and (iii)
has set aside on its books provision reasonably adequate for the payment of
all material taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company or of any Subsidiary know of
no basis for any such claim.
20
(cc) Foreign Corrupt Practices. Neither the Company nor any
Subsidiary, nor to the knowledge of the Company or any Subsidiary, any
agent or other person acting on behalf of the Company or any Subsidiary,
has (i) directly or indirectly, used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or
domestic political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to any foreign or domestic
political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company or any Subsidiary (or
made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated any provision of FCPA.
(dd) Accountants. The Company's accounting firm is set forth in the
SEC Reports. To the knowledge and belief of the Company, such accounting
firm (i) is a registered public accounting firm as required by the Exchange
Act and (ii) has expressed its opinion with respect to the financial
statements included in the Company's Annual Report for the fiscal year
ending June 30, 2018.
(ee) Acknowledgment Regarding Purchasers' Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated
thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchasers' purchase of the Securities. The Company further represents to
each Purchaser that the Company's decision to enter into this Agreement and
the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.
(ff) Acknowledgement Regarding Purchaser's Trading Activity.
Notwithstanding anything in this Agreement or elsewhere to the contrary
(except for Sections 3.2(f) and 4.14 hereof), it is understood and
acknowledged by the Company that: (i) none of the Purchasers has been asked
by the Company to agree, nor has any Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to
hold the Securities for any specified term; (ii) past or future open market
or other transactions by any Purchaser, specifically including, without
limitation, Short Sales or "derivative" transactions, before or after the
closing of this or future private placement transactions, may negatively
impact the market price of the Company's publicly-traded securities; (iii)
any Purchaser, and counter-parties in "derivative" transactions to which
any such Purchaser is a party, directly or indirectly, presently may have a
"short" position in the Common Stock, and (iv) each Purchaser shall not be
deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction. The Company further
understands and acknowledges that (y) one or more Purchasers may engage in
hedging activities at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
21
value of the Warrant Shares deliverable with respect to Securities are
being determined, and (z) such hedging activities (if any) could reduce the
value of the existing stockholders' equity interests in the Company at and
after the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a breach of any of the Transaction Documents.
(gg) Regulation M Compliance. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or, paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any Person any compensation
for soliciting another to purchase any other securities of the Company.
(hh) Private Placement. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Notes,
the Shares upon conversion thereof, the Warrants or the Warrant Shares
issuable upon exercise thereof by the Company to the Purchasers as
contemplated hereby
(ii) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the Securities
Act.
(jj) No Disqualification Events. With respect to the Securities to be
offered and sold hereunder in reliance on Rule 506(b) under the Securities
Act, none of the Company, any of its predecessors, any affiliated issuer,
any director, executive officer, other officer of the Company participating
in the offering hereunder, any beneficial owner of 20% or more of the
Company's outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under
the Securities Act) connected with the Company in any capacity at the time
of sale, nor any Person, including a placement agent, who will receive a
commission or fees for soliciting purchasers (each, an "Issuer Covered
Person" and, together, "Issuer Covered Persons") is subject to any of the
"Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii)
under the Securities Act (a "Disqualification Event"), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has
exercised reasonable care to determine whether any Issuer Covered Person is
subject to a Disqualification Event. The Company has complied, to the
extent applicable, with its disclosure obligations under Rule 506(e), and
has furnished to the Purchasers a copy of any disclosures provided
thereunder.
22
(kk) Notice of Disqualification Events. The Company will notify the
Purchasers in writing, prior to the Closing Date of (i) any
Disqualification Event relating to any Issuer Covered Person and (ii) any
event that would, with the passage of time, reasonably be expected to
become a Disqualification Event relating to any Issuer Covered Person, in
each case of which it is aware.
(ll) Office of Foreign Assets Control. Neither the Company nor any
Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject
to any U.S. sanctions administered by the Office of Foreign Assets Control
of the U.S. Treasury Department ("OFAC").
(mm) U.S. Real Property Holding Corporation. The Company is not and
has never been a U.S. real property holding corporation within the meaning
of Section 897 of the Internal Revenue Code of 1986, as amended, and the
Company shall so certify upon Purchaser's request.
(nn) Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries or Affiliates is subject to the Bank Holding Company Act of
1956, as amended (the "BHCA") and to regulation by the Board of Governors
of the Federal Reserve System (the "Federal Reserve"). Neither the Company
nor any of its Subsidiaries or Affiliates owns or controls, directly or
indirectly, five percent (5%) or more of the outstanding shares of any
class of voting securities or twenty-five percent or more of the total
equity of a bank or any entity that is subject to the BHCA and to
regulation by the Federal Reserve. Neither the Company nor any of its
Subsidiaries or Affiliates exercises a controlling influence over the
management or policies of a bank or any entity that is subject to the BHCA
and to regulation by the Federal Reserve.
(oo) Money Laundering. The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the
Currency and Foreign Transactions Reporting Act of 1970, as amended,
applicable money laundering statutes and applicable rules and regulations
thereunder (collectively, the "Money Laundering Laws"), and no Action or
Proceeding by or before any court or governmental agency, authority or body
or any arbitrator involving the Company or any Subsidiary with respect to
the Money Laundering Laws is pending or, to the knowledge of the Company or
any Subsidiary, threatened.
3.2 Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser, hereby represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows (unless as of a
specific date therein):
(a) Organization; Authority. Such Purchaser is either an individual or
an entity duly incorporated or formed, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
formation with full right, corporate, partnership, limited liability
company or similar power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its
23
obligations hereunder and thereunder. The execution and delivery of this
Agreement and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate, partnership, limited liability company or similar action, as
applicable, on the part of such Purchaser. Each Transaction Document to
which it is a party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except: (i) as limited
by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Understandings or Arrangements. Such Purchaser is acquiring the
Securities as principal for its own account and has no direct or indirect
arrangement or understandings with any other persons to distribute or
regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser's right to sell the Securities in
compliance with applicable federal and state securities laws). Such
Purchaser is acquiring the Securities hereunder in the ordinary course of
its business. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring such Securities
as principal for its own account and not with a view to or for distributing
or reselling such Securities or any part thereof in violation of the
Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute
or regarding the distribution of such Securities in violation of the
Securities Act or any applicable state securities law (this representation
and warranty not limiting such Purchaser's right to sell such Securities in
compliance with applicable federal and state securities laws).
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and as of the date hereof it is, an accredited investor
within the meaning of Rule 501 under the Securities Act. No Purchaser is
subject to any of the "Bad Actor" disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a "Disqualification
Event"), except for a Disqualification Event covered by Rule 506(d)(2) or
(d)(3).
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) Access to Information. Such Purchaser acknowledges that it has had
the opportunity to review the Transaction Documents (including all exhibits
24
and schedules thereto) and the SEC Reports and has been afforded, subject
to Regulation FD, (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the
Securities and the merits and risks of investing in the Securities; (ii)
access to information about the Company and its financial condition,
results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Such Purchaser acknowledges and agrees that neither the Company
nor anyone else has provided such Purchaser with any information or advice
with respect to the Securities nor is such information or advice necessary
or desired.
(f) Certain Transactions and Confidentiality. Other than consummating
the transactions contemplated hereunder, such Purchaser has not, nor has
any Person acting on behalf of or pursuant to any understanding with such
Purchaser, directly or indirectly executed any purchases or sales,
including Short Sales, of the securities of the Company during the period
commencing as of the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person representing the
Company setting forth the material terms of the transactions contemplated
hereunder and ending immediately prior to the execution hereof.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the
representation set forth above shall only apply with respect to the portion
of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement. Other than
to other Persons party to this Agreement or to such Purchaser's
representatives, including, without limitation, its officers, directors,
partners, legal and other advisors, employees, agents and Affiliates, such
Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of
this transaction). Notwithstanding the foregoing, for avoidance of doubt,
nothing contained herein shall constitute a representation or warranty, or
preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to
effect Short Sales or similar transactions in the future.
25
The Company acknowledges and agrees that the representations contained in
this Section 3.2 shall not modify, amend or affect such Purchaser's right to
rely on the Company's representations and warranties contained in this Agreement
or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in
connection with this Agreement or the consummation of the transaction
contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Removal of Legends.
(a) The Shares, the Warrants and Warrant Shares may only be disposed
of in compliance with state and federal securities laws. In connection with
any transfer of Warrants or Warrant Shares other than pursuant to an
effective registration statement or Rule 144, to the Company or to an
Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor, provided that the
Company shall pay the transferor's cost thereof, to provide to the Company
an opinion of counsel selected by the transferor and reasonably acceptable
to the Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Shares, Warrants or Warrant Shares
under the Securities Act.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 4.1, of a legend on any of the Shares, the Warrants or Warrant
Shares in the following form:
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
26
The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Shares or Warrant Shares to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Shares or Warrant Shares to the pledgees or
secured parties. Such a pledge or transfer would not be subject to approval of
the Company and no legal opinion of legal counsel of the pledgee, secured party
or pledgor shall be required in connection therewith. Further, no notice shall
be required of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Shares and Warrant Shares may reasonably request in connection with a
pledge or transfer of the Shares or Warrant Shares.
(c) Certificates evidencing the Shares and the Warrant Shares shall
not contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement covering the resale of such
securities is effective under the Securities Act, (ii) following any sale
of such Shares or Warrant Shares pursuant to Rule 144, (iii) if such Shares
or Warrant Shares are eligible for sale under Rule 144, without the
requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Shares or Warrant Shares and
without volume or manner-of-sale restrictions or (iv) if such legend is not
required under applicable requirements of the Securities Act (including
Section 4(a)(1), judicial interpretations and pronouncements issued by the
staff of the SEC) (the "Effective Date"). The Company shall, at its
expense, cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to
effect the removal of the legend hereunder. If all or any portion of a Note
is converted or a Warrant is exercised at a time when there is an effective
registration statement to cover the resale of the Shares or the Warrant
Shares, or if such Shares or Warrant Shares may be sold under Rule 144 and
the Company is then in compliance with the current public information
required under Rule 144, or if the Shares or Warrant Shares may be sold
under Rule 144 without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such
Shares or Warrant Shares and without volume or manner-of-sale restrictions
or if such legend is not otherwise required under applicable requirements
of the Securities Act (including Section 4(a)(1), judicial interpretations
and pronouncements issued by the staff of the SEC) then such Shares or
Warrant Shares shall be issued or reissued free of all legends. The Company
agrees that following the effective date of any registration statement or
at such time as such legend is no longer required under this Section
4.1(c), it will, no later than two (2) Trading Days following the delivery
by a Purchaser to the Company or the Transfer Agent of a certificate
representing restricted Shares or Warrant Shares, as applicable, issued
with a restrictive legend (such second Trading Day, the "Legend Removal
Date"), deliver or cause to be delivered to such Purchaser a certificate
representing such Shares or Warrant Shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section 4.1. Certificates for
Shares or Warrant Shares subject to legend removal hereunder shall be
27
transmitted by the Transfer Agent to the Purchaser by crediting the account
of the Purchaser's prime broker with the Depository Trust Company system as
directed by such Purchaser.
(d) In addition to such Purchaser's other available remedies, (i) the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of the principal amount of the Notes
being converted or the value of the Warrant Shares for which a Warrant is
being exercised (based on the Warrant Exercise Price), $10 per Trading Day
for each Trading Day after the Legend Removal Date (increasing to $20 per
Trading Day after the fifth (5th ) Trading Day) until such certificate is
delivered without a legend. In no event shall liquidated damages for any
one transaction exceed $1,000 for the first ten (10) Trading Days. Nothing
herein shall limit such Purchaser's right to pursue actual damages for the
Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief, and (ii) if after the Legend Removal Date such Purchaser purchases
(in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Purchaser of all or any portion
of the number of shares of Common Stock, or a sale of a number of shares of
Common Stock equal to all or any portion of the number of shares of Common
Stock that such Purchaser anticipated receiving from the Company without
any restrictive legend, then, the Company shall pay to such Purchaser, in
cash, an amount equal to the excess of such Purchaser's total purchase
price (including brokerage commissions and other out-of-pocket expenses, if
any) for the shares of Common Stock so purchased (including brokerage
commissions and other out-of-pocket expenses, if any) (the "Buy-In Price")
over the product of (A) such number of Shares or Warrant Shares that the
Company was required to deliver to such Purchaser by the Legend Removal
Date multiplied by (B) the lowest closing sale price of the Common Stock on
any Trading Day during the period commencing on the date of the delivery by
such Purchaser to the Company of the applicable Shares or Warrant Shares
(as the case may be) and ending on the date of such delivery and payment
under this Section 4.1(d).
(e) In the event a Purchaser shall request delivery of unlegended
shares as described in this Section 4.1 and the Company is required to
deliver such unlegended shares, (i) it shall pay all fees and expenses
associated with or required by the legend removal and/or transfer including
but not limited to legal fees, transfer agent fees and overnight delivery
charges and taxes, if any, imposed by any applicable government upon the
issuance of Common Stock,; and (ii) the Company may not refuse to deliver
unlegended shares based on any claim that such Purchaser or anyone
associated or affiliated with such Purchaser has not complied with
Purchaser's obligations under the Transaction Documents, or for any other
reason, unless, an injunction or temporary restraining order from a court,
on notice, restraining and or enjoining delivery of such unlegended shares
shall have been sought and obtained by the Company and the Company has
posted a surety bond for the benefit of such Purchaser in the amount of the
greater of (i) 15% of the amount of the aggregate purchase price of the
Shares and Warrant Shares which is subject to the injunction or temporary
restraining order, or (ii) the VWAP of the Common Stock on the Trading Day
before the issue date of the injunction multiplied by the number of
28
unlegended shares to be subject to the injunction, which bond shall remain
in effect until the completion of the litigation of the dispute and the
proceeds of which shall be payable to such Purchaser to the extent
Purchaser obtains judgment in Purchaser's favor.
4.2 Furnishing of Information.
(a) Until the earliest of the time that (i) no Purchaser owns
Securities or (ii) the Warrants have expired, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company
after the date hereof pursuant to the Exchange Act even if the Company is
not then subject to the reporting requirements of the Exchange Act.
(b) At any time during the period commencing from the six (6) month
anniversary of the date hereof and ending at such time on the earlier to
occur that the Warrants are not outstanding, terminated or that all of the
Warrant Shares (assuming cashless exercise) may be sold without the
requirement for the Company to be in compliance with Rule 144(c)(1) and
otherwise without restriction or limitation pursuant to Rule 144, if the
Company (i) shall fail for any reason to satisfy the current public
information requirement under Rule 144(c) for a period of more than 30
consecutive days or (ii) has ever been an issuer described in Rule
144(i)(1)(i) or becomes an issuer in the future, and the Company shall fail
to satisfy any condition set forth in Rule 144(i)(2) for a period of more
than 30 consecutive days (a "Public Information Failure") then, in addition
to such Purchaser's other available remedies, the Company shall pay to a
Purchaser, in cash, as partial liquidated damages and not as a penalty, by
reason of any such delay in or reduction of its ability to sell the Shares
and/or Warrant Shares, an amount in cash equal to two percent (2%) of the
aggregate Note Conversion Price of such Purchaser's Note(s) and/or Warrant
Exercise Price of such Purchaser's Warrants on the day of a Public
Information Failure and on every thirtieth (30th) day (pro-rated for
periods totaling less than thirty days) thereafter until the earlier of (a)
the date such Public Information Failure is cured and (b) such time that
such public information is no longer required for the Purchasers to
transfer the Shares and/or Warrant Shares pursuant to Rule 144. In no event
shall the amount paid under this section exceed 6% of the aggregate Note
Conversion Price. The payments to which a Purchaser shall be entitled
pursuant to this Section 4.2(b) are referred to herein as "Public
Information Failure Payments." Public Information Failure Payments shall be
paid on the earlier of (i) the last day of the calendar month during which
such Public Information Failure Payments are incurred and (ii) the second
(2rd) Business Day after the event or failure giving rise to the Public
Information Failure Payments is cured. In the event the Company fails to
make Public Information Failure Payments in a timely manner, such Public
Information Failure Payments shall bear interest at the rate of 1.5% per
month (prorated for partial months) until paid in full. Nothing herein
shall limit such Purchaser's right to pursue actual damages for the Public
Information Failure, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief.
29
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2(a)(1) of the Securities Act) that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 5:30 p.m.
(New York City time) on the second trading date following the date of execution
hereof, file a Current Report on Form 8-K disclosing the material terms of this
Agreement, including the Transaction Documents as exhibits thereto, with the SEC
within the time required by the Exchange Act. From and after the filing of the
Form 8-K as provided in the preceding sentence, the Company represents to the
Purchasers that it shall have publicly disclosed all material, non-public
information delivered to any of the Purchasers by the Company or any of its
Subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. In addition, effective upon the issuance of such Form 8-K, the
Company acknowledges and agrees that any and all confidentiality or similar
obligations under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers, directors, agents,
employees or Affiliates on the one hand, and any of the Purchasers or any of
their Affiliates on the other hand, shall terminate. The Company and each
Purchaser shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release nor otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the SEC or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (a) as required by federal securities law in connection with the filing
of final Transaction Documents with the SEC and (b) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (b).
4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.6 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, which
shall be disclosed pursuant to Section 4.4, the Company covenants and agrees
that neither it, nor any other Person acting on its behalf will provide any
30
Purchaser or its agents or counsel with any information that constitutes, or the
Company reasonably believes constitutes, material non-public information, unless
prior thereto such Purchaser shall have consented to the receipt of such
information and agreed with the Company to keep such information confidential.
The Company understands and confirms that each Purchaser shall be relying on the
foregoing covenant in effecting transactions in securities of the Company. To
the extent that the Company delivers any material, non-public information to a
Purchaser without such Purchaser's consent, the Company hereby covenants and
agrees that such Purchaser shall not have any duty of confidentiality to the
Company, any of its Subsidiaries, or any of their respective officers,
directors, agents, employees or Affiliates, not to trade on the basis of, such
material, non-public information, provided that the Purchaser shall remain
subject to applicable law. To the extent that any notice provided pursuant to
any Transaction Document or any other communications made by the Company, or
information provided, to the Purchaser constitutes, or contains, material,
non-public information regarding the Company or any Subsidiaries, the Company
shall simultaneously file such notice or other material information with the SEC
pursuant to a Current Report on Form 8-K. The Company understands and confirms
that each Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company. In addition to any other remedies
provided by this Agreement or other Transaction Documents, if the Company
provides any material, non-public information to the Purchasers without their
prior written consent, and it fails to immediately (no later than that Business
Day) file a Form 8-K disclosing this material, non-public information, it shall
pay the Purchasers as partial liquidated damages and not as a penalty a sum
equal to $1,000 per day for each $100,000 of each Purchaser's Subscription
Amount beginning with the day the information is disclosed to the Purchaser and
ending and including the day the Form 8-K disclosing this information is filed.
4.7 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and the implementation
of tournament play, and shall not use such proceeds: (a) for the satisfaction of
any other portion of the Company's debt (other than payment of trade payables in
the ordinary course of the Company's business and prior practices), (b) for the
redemption of any Common Stock or Common Stock Equivalents, (c) for the
settlement of any outstanding litigation, (d) in violation of FCPA or OFAC
regulations, or to lend money, give credit, or make advances to any officers,
directors, employees or affiliates of the Company or (e) for the purchase of
real estate.
4.8 Indemnification of Purchasers. Subject to the provisions of this
Section 4.8, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
31
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation (including local counsel, if retained) that any such
Purchaser Party may suffer or incur as a result of or relating to (a) any breach
of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents, (b) any action
instituted against the Purchaser Parties in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser Party, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser Party's representations, warranties or covenants under
the Transaction Documents or any agreements or understandings such Purchaser
Party may have with any such stockholder or any violations by such Purchaser
Party of state or federal securities laws or any conduct by such Purchaser Party
which constitutes fraud, gross negligence, willful misconduct or malfeasance) or
(c) any untrue or alleged untrue statement of a material fact contained in any
registration statement, any prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of
any prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading. If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser
Party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of such Purchaser Party, in which
case the Company shall be responsible for the reasonable fees and expenses of no
more than one such separate counsel (in addition to local counsel, if retained).
The Company will not be liable to any Purchaser Party under this Agreement (y)
for any settlement by a Purchaser Party effected without the Company's prior
written consent, which shall not be unreasonably withheld or delayed; or (z) to
the extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party's breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents. The Purchaser Parties shall
have the right to settle any action against any of them by the payment of money
provided that they cannot agree to any equitable relief and the Company, its
officers, directors and Affiliates receive unconditional releases in customary
form. The indemnification required by this Section 4.8 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or are incurred. The indemnity
agreements contained herein shall be in addition to any cause of action or
similar right of any Purchaser Party against the Company or others and any
liabilities the Company may be subject to pursuant to law.
4.9 Reservation of Common Stock. The Company shall reserve and keep
available at all times in favor of the Purchasers on a pro rata basis based on
each Purchaser's Subscription Amount, free of preemptive rights, a number of
shares of Common Stock equal to three times the number of shares of Common Stock
issuable upon conversion of the Notes and exercise of the Warrants (subject to
adjustment for stock splits and dividends, combinations and similar events).
32
The Company shall not enter into any agreement or file any amendment to its
Articles of Incorporation (including the filing of a Certificate of Designation)
which conflicts with this Section 4.9 while the Notes and Warrants remain
outstanding.
4.10 Listing of Common Stock. The Company hereby agrees to use best efforts
to maintain the listing or quotation of the Common Stock on the Trading Market
on which it is currently listed, and concurrently with the Closing, the Company
shall (if necessary) apply to list or quote all of the Shares and Warrant Shares
on such Trading Market and promptly secure the listing of all of the Shares and
Warrant Shares on such Trading Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market, it
will then include in such application all of the Shares and Warrant Shares, and
will take such other action as is necessary to cause all of the Shares and
Warrant Shares to be listed or quoted on such other Trading Market as promptly
as possible. The Company will then take all action necessary to continue the
listing and trading of its Common Stock on a Trading Market and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Trading Market. The Company agrees to maintain the
eligibility of the Common Stock for electronic transfer through the Depository
Trust Company or another established clearing corporation, including, without
limitation, by timely payment of fees to the Depository Trust Company or such
other established clearing corporation in connection with such electronic
transfer.
4.11 Participation in Future Financing.
(a) From the date hereof until the date that is the 24 month
anniversary of the Closing Date, upon any issuance by the Company or any of
its Subsidiaries of Common Stock or Common Stock Equivalents for cash
consideration, Indebtedness or a combination of the foregoing in a
transaction exempt from registration under the Securities Act (a
"Subsequent Financing"), the Purchasers (as a group) shall have the right
to participate in up to an amount of the Subsequent Financing equal to 20%
of the Subsequent Financing (the "Participation Maximum") on the same
terms, conditions and price provided for in the Subsequent Financing. At
least five (5) Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "Subsequent Financing Notice").
Upon the request of a Purchaser, and only upon a request by such Purchaser,
for a Subsequent Financing Notice, the Company shall promptly, but no later
than one (1) Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The 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.
(b) Any Purchaser desiring to participate in such Subsequent Financing
must provide written notice to the Company by not later than 5:30 p.m. (New
York City time) on the fifth (5th) Trading Day after all of the Purchasers
have received the Pre-Notice that such Purchaser is willing to participate
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in the Subsequent Financing, the amount of such Purchaser's participation,
and representing and warranting that such Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Company receives no such notice from a
Purchaser as of such fifth (5th) Trading Day, such Purchaser shall be
deemed to have notified the Company that it does not elect to participate.
(c) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading
Day after all of the Purchasers have received the Pre-Notice, notifications
by the Purchasers of their willingness to participate in the Subsequent
Financing is, in the aggregate, less than the total amount of the
Participation Maximum, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and with the Persons set forth in
the Subsequent Financing Notice.
(d) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking
to purchase more than the aggregate amount of the Participation Maximum,
each such Purchaser shall have the right to purchase its Pro Rata Portion
(as defined below) of the Participation Maximum. "Pro Rata Portion" means
the ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date by a Purchaser participating under this Section 4.11 and (y)
the sum of the aggregate Subscription Amounts of Securities purchased on
the Closing Date by all Purchasers participating under this Section 4.11.
(e) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.11, 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 thirty (30) Trading Days after the date of the
initial Subsequent Financing Notice.
(f) The Company and each Purchaser agree that if any Purchaser elects
to participate in the Subsequent Financing, the transaction documents
related to the Subsequent Financing shall not include any term or provision
whereby such Purchaser shall be required to agree to any restrictions on
trading as to any of the Securities purchased hereunder or be required to
consent to any amendment to or termination of, or grant any waiver, release
or the like under or in connection with, this Agreement, without the prior
written consent of such Purchaser.
(g) Notwithstanding anything to the contrary in this Section 4.11 and
unless otherwise agreed to by such Purchaser, the Company shall either
confirm in writing to such Purchaser that the transaction with respect to
the Subsequent Financing has been abandoned or shall publicly disclose its
intention to issue the securities in the Subsequent Financing, in either
case in such a manner such that such Purchaser will not be in possession of
any material, non-public information, by thirty (30) Trading Days following
delivery of the Subsequent Financing Notice. If by such thirtieth (30th)
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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 such Purchaser, such
transaction shall be deemed to have been abandoned and such Purchaser shall
not be deemed to be in possession of any material, non-public information
with respect to the Company or any of its Subsidiaries.
(h) Notwithstanding the foregoing, this Section 4.11 shall not apply in
respect of (i) an Exempt Issuance, (ii) a public offering registered with
the SEC, or (iii) after the date no Notes are outstanding.
4.12 Subsequent Equity Sales.
(a) From the date hereof until 30 days after the Closing Date neither
the Company nor any Subsidiary shall issue, enter into any agreement to
issue or announce the issuance or proposed issuance of any shares of Common
Stock or Common Stock Equivalents, except for Exempt Issuances.
(b) From the date hereof until the later of (i) such time as 80% of
the Warrants are no longer outstanding or (ii) such time as the Notes have
been paid in full, the Company will not, without the consent of the
Purchasers, enter into any Equity Line of Credit or similar agreement, nor
issue nor agree to issue any common stock, floating or Variable Priced
Equity Linked Instruments nor any of the foregoing or equity with price
reset rights (subject to adjustment for stock splits, distributions,
dividends, recapitalizations and the like) (collectively, the "Variable
Rate Transaction"). For purposes hereof, "Equity Line of Credit" shall
include any transaction involving a written agreement between the Company
and an investor or underwriter whereby the Company has the right to "put"
its securities to the investor or underwriter over an agreed period of time
and at an agreed price or price formula, and "Variable Priced Equity Linked
Instruments" shall include: (A) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to
receive additional shares of Common Stock either (1) at any conversion,
exercise or exchange rate or other price that is based upon and/or varies
with the trading prices of or quotations for Common Stock at any time after
the initial issuance of such debt or equity security, or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at
some future date at any time after the initial issuance of such debt or
equity security due to a change in the market price of the Company's Common
Stock since date of initial issuance, and (B) any amortizing convertible
security which amortizes prior to its maturity date, where the Company is
required or has the option to (or any investor in such transaction has the
option to require the Company to) make such amortization payments in shares
of Common Stock which are valued at a price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at any
time after the initial issuance of such debt or equity security (whether or
not such payments in stock are subject to certain equity conditions).
Notwithstanding the foregoing, the Company shall not be prohibited from
engaging in any Variable Rate Transaction in connection with any offering
of securities described in clause (e) of the Exempt Issuance definition.
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(c) From the date hereof until the earlier of (i) date that is the
24th monthanniversary of the Closing Date or (ii) such time as no Purchaser
holds any Securities, in the event that the Company issues or sells any
Common Stock or Common Stock Equivalents, if a Purchaser then holding
Securities purchased under this Agreement reasonably believes that any of
the terms and conditions appurtenant to such issuance or sale are more
favorable to such investors than are the terms and conditions granted to
the Purchasers hereunder, upon notice to the Company by such Purchaser
within five (5) Trading Days after disclosure of such issuance or sale, the
Company shall amend the terms of this transaction as to such Purchaser only
so as to give such Purchaser the benefit of such more favorable terms or
conditions.
(d) Notwithstanding the foregoing, this Section 4.12 shall not apply
in respect of an Exempt Issuance. The Company shall provide each Purchaser
with notice of any such issuance or sale in the manner for disclosure of
Subsequent Financings set forth in Section 4.11.
4.13 Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company
and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.14 Certain Transactions and Confidentiality. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither it nor any
Affiliate acting on its behalf or pursuant to any understanding with it will
execute any purchases or sales, including Short Sales of any of the Company's
securities during the period commencing with the execution of this Agreement and
ending at such time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company pursuant to the initial
press release as described in Section 4.4, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Notwithstanding the foregoing
and notwithstanding anything contained in this Agreement to the contrary, the
Company expressly acknowledges and agrees that (i) no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in effecting
transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.4, (ii) no
Purchaser shall be restricted or prohibited from effecting any transactions in
any securities of the Company in accordance with applicable securities laws from
and after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality or
duty not to trade in the securities of the Company to the Company or its
Subsidiaries after the issuance of the initial press release as described in
Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a
36
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.
4.15 Capital Changes. Until the one year anniversary of the Closing Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the outstanding principal balance
of the Notes unless such stock split is necessary for purposes of having the
Company's common stock listed on the NYSE American Exchange or the Nasdaq
Capital Markets.
4.16 Conversion and Exercise Procedures. The forms of Conversion Notice and
Notice of Exercise included in the Notes and Warrants set forth the totality of
the procedures required of the Purchasers in order to convert the Notes or to
exercise the Warrants. No additional legal opinion, other information or
instructions shall be required of the Purchasers to convert their Notes or
exercise their Warrants. Without limiting the preceding sentences, no
ink-original Conversion Notice or Notice of Exercise shall be required, nor
shall any medallion guarantee (or other type of guarantee or notarization) of
any Conversion Notice or Notice of Exercise form be required in order to convert
the Notes or exercise the Warrants. The Company shall honor conversions of the
Notes and exercises of the Warrants and shall deliver Shares and Warrant Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.
4.17 DTC Program. For so long as any Warrants are outstanding, the Company
will employ as the transfer agent for the Common Stock and Warrant Shares a
participant in the Depository Trust Company Automated Securities Transfer
Program and cause the Common Stock to be transferable pursuant to such program.
4.18 Maintenance of Property. The Company shall keep all of its property,
which is necessary or useful to the conduct of its business, in good working
order and condition, ordinary wear and tear excepted.
4.19 Preservation of Corporate Existence. The Company shall preserve and
maintain its corporate existence, rights, privileges and franchises in the
jurisdiction of its incorporation, and qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary in view of its business or operations and where the failure to qualify
or remain qualified might reasonably have a Material Adverse Effect upon the
financial condition, business or operations of the Company taken as a whole.
4.20 No Registration of Securities. While the Notes are outstanding, the
Company will not file any registration statements, on Form S-8 or otherwise, to
register sales of Common Stock, including shares underlying any derivative
37
securities, unless such registration statement is with respect to an offering in
which the Company receives gross proceeds of $5,000,000 or more.
4.21 Piggy-back Registration. From the date hereof until the later of (i)
such time as the Warrants are no longer outstanding or (ii) such time as the
Notes have been paid in full, each Purchaser shall have the right to include the
Shares and the Warrant Shares as part of any other registration of securities
filed by the Company (other than pursuant to Form S-4, Form S-8 or any
equivalent form) as provided for in the Notes and the Warrants.
4.22 Collateral Agent. Each Purchaser hereby appoints Cavalry Fund I LP as
Collateral Agent under the Security Agreement, and as Agent under each of the
Subsidiary Guaranty and the Pledge Agreement.
4.23 D&O Insurance. Within 60 days of the Closing, the Company shall
purchase director and officer insurance on behalf of the Company's (including
its subsidiary) officers and directors for a period of 18 months after the
Closing with respect to any losses, claims, damages, liabilities, costs and
expense in connection with any actual or threatened claim or proceeding that is
based on, or arises out of their status as a director or officer of the Company.
The insurance policy shall provide for two years of tail coverage.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
November 15, 2018; provided, however, that no such termination will affect the
right of any party to sue for any breach by any other party (or parties).
5.2 Fees and Expenses. Except as expressly set forth below and in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees (including, without limitation, any fees
required for same-day processing of any instruction letter delivered by the
Company and any exercise notice delivered by a Purchaser), stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities to the
Purchasers. Upon the Closing, the Company agrees to pay counsel for the
Purchasers a total of $20,000 in fees together with reasonable costs including
those necessary to provide the Purchasers with a lien on all of the assets of
the Company in an amount not to exceed $800. The Escrow Agent may withhold this
$20,800 in order to pay the fees and expenses due Purchaser's counsel.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
38
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile or email attachment at
the facsimile number or email address as set forth on the signature pages
attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile or email attachment at the facsimile
number or email address as set forth on the signature pages attached hereto on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the second (2nd) Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service or (d) upon
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as set forth on the
signature pages attached hereto. To the extent that any notice provided pursuant
to any Transaction Document constitutes, or contains, material, non-public
information regarding the Company or any Subsidiaries, the Company shall
simultaneously file such notice with the SEC pursuant to a Current Report on
Form 8-K.
5.5 Amendments; Waivers. Except as provided in the last sentence of this
Section 5.5, no provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchasers who purchased at least a majority
in interest of the Amendment based on the initial Subscription Amounts hereunder
or, in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought; provided, that if any amendment, modification or
waiver disproportionately and adversely impacts a Purchaser (or group of
Purchasers), the consent of such disproportionately impacted Purchaser (or group
of Purchasers) shall also be required. No waiver of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right. Any proposed amendment or waiver that
disproportionately, materially and adversely affects the rights and obligations
of any Purchaser relative to the comparable rights and obligations of the other
Purchasers shall require the prior written consent of such adversely affected
Purchaser, Any amendment effected in accordance with accordance with this
Section 5.5 shall be binding upon each Purchaser and holder of Securities and
the Company. In order to amend the definition of Exempt Issuance, the written
consent of the Company and each Purchaser must be obtained.
5.6 Reserved.
5.7 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.8 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
39
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers."
5.9 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8 and this
Section 5.9. Notwithstanding the foregoing, Joseph Gunnar & Co., LLC shall be
deemed a third party beneficiary of the representations and warranties of the
Company as contained in Section 3.1 of this Agreement and shall have the right
to enforce such provisions directly to the extent it may deem such enforcement
necessary or advisable to protect its rights.
5.10 Governing Law; Exclusive Jurisdiction; Attorneys' Fees. All questions
concerning the construction, validity, enforcement and interpretation of the
Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
Proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, Borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Action or Proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, that such
Action or Proceeding is improper or is an inconvenient venue for such
Proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such Action or Proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law. If any party shall commence an Action or Proceeding to enforce
any provisions of the Transaction Documents, then, in addition to the
obligations of the Company elsewhere in this Agreement, the prevailing party in
such Action or Proceeding shall be reimbursed by the non-prevailing party for
its reasonable attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Action or Proceeding.
5.11 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Securities.
5.12 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to each other party, it being understood that the parties need not
40
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a ".pdf" format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or ".pdf" signature page were an original thereof.
5.13 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.14 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of an exercise of a Warrant, the
applicable Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded exercise notice concurrently with the return to
such Purchaser of the aggregate exercise price paid to the Company for such
shares and the restoration of such Purchaser's right to acquire such shares
pursuant to such Purchaser's Warrant (including, issuance of a replacement
warrant certificate evidencing such restored right).
5.15 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction without requiring
the posting of any bond.
5.16 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any Action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.17 Payment Set Aside. To the extent the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
41
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant hereto or thereto including any action taken by the Collateral Agent as
defined by the Security Agreement (whether under this Agreement or the Security
Agreement), shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
Proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in its review and negotiation of the Transaction
Documents. The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by any of the Purchasers. It is expressly
understood and agreed that each provision contained in this Agreement and in
each other Transaction Document is between the Company and a Purchaser, solely,
and not between the Company and the Purchasers collectively and not between and
among the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.
5.21 Construction. The parties agree that each of them and/or their
respective counsel have reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
42
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.
5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE FOREVER
TRIAL BY JURY.
5.23 Non-Circumvention. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation, including any
Certificates of Designation, or Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Agreement, and will at all
times in good faith carry out all of the provision of this Agreement and take
all action as may be required to protect the rights of all holders of the
Securities. Without limiting the generality of the foregoing or any other
provision of this Agreement or the other Transaction Documents, the Company (a)
shall not increase the par value of any shares of Common Stock receivable upon
conversion of the Note or exercise of the Warrants above the Note Conversion
Price, or Warrant Exercise Price, as applicable, then in effect and (b) shall
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Shares upon
the conversion of the Note and Warrant Shares upon exercise of the Warrants.
Notwithstanding anything herein to the contrary, if after 180 days from the
original issuance date, a holder is not permitted to convert the Note or
exercise the Warrants, in full, for any reason, the Company shall use its best
efforts to promptly remedy such failure, including, without limitation,
obtaining such consent or approvals as necessary to permit such conversion or
exercise.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
ESPORTS ENTERTAINMENT GROUP, INC. Address for Notice:
-------------------
By:____________________________ Commercial Centre, Jolly Harbour
St. Mary's, Antigua and Barbuda
Name: Grant Johnson Email: grant@esportsentertainmentgroup.com
Title: Chief Executive Officer
With a copy to (which shall not constitute notice):
William T. Hart
Hart & Hart, LLC
1624 N. Washington Street
Denver, CO 80203
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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PURCHASER SIGNATURE PAGES TO OBMP SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: ____________________________________________________________
Signature of Authorized Signatory of Purchaser: _______________________________
Name of Authorized Signatory: _________________________________________________
Title of Authorized Signatory: ________________________________________________
Email Address of Authorized Signatory: ________________________________________
Facsimile Number of Authorized Signatory: _____________________________________
Address for Notice to Purchaser: ______________________________________________
Address for Delivery of Securities to Purchaser (if not same as address for
notice):
Subscription Amount: $_________________
Warrant Shares: __________________
Additional Subscription Amount: $_________________
Additional Warrant Shares: __________________
EIN Number: _______________________
45