UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2015. |
¨ | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . |
Commission file number: 000-28311
SIBLING GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS | 76-0270334 |
(State or other jurisdiction of | (IRS Employer |
215 Morris Street, Suite 205, Durham, NC 27701 |
(Address of Principal Executive Office) (Zip Code) |
(919) 237-2755 |
(Registrants telephone number, including area code) |
|
(Former name, former address, and former fiscal year if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ¨ Yes þ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ |
|
| Accelerated filer | ¨ |
|
Non-accelerated filer | ¨ |
|
| Smaller reporting company | þ |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 202,509,293 shares of common stock are outstanding as of June 25, 2015.
TABLE OF CONTENTS
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| Page |
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| PART I. FINANCIAL INFORMATION |
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FINANCIAL STATEMENTS | 1 | |
| Condensed Consolidated Balance Sheets as of March 31, 2015 (unaudited) and June 30, 2014 | 1 |
| Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2015 and 2014 (unaudited) | 2 |
| Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2015 and 2014 (unaudited) | 3 |
| Condensed Consolidated Statement of Stockholder Deficit for the period July 1, 2014 through March 31, 2015 | 5 |
| Notes to Unaudited Condensed Consolidated Financial Statements | 6 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 19 | |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 23 | |
CONTROLS AND PROCEDURES | 24 | |
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| PART II. OTHER INFORMATION |
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LEGAL PROCEEDINGS | 25 | |
RISK FACTORS | 25 | |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 25 | |
DEFAULTS UPON SENIOR SECURITIES | 25 | |
MINE SAFETY DISCLOSURES | 25 | |
OTHER INFORMATION | 26 | |
EXHIBITS | 26 | |
| SIGNATURES | 27 |
i
INTRODUCTORY NOTES
This Report on Form 10-Q for Sibling Group Holdings, Inc. (SIBE or the Company) may contain forward-looking statements. You can identify these statements by forward-looking words such as may, will, expect, intend, anticipate, believe, estimate and continue or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under Risk Factors in our Transition Report on Form 10-K for the six months ended June 30, 2014 and year ended December 31, 2013 and other periodic reports filed with the Securities and Exchange Commission (SEC). Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that SIBEs actual financial condition, operating results and business performance may differ materially from that projected or estimated in such forward-looking statements.
The information contained in this report, except as specifically dated, is as of March 31, 2015.
ii
PART I. FINANCIAL INFORMATION
ITEM 1.
Condensed Consolidated Balance Sheets
|
| March 31, 2015 |
|
| June 30, 2014 |
| ||
|
| (Unaudited) |
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| ||
ASSETS |
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| ||
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|
| ||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 1,948,237 |
|
| $ | 27,250 |
|
Accounts receivable |
|
| 39,742 |
|
|
| 77,356 |
|
Due from Affiliates |
|
| 22,999 |
|
|
| |
|
Prepaid expenses |
|
| 235,295 |
|
|
| 202,363 |
|
Total current assets |
|
| 2,246,273 |
|
|
| 306,969 |
|
|
|
|
|
|
|
|
|
|
Fixed Assets, net |
|
| 3,943 |
|
|
| |
|
Investment in Measurement Planet |
|
| 5,000 |
|
|
| |
|
Intangible assets, net |
|
| 1,430,242 |
|
|
| 1,225,461 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 3,685,458 |
|
| $ | 1,532,430 |
|
|
|
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|
|
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|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
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Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 1,821,976 |
|
| $ | 1,127,649 |
|
Accrued liabilities |
|
| 180,789 |
|
|
| 231,322 |
|
Deferred revenue |
|
| 640,264 |
|
|
| 634,643 |
|
Line of credit |
|
| |
|
|
| 100,000 |
|
Short-term notes payable |
|
| 137,500 |
|
|
| 37,500 |
|
Due to related party |
|
| 98,135 |
|
|
| |
|
Due to shareholders |
|
| 36,900 |
|
|
| |
|
Total current liabilities |
|
| 2,915,564 |
|
|
| 2,131,114 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9) |
|
|
|
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|
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|
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Stockholders' deficit |
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 500,000 shares issued and outstanding |
|
| 962,000 |
|
|
| |
|
Convertible series common stock, $0.0001 par value; 10,000,000 shares authorized; none issued or outstanding |
|
| |
|
|
| |
|
Common stock, $0.0001 par value; 500,000,000 shares authorized; 121,590,441 and 41,518,251 issued and outstanding at March 31, 2015 and June 30, 2014, respectively |
|
| 12,159 |
|
|
| 4,152 |
|
Additional paid-in capital |
|
| 13,700,566 |
|
|
| 8,016,481 |
|
Accumulated deficit |
|
| (13,904,831 | ) |
|
| (8,619,317 | ) |
Total stockholders' deficit |
|
| 769,894 |
|
|
| (598,684 | ) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit |
| $ | 3,685,458 |
|
| $ | 1,532,430 |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
Condensed Consolidated Statements of Operations
(Unaudited)
|
| Three months ended March 31, |
|
| Nine months ended March 31, |
| ||||||||||
|
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 601,363 |
|
| $ | |
|
| $ | 1,701,497 |
|
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| 846,846 |
|
|
| |
|
|
| 1,255,950 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Gross profit (loss) |
|
| (245,483 | ) |
|
| |
|
|
| 445,547 |
|
|
| |
|
|
|
|
|
|
|
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|
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Operating expenses |
|
|
|
|
|
|
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|
|
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|
|
|
|
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General and administrative |
|
| 463,991 |
|
|
| 140,472 |
|
|
| 2,340,895 |
|
|
| 145,075 |
|
Professional fees |
|
| 245,889 |
|
|
| 458,329 |
|
|
| 1,130,461 |
|
|
| 1,234,966 |
|
Total operating expenses |
|
| 709,880 |
|
|
| 598,801 |
|
|
| 3,471,356 |
|
|
| 1,380,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (955,363 | ) |
|
| (598,801 | ) |
|
| (3,025,809 | ) |
|
| (1,380,041 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
| 60,414 |
|
|
| |
|
|
| (199,023 | ) |
|
| |
|
Interest income (expense) |
|
| (107,029 | ) |
|
| (13,448 | ) |
|
| (202,212 | ) |
|
| (15,848 | ) |
Impairment of Urban Planet assets acquired |
|
| (1,722,408 | ) |
|
|
|
|
|
| (1,722,408 | ) |
|
|
|
|
Gain (loss) on debt settlement |
|
| 15,109 |
|
|
|
|
|
|
| (136,062 | ) |
|
| |
|
Total other income (expense) |
|
| (1,753,914 | ) |
|
| (13,448 | ) |
|
| (2,259,705 | ) |
|
| (15,848 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (2,709,277 | ) |
| $ | (612,249 | ) |
| $ | (5,285,514 | ) |
| $ | (1,395,889 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
| $ | (0.04 | ) |
| $ | (0.02 | ) |
| $ | (0.09 | ) |
| $ | (0.05 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted |
|
| 75,180,353 |
|
|
| 35,369,071 |
|
|
| 55,714,103 |
|
|
| 27,410,445 |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Nine months ended March 31, |
| |||||
|
| 2015 |
|
| 2014 |
| ||
|
|
|
|
|
|
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (5,285,514 | ) |
| $ | (1,395,889 | ) |
Adjustments to reconcile net loss to net cash (used in) operating activities |
|
|
|
|
|
|
|
|
Common stock issued for directors/board committee fees |
|
| 97,200 |
|
|
| 458,700 |
|
Common stock issued for financing |
|
| 31,145 |
|
|
| |
|
Common stock issued for services |
|
| 967,087 |
|
|
| 789,865 |
|
Common stock issued for compensation |
|
| 604,800 |
|
|
| |
|
Common stock issued for rent |
|
| |
|
|
| 15,000 |
|
Impairment of Urban Planet intangibles |
|
| 1,722,408 |
|
|
| |
|
Beneficial conversion feature rights |
|
| 85,259 |
|
|
| |
|
Amortization of intangibles and debt discount |
|
| 397,410 |
|
|
| |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 91,061 |
|
|
| |
|
Due from affiliates |
|
| 1,069 |
|
|
| |
|
Accounts payable |
|
| 434,572 |
|
|
| 22,253 |
|
Accrued liabilities |
|
| (189,510 | ) |
|
| 37,209 |
|
Deferred revenue |
|
| (25,721 | ) |
|
| |
|
Prepaid expenses |
|
| (31,070 | ) |
|
| (6,244 | ) |
Net cash (used in) operating activities |
|
| (1,099,804 | ) |
|
| (79,106 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Cash acquired from Urban Planet acquisition |
|
| 29,756 |
|
|
| |
|
Net cash provided by investing activities |
|
| 29,756 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by (used in) financing activities |
|
|
|
|
|
|
|
|
Sale of common stock, net |
|
| 2,881,000 |
|
|
| 50,000 |
|
Due to related party |
|
| 98,135 |
|
|
| 25,633 |
|
Due to shareholders |
|
| 36,900 |
|
|
| |
|
Proceeds of notes payable |
|
| 250,000 |
|
|
| |
|
Repayment of convertible note |
|
| (275,000 | ) |
|
| |
|
Proceeds of short term notes payable |
|
| 100,000 |
|
|
| |
|
Repayment of line of credit |
|
| (100,000 | ) |
|
| |
|
Net cash provided by financing activities |
|
| 2,991,035 |
|
|
| 75,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash |
| $ | 1,920,987 |
|
| $ | (3,473 | ) |
Cash, beginning of period |
|
| 27,250 |
|
|
| 4,642 |
|
Cash, end of period |
| $ | 1,948,237 |
|
| $ | 1,169 |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
SIBLING GROUP HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
|
| Nine months ended March 31, |
| |||||
|
| 2015 |
|
| 2014 |
| ||
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 98,411 |
|
| $ | |
|
Cash paid for income taxes |
| $ | |
|
| $ | |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash operating and financing activities |
|
|
|
|
|
|
|
|
Common stock issued for settlement of note payable |
| $ | |
|
| $ | 35,000 |
|
Common stock issued for settlement of accounts payable |
| $ | 15,499 |
|
| $ | 82,587 |
|
Common stock issued for settlement of accrued interest payable |
| $ | |
|
| $ | 13,500 |
|
Common stock issued for prepaid expenses |
| $ | |
|
| $ | 1,725 |
|
Common stock issued for settlement of related party payable |
| $ | |
|
| $ | 84,908 |
|
Common stock issued for purchase of intangible asset |
| $ | |
|
| $ | 64,000 |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
Condensed Consolidated Statement of Stockholders Deficit
For the Period July1, 2014 through March 31, 2015
(Unaudited)
|
| Series A |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| ||||||||||
|
| Preferred |
|
| Common |
|
| Paid-In |
|
| Accumulated |
|
|
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||||
Balance at June 30, 2014 |
|
|
|
|
|
|
| $ | 41,518,251 |
|
| $ | 4,152 |
|
| $ | 8,016,481 |
|
| $ | (8,619,317 | ) |
| $ | (598,684 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of common stock for services |
|
| |
|
|
| |
|
|
| 9,148,531 |
|
|
| 915 |
|
|
| 966,172 |
|
|
| |
|
|
| 967,087 |
|
Issuance of common stock for Directors'/Board Committee fees |
|
| |
|
|
| |
|
|
| 900,000 |
|
|
| 90 |
|
|
| 97,110 |
|
|
| |
|
|
| 97,200 |
|
Issuances of common stock for compensation |
|
| |
|
|
| |
|
|
| 4,200,000 |
|
|
| 420 |
|
|
| 604,380 |
|
|
| |
|
|
| 604,800 |
|
Issuance of common stock for accounts payable |
|
| |
|
|
| |
|
|
| 120,043 |
|
|
| 12 |
|
|
| 15,488 |
|
|
| |
|
|
| 15,500 |
|
Issuance of common stock for financing and fees |
|
| |
|
|
| |
|
|
| 203,616 |
|
|
| 20 |
|
|
| 31,125 |
|
|
| |
|
|
| 31,145 |
|
Issuances of common stock for cash |
|
| |
|
|
| |
|
|
| 1,428,571 |
|
|
| 143 |
|
|
| 99,857 |
|
|
| |
|
|
| 100,000 |
|
Issuances of common stock for cash |
|
| |
|
|
| |
|
|
| 53,571,429 |
|
|
| 5,357 |
|
|
| 2,775,643 |
|
|
| |
|
|
| 2,781,000 |
|
Issuance of equity for Urban Planet acquisition |
|
| 500,000 |
|
|
| 962,000 |
|
|
| 10,500,000 |
|
|
| 1,050 |
|
|
| 1,009,050 |
|
|
| |
|
|
| 1,972,100 |
|
Beneficial conversion feature on debt raise |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| 85,259 |
|
|
| |
|
|
| 85,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, period ended March 31, 2015 |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| (5,285,514 | ) |
|
| (5,285,514 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015 |
|
| 500,000 |
|
| $ | 962,000 |
|
|
| 121,590,441 |
|
| $ | 12,159 |
|
| $ | 13,700,566 |
|
| $ | (13,904,831 | ) |
| $ | 769,894 |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
5
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
Note 1 - Nature of Operations and Basis of Presentation
Organization
Sibling Group Holdings, Inc. (SIBE or the Company) was incorporated under the laws of the State of Texas on December 28, 1988, as "Houston Produce Corporation". On June 24, 1997, the Company changed its name to "Net Masters Consultants, Inc." On November 27, 2002, the Company changed its name to "Sona Development Corporation" in an effort to restructure the business image to attract prospective business opportunities. The Company name changed on May 14, 2007 to "Sibling Entertainment Group Holdings, Inc." and on August 15, 2012, the Company name was changed to "Sibling Group Holdings, Inc."
BlendedSchools.Net
As of May 30, 2014, the Company completed the acquisition of the assets of BlendedSchools.Net (Blended Schools) for a purchase price of $550,000, which included the assumption of $446,187 of Blended Schools debt and cash payments totaling $103,813. In addition, the Company agreed to pay certain other debts of Blended Schools as provided for in the asset purchase agreement.
Blended Schools provides online curriculum with 192 master courses for the K-12 marketplace, all Common Core compatible; a complete hosted course authoring and learning management system environment featuring both Blackboard and Canvas; and the new Language Institute, with online courses in Arabic, Chinese, Spanish, French, Japanese, Latin, Russian, German and Hindi, all oriented to meet todays ESL requirements.
Urban Planet Media & Entertainment, Corp.
On January 28, 2015, the Company entered into a share exchange agreement (the Share Exchange Agreement) with Urban Planet Media & Entertainment, Corp. (Urban Planet) and its shareholders pursuant to which the Company issued 10,500,000 shares of its common stock, $0.0001 par value, and 500,000 shares of its Series A convertible preferred stock to the shareholders of Urban Planet in exchange for all of the issued and outstanding shares of Urban Planet.
Each share of preferred stock issued to the former Urban Planet shareholders is convertible by the holder (1) at any time after 24 months after the original issue date or (2) at any time after delivery of notice by the Company of the occurrence of certain conversion events set forth in the certificate of designation establishing the preferred stock into that number of shares of common stock determined by dividing the stated value of such shares of preferred stock, which is $10.00 per preferred share, by the conversion price. The conversion price of the preferred stock is $0.50, subject to adjustment as stated in the certificate of designation.
Urban Planet is a mobile media company providing content and solutions in the education, healthcare and literary markets.
Shenzhen City Qianhai Xinshi Education Management Co., Ltd.
During the quarter ended March 31, 2015, the Company received a strategic investment from Shenzhen City Qianhai Xinshi Education Management Co., Ltd., a company based and operating in the Peoples Republic of China (Shenzhen). The strategic investment was provided to accelerate the Companys growth and expansion into critical strategic markets around the world, including China.
6
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
Effective on February 27, 2015, the Company entered into a Securities Purchase Agreement (the Securities Purchase Agreement) with Shenzhen and certain accredited and institutional investors (together with Shenzhen, the Investors). Pursuant to the Securities Purchase Agreement, the Investors purchased an aggregate of 53,571,429 Units (each, a Unit) for an aggregate cash raise of $3,250,000. Costs directly attributed to this equity raise aggregated to $469,000. Included in the aforementioned were 7,142,857 units issued in lieu of a $500,000 payment for fees attributed to this equity raise. Each Unit consists of: (1) a share of the Companys common stock; (2) a warrant giving each of the Investors the right to purchase one additional share of common stock for each share owned at any time and from time to time for a period of five years at an exercise price of $0.07 per share (each, an A Warrant); (3) a warrant giving each of the Investors the right to purchase one additional share of common stock for each share owned at any time and from time to time for a period of one year following the effectiveness of a registration statement covering the resale of the total number of shares of common stock acquired by the Investors in the transaction at an exercise price equal to the five-day volume weighted average price immediately preceding the exercise date (each, a B Warrant); and (4) only as part of and in connection with the purchase of the shares underlying the B Warrants (the B Warrant Shares), a warrant giving each of the Investors the right to purchase 0.50 shares of common stock for each B Warrant Share purchased by such Investors at any time and from time to time for a period of five years at an exercise price equal to the purchase price of the B Warrant Shares (each, an Additional Warrant and together with the A Warrants and the B Warrants, the Warrants). The exercise prices of the Warrants may be reduced if the Company issues additional shares of common stock or securities convertible into common stock at a price lower than the Warrant exercise prices for so long as the Warrants remain outstanding. If all shares underlying all Warrants are ultimately issued, the Company will issue an aggregate of 187,500,001 shares of common stock pursuant to the Securities Purchase Agreement for additional proceeds.
On April 6, 2015, Shenzhen exercised the A Warrants in full and a portion of the B Warrants resulting in an additional 72,857,143 shares of common stock being issued to Shenzhen in exchange for an aggregate purchase price of $5,526,966. Pursuant to the terms of the Securities Purchase Agreement, 42,857,143 of the shares received upon issuance of the A Warrants were issued at a price per share of $0.07. The remaining 30,000,000 shares received upon the partial exercise of the B Warrants were issued at a price per share of $0.0842322, which is equivalent to the volume weighted average price for the Companys common stock for the five trading days preceding April 6, 2015, the date of exercise.
As a result of the exercise of the B Warrants and pursuant to the terms of the B Warrants, the Company issued Shenzhen Additional Warrants to purchase an aggregate of 15,000,000 shares of the Companys common stock at any time and from time to time for a period of five years from the date of the Additional Warrants at an exercise price per share equal to $0.0842322, the purchase price of the shares issued pursuant to the B Warrants.
Following the exercise of the Warrants, Shenzhen holds 115,714,286 shares of the Companys common stock, or 57.14% of the Companys total issued and outstanding shares of common stock as of June 25, 2015.
Pursuant to the terms of the remaining Warrants, Shenzhen has the potential to purchase up to an additional 34,285,714 shares of the Companys common stock. If all shares underlying all Warrants held by Shenzhen are ultimately issued to Shenzhen, Shenzhen will hold an aggregate of 150,000,000 shares of the Companys common stock. Of Shenzhens remaining Warrants, 15,000,000 are exercisable at $0.0842322 per share, which would result in an additional $1,263,483 in proceeds to the Company. Because the purchase price of the remaining 19,285,714 shares that Shenzhen has the right to acquire pursuant to its Warrants is dependent on the price of the Companys common stock if and when such Warrants are exercised, the Company is unable to calculate the gross proceeds that would be received upon exercise of such Warrants.
7
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
Note 2 - Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. During 2014, the Company changed its fiscal financial reporting year end from December 31 to be June 30, which represents the operating year ends of its current business.
(b) Going Concern
The financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has limited revenues, has a working capital deficit of $669,292 and incurred a loss of $5,285,514 for the recent nine months ended March 31, 2015. However, in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, the Company believes the substantial doubt has been alleviated. Although the Company continues to have limited revenues, the $2,881,000 of capital raised during the quarter ended March 31, 2015, and the $5,285,514 in the quarter ending June 30, 2015 (discussed in Note 10 - Subsequent Events), provide assurance of the Companys ability to meet its obligations during the future.
(c) Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities, derivative liabilities, debt discounts, valuation of intangibles acquired in our acquisition, impairment of intangibles and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(d) Allowance for Doubtful Accounts
Accounts receivables are recorded at their estimated collectible amounts. Management evaluates the collectability of its receivables periodically, largely based on the historical trends with the customer as well as current financial information available. If it is deemed appropriate an allowance is recorded as an expense in the current period. As of March 31, 2015 and June 30, 2014, the Company recorded $3,926, and $0, respectively, in allowance for doubtful accounts.
(e) Intangibles
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the quarter ended March 31, 2015, the Company recorded an impairment charge of $1,722,408.
8
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
(f) Capitalized Software Costs
The Company develops software for internal use. Software development costs incurred during the application development stage are capitalized in accordance with FASB Accounting Standards Codification (ASC), ASC 350, Intangibles Goodwill and Other. The Company amortizes these costs over the estimated useful life of the software, which is generally three years. Capitalized software development costs are stated at cost less accumulated amortization. The Company did not capitalize any internally developed software or content costs during either nine-month period ended March 31, 2015 or 2014.
(g) Investments
The Company holds a minority interest investment that is accounted for as a cost method investment.
(h) Revenue Recognition
The Company typically will receive in full or a large prepayment on account for the use of its Blended School courses for the successive K-12 school year commencing on July 1, as well as smaller prepayments for its Urban Planet Writing Planet contracts. Revenues are amortized ratably over the contract term with the customer, typically over twelve months. Deferred revenues represents customer prepayments on account for the subscribed software and course content.
(i) Income Taxes
The Company utilizes FASB ASC 740, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax bases of assets and liabilities, and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. The Companys recent equity raises and possibly past restructuring events have resulted in the occurrence of a triggering event as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which could limit the use of the Companys net operating loss carryforwards. The Company has yet to undertake a study to quantify any limitations on the use of its net operating loss carryforwards.
(j) Financial Instruments
In accordance with the requirements of FASB ASC 820, Financial Instruments, Disclosures about Fair Value of Financial Instruments, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The carrying values of cash, accounts payable, and amounts due to related parties approximate fair values due to the short-term maturity of the instruments.
Certain assets and liabilities that are measured at fair value on a recurring basis are measured in accordance with FASB ASC Topic 820-10-05. Fair Value Measurements (Topic 820-10-05). Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements.
Topic 820-10-05 requires fair value measurement be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
9
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Items subject to the Level 3 unobservable inputs is the $5,000 minority investment.
(k) Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with FASB ASC 718, Compensation Stock Compensation (ASC 718). Under the provisions of ASC 718, stock-based compensation cost is estimated at the grant date based on the awards fair value as calculated by the Black-Scholes-Merton (BSM) option-pricing model and/or market price of conversion shares, and is recognized as expense over the requisite service period. The BSM model requires various highly judgmental assumptions including volatility and expected option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience. Further, if the extent of the Companys actual forfeiture rate is different from the estimate, then the stock-based compensation expense is adjusted accordingly.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 505-50 Equity Based Payments to Non-Employees (ASC 505-50). Costs are measured at the estimated fair market value of the consideration received, or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
(l) Loss per Share
The Company computes loss per share in accordance with FASB ASC 260, Earnings Per Share (ASC 260), which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. ASC 260 requires companies that have multiple classes of equity securities to use the two-class of if converted method in computing earnings per share. The Company computes loss per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period. The Company has excluded all common equivalent shares outstanding for warrants to purchase common stock from the calculation of diluted net loss per share because all such securities are antidilutive for the periods presented. As of March 31, 2015 and 2014, there were common stock equivalents outstanding of 100,428,572 and 0, respectively.
10
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
(m) Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. The amendments in ASU 2014-15 provide guidance about managements responsibility to evaluate whether there is a substantial doubt about an entitys ability to continue as a going concern or to provide related footnote disclosures. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entitys ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt; (2) require an evaluation every reporting period including interim periods; (3) provide principles for considering the mitigating effect of managements plans; (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of managements plans; (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in ASU 2014-15 are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted.
In June 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. ASU 2014-09, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, ASC 2014-09 would supersede some cost guidance included in ASC Subtopic 605-35, Revenue Recognition Construction-Type and Production-Type Contracts. ASC 2014-09 removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, ASC 2014-09 improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASC 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently reviewing the provisions of ASU 2014-09 to determine if there will be any impact on the Companys results of operations, cash flows or financial condition.
In June 2014, the FASB issued ASU No. 2014-12, Compensation Stock Compensation (Topic 718); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12). The amendments in ASU 2014-12 apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities.
Entities may apply the amendments in ASU 2014-12 either (1) prospectively to all awards granted or modified after the effective date or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying ASU 2014-12 as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. ASU 2014-12 is not expected to have a material impact on our results of operations, cash flows or financial condition.
All other new accounting pronouncements issued but not yet effective or adopted have been deemed to be not relevant to the Company and, accordingly, are not expected to have a material impact once adopted.
11
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
Note 3 Acquisition Activity
The Company completed the acquisition of two internet properties, ClassChatter.com and ClassChatterLive.com, as of May 31, 2013, (both referred to as ClassChatter). Both had been developed by an individual with a background in STEM and Blended Learning educational technology. The websites are expected to become the base modules for a full, end-to-end solution for e-learning through the addition of applications that use the classroom membership such as grade books, behavior monitoring, class interaction and course interaction. The total consideration paid to the seller was the issuance of 319,905 shares of common stock, which has been fair valued at $58,000. The seller has been retained as a consultant and is expected to continue the development on a part-time basis.
During the period ended September 30, 2013, we completed the acquisition of the assets and operations of PLC Consultants, LLC (PLC Consultants), a business focused on special education training and certification, primarily for education professionals in the K-12 area. The Company issued 300,000 shares of common stock to the seller as consideration, which has been fair valued at $24,000. The Company has retained one of the founders under a consulting agreement, and increased the scope of responsibility to include (1) an expanded special education course library, and (2) a similar library addressing the training needs of teaching professionals in other specialized curriculum.
On February 1, 2014, the Company completed the purchase of the assets of DWSaba Consulting, LLC (DWSaba Consulting) for 800,000 shares of common stock valued at $0.05 per share for total consideration of $40,000. The acquisition gave the Company access to the AcceleratingED.com website, newsletter, extensive contacts in education, as well as access to the education marketing and sales tools developed by DWSaba Consulting.
As of May 30, 2014, the Company completed the acquisition of the assets of Blended Schools for a purchase price of $550,000, which included the assumption of $446,187 of Blended Schools debt and cash payments totaling $103,813. In addition, the Company agreed to pay certain other debts of Blended Schools as provided for in the asset purchase agreement. Blended Schools provides online curriculum with 192 master courses for the K-12 marketplace, all Common Core compatible; a complete hosted course authoring and learning management system environment featuring both Blackboard and Canvas; and the new Language Institute, with online courses in Arabic, Chinese, Spanish, French, Japanese, Latin, Russian, German and Hindi, all oriented to meet todays ESL requirements.
The identified assets and liabilities acquired in the Blended Schools acquisition as of May 30, 2014 are as follows:
Fair Value of Assets Acquired: |
|
|
| |
Accounts Receivable |
| $ | 121,810 |
|
Prepaid Expenses |
|
| 24,946 |
|
Software and content |
|
| 1,187,534 |
|
Liabilities Assumed: |
|
|
|
|
Accounts Payable |
|
| (284,891 | ) |
Bank Line of Credit |
|
| (100,000 | ) |
Deferred Revenue customer prepayments |
|
| (784,291 | ) |
Other Accrued Liabilities |
|
| (61,295 | ) |
|
|
|
|
|
Cash Paid to Seller post closing |
| $ | 103,813 |
|
|
|
|
|
|
Cash Paid to Seller post closing |
| $ | 103,813 |
|
Liabilities Assumed |
|
| 446,187 |
|
|
|
|
|
|
Total Purchase Price |
| $ | 550,000 |
|
12
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
On January 28, 2015, the Company entered into the Share Exchange Agreement with Urban Planet and its shareholders pursuant to which the Company issued up to 10,500,000 shares of its common stock, and 500,000 shares of its Series A convertible preferred stock to the shareholders of Urban Planet in exchange for all of the issued and outstanding shares of Urban Planet.
The identified assets and liabilities acquired for the issuance of equity in the Urban Planet acquisition as of January 28, 2015 are as follows:
Fair Value of Assets Acquired: |
|
|
| |
Cash |
| $ | 29,756 |
|
Accounts Receivable |
|
| 53,447 |
|
Prepaid Expenses |
|
| 1,862 |
|
Other Current Assets |
|
| 24,068 |
|
Fixed Assets |
|
| 3,967 |
|
Software and content |
|
| 577,167 |
|
Other Assets |
|
| 5,000 |
|
Liabilities Assumed: |
|
|
|
|
Accounts Payable |
|
| (259,755 | ) |
Deferred Revenue |
|
| (31,342 | ) |
Other Accrued Liabilities |
|
| (154,478 | ) |
Net Value |
| $ | 249,692 |
|
Each share of preferred stock issued to the former Urban Planet shareholders is convertible by the holder (i) at any time after 24 months after the original issue date or (ii) at any time after delivery of notice by the Company of the occurrence of certain conversion events set forth in the certificate of designation establishing the preferred stock into that number of shares of common stock determined by dividing the stated value of such shares of preferred stock, which is $10.00 per preferred share, by the conversion price. The conversion price of the preferred stock is $0.50, subject to adjustment as stated in the certificate of designation.
Urban Planet is a mobile media company providing content and solutions in the education, healthcare and literary markets.
The Company has written down the value of the investment in Urban Planet using industry information from an independent third-party appraiser to two times revenue reported by Urban Planet for calendar year 2014, or $249,692. The resulting loss of $1,722,408 is reported as Impairment of UPM assets acquired in the Condensed Consolidated Statements of Operations filed as part of this quarterly report on Form 10-Q.
The Company implemented certain cost-savings initiatives in an effort to offset the write-down, including a reduction in personnel and termination of the Companys office lease in North Carolina, resulting in annualized savings of $329,104.
The consolidated unaudited pro-forma results of operations of the Company as if Urban Planet and Blended Schools had been acquired as of July 1, 2013 are as follows:
|
| Nine months Ended March 31, |
| |||||
|
| 2015 |
|
| 2014 |
| ||
Revenues |
| $ | 2,019,676 |
|
| $ | 576,837 |
|
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | (5,666,133 | ) |
| $ | (1,865,200 | ) |
13
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
Note 4 Intangible Assets
Intangible assets are comprised of software and content from the following acquisitions:
|
| March 31, 2015 |
|
| June 30, 2014 |
| ||
ClassChatter |
| $ | 58,000 |
|
| $ | 58,000 |
|
PLC Consultants |
|
| 24,000 |
|
|
| 24,000 |
|
DWSaba Consulting |
|
| 40,000 |
|
|
| 40,000 |
|
Blended Schools |
|
| 1,187,534 |
|
|
| 1,187,534 |
|
Urban Planet |
|
| 577,167 |
|
|
| 0 |
|
Total |
|
| 1,886,701 |
|
|
| 1,309,534 |
|
Less accumulated amortization |
|
| (456,459 | ) |
|
| (84,073 | ) |
Net |
| $ | 1,430,242 |
|
| $ | 1,225,461 |
|
The intangibles are being amortized over a one to five year period, with the exception of Urban Planets 333 Words in the amount of $225,145, which has not been released to the market yet.
Note 5 Accrued Liabilities
Accrued liabilities consist of the following:
|
| March 31, 2015 |
|
| June 30, 2014 |
| ||
Accrued benefits & payroll taxes |
| $ | 2,577 |
|
| $ | 26,659 |
|
Accrued compensation |
|
| 126,433 |
|
|
| 68,080 |
|
Accrued interest |
|
| 30,679 |
|
|
| 22,641 |
|
Accrued miscellaneous |
|
| 21,100 |
|
|
| 67,581 |
|
Accrued professional fees |
|
| 0 |
|
|
| 38,361 |
|
Liabilities to be settled in stock |
|
| 0 |
|
|
| 8,000 |
|
|
| $ | 180,789 |
|
| $ | 231,322 |
|
Note 6 - Short-Term Notes Payable, Due to Shareholders and Due to Related Party
Short term notes payable, due to shareholders and due to related party consists of the following:
|
| March 31, 2015 |
|
| June 30, 2014 |
| ||
Short term note (a) |
| $ | 107,500 |
|
| $ | 7,500 |
|
Due to shareholders and related party (b) |
|
| 135,035 |
|
|
| |
|
Outstanding debenture in default (c) |
|
| 30,000 |
|
|
| 30,000 |
|
Total short term notes payable due to shareholder and due to related party |
| $ | 272,535 |
|
| $ | 37,500 |
|
(a)
At March 31, 2015 and June 30, 2014 the Company had a note payable balance of $107,500 and $7,500, respectively. This represents short term notes with annual interest rates ranging from 4.5% to 12%. At March 31, 2015 and June 30, 2014, these notes had accrued interest in the amount of $1,349 and $516, respectively.
(b)
On November 26, 2014, the Company issued a promissory note payable to a related party, Dave Saba, in the amount of $10,000. The note is payable on June 1, 2015, with an interest rate of 1.25% per month. At March 31, 2015, the note had accrued interest in the amount of $500.
14
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
Advances and loans from shareholders total $36,900 for the Company and $57,542 for Urban Planet.
Due to related party consists of amounts due to Measurement Planet, an Urban Planet joint venture, in the amount of $30,593.
(c)
On December 30, 2010, the Company entered into conversion agreements with all but one of the holders of the Series AA debentures previously issued by the Company and held on that date. Pursuant to the conversion agreements, the holders accepted a total of 1,039,985 shares of convertible series common stock and 100% of the membership interests of a new, wholly-owned subsidiary of the Company, Debt Resolution, LLC, in full settlement of their debentures, underlying warrants and accrued interest as of that date. The conversion agreements released all claims that 43 of the holders of the debentures had, have, or might have against SIBE. Following this transaction, the Company now has a debenture balance of $30,000 and accrued interest of $25,500 and $22,125 as of March 31, 2015 and June 30, 2014, respectively, which is in default.
Note 7 Convertible Notes Payable
On December 5, 2014, the Company issued an 8% Convertible Promissory Note in the aggregate principal amount of $275,000 (the Note) to FireRock Capital, Inc., an unrelated third party. On March 9, 2015, the Company paid off the Note for a total prepayment amount equal to $351,133, which includes the principal amount due ($275,000), a prepayment amount ($68,750) and accrued and unpaid interest at the rate of 8% per annum ($7,383). The Company recorded a beneficial conversion right in the amount of $85,259 attributed to the conversion rights on this debt.
Note 8 - Capital Stock
On December 30, 2010, the Board of Directors approved a new series of common stock to effect the settlement of the Companys Series AA debentures and related debt. As a result, the 100,000,000 authorized shares of common stock on that date were divided into 10,000,000 shares of series common stock (Series Common Stock) and 90,000,000 shares of common stock (Common Stock).
In 2012, the Companys shareholders approved the Amended and Restated Certificate of Incorporation authorizing 510,000,000 shares of capital stock, 500,000,000 of which are designated as common stock and 10,000,000 of which are designated as preferred stock. The shareholders also approved the conversion of the series common stock to common stock at a ratio of 151.127 shares of common stock for each share of series common stock and a reverse split of the common stock at a ratio of 100 to 1. As a result of the conversion, all of the Companys outstanding shares of series common stock were converted into 14,827,161 shares of common stock.
On January 29, 2015, the Board of Directors approved a series of 500,000 shares of Series A convertible preferred stock for issuance in connection with the Urban Planet share exchange, and filed the Certificate of Designation of Powers, Preferences and Rights of Series A Convertible Preferred Stock with the Secretary of State of Texas. Each share of Series A preferred stock shall have a par value of $0.0001 per share and a stated value equal to $10.00.
Common Stock
During the nine months ended March 31, 2015, the Company issued the following shares of Common Stock:
The Company issued 1,613,056 shares of common stock pursuant to consulting and services agreements. The stock issued was fair valued at prices ranging from $.12 to $.18 per share for a total fair value of $210,400.
The Company issued 900,000 shares of common stock in accordance with the Companys Board of Directors compensation policy and for the services of a Board appointed committee. The stock issued was fair valued at $.144 per share for a total fair value of $129,600, which will be expensed quarterly during the year ended June 30, 2015.
15
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
The Company issued 4,200,000 shares of common stock for compensation to officers and employees. The stock issued was fair valued at $.144 per share for a total fair value of $604,800.
The Company issued 8,333 shares of common stock in conversion of outstanding debts. The stock issued was fair valued at $.12 per share for a total value of $1,000.
The Company issued 2,478,333 shares of common stock pursuant to consulting and services agreements. The stock issued was fair valued at prices ranging from $.125 to $.20 per share for a total value of $387,087.
The Company issued 125,000 shares of common stock in connection with a private placement financing. The stock issued was fair valued at $.149 per share for a total value of $18,645.
The Company issued 111,710 shares of common stock in conversion of outstanding debts. The stock issued was fair valued at $.1298 per share for a total value of $14,500.
The Company issued 5,057,143 shares of common stock pursuant to consulting and services agreements. The stock issued was fair valued at prices ranging from $.07 to $.096 per share for a total value of $369,600.
The Company sold 53,571,429 units, which consisted of 53,571,429 shares of common stock and 99,000,001 warrants exercisable at varying exercise prices. The stock sold was at $.07 per share for proceeds of $3,250,000. There were no stipulations, conditions or requirements under the sale. Exclusive of shares and warrants issued in lieu of fees, the costs of this equity raise was $469,000.
The Company sold 1,428,571 units, which consisted of 1,428,571 shares of common stock and 1,428,571 warrants exercisable at $0.10 a share. The stock sold was at $.07 per share for proceeds of $100,000. There were no stipulations, conditions or requirements under the sale.
The Company issued 78,616 shares of common stock pursuant to an advisory fee agreement in connection with a private placement financing agreement. The stock issued was fair valued at $.159 per share for a total value of $12,500.
The Company issued 10,500,000 shares of its common stock pursuant to the Share Exchange Agreement with Urban Planet. The stock issued was fair valued at $.0962 per share for a total value of $1,010,100.
Preferred Stock
The Company issued 500,000 shares of its preferred stock pursuant to the Share Exchange Agreement with Urban Planet. Each share of preferred stock issued to the former Urban Planet shareholders is convertible by the holder (1) at any time after 24 months after the original issue date or (2) at any time after delivery of notice by the Company of the occurrence of certain conversion events set forth in the certificate of designation establishing the preferred stock into that number of shares of common stock determined by dividing the stated value of such shares of preferred stock, which is $10.00 per preferred share, by the conversion price. The conversion price of the preferred stock is $0.50, subject to adjustment as stated in the certificate of designation. The shares were fair valued at $.0962 per share, calculated at the conversion rate of 20 shares of common stock for each share of preferred converted. The total estimated fair value of the preferred stock issued was $962,000 based on an as converted basis for the acquisition of Urban Planet.
16
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
Warrants
The Companys outstanding warrant schedule consists of the following:
Outstanding Warrants
Holder |
| Number of Shares |
| Date Issued |
| Exercise Term |
| Exercise Price per Share |
Holder 1 |
| 1,428,571 |
| 2/27/2015 |
| 5 years |
| $0.10 |
Holder 2 B Warrant |
| 12,857,143 |
| 2/27/2015 |
| 5 years |
| 5-day volume weighted average price |
Holder 2 Additional Warrant |
| 21,428,572 |
| 2/27/2015 |
| 5 years |
| 5-day volume weighted average price |
Holder 3 A Warrant |
| 10,714,286 |
| 2/27/2015 |
| 5 years |
| $0.07 |
Holder 3 B Warrant |
| 10,714,286 |
| 2/27/2015 |
| 5 years |
| 5-day volume weighted average price |
Holder 3 Additional Warrant |
| 5,357,143 |
| 2/27/2015 |
| 5 years |
| 5-day volume weighted average price |
Holder 3 - Fee Warrant |
| 31,242,857 |
| 2/27/2015 |
| 5 years |
| $0.07 |
Holder 3 - Fee B Warrant |
| 4,457,143 |
| 2/27/2015 |
| 5 years |
| 5-day volume weighted average price |
Holder 3 - Fee Additional Warrant |
| 2,228,571 |
| 2/27/2015 |
| 5 years |
| 5-day volume weighted average price |
|
|
|
|
|
|
|
|
|
Total Outstanding Warrants |
| 100,428,572 |
|
|
|
|
|
|
Note 9 Commitments and Contingencies
On October 17, 2014, the Company entered into a one-year consulting agreement whereby the consultant was paid with 300,000 shares of the Companys common stock.
On November 1, 2014 the Company entered into an eight-month consulting agreement, ending June 30, 2015, whereby the consultant was paid with 70,000 shares of the Companys common stock and cash payments aggregating a total of $6,000.
On November 7, 2014, the Company entered into a three-month consulting agreement, ending January 31, 2015, whereby the consultant was paid with 100,000 shares of the Companys common stock.
On December 10, 2014, the Company entered into a one-year consulting agreement whereby the consultant was paid with 100,000 shares of the Companys common stock.
On December 17, 2014, the Company entered into a one-year consulting agreement whereby the consultant was paid with 1,250,000 shares of the Companys common stock.
On December 30, 2014, the Company entered into a one-year consulting agreement whereby the consultant would be paid with 1,600,000 shares of the Companys common stock and cash payments of $10,000 per month. No cash payments have been made, and although the shares were authorized, they have not been issued as the Company is disputing the validity of the agreement.
On January 29, 2015, the Company entered into a six-month consulting agreement, ending July 31, 2015, whereby the consultant was paid with 600,000 shares of the Companys common stock and cash payments aggregating a total of $21,000.
On March 16, 2015, the Company entered into a two-month consulting agreement, with a month-to-month extension until terminated by either party, whereby the consultant would cash payments of $10,000 per month.
On March 23, 2015, the Company entered into a four-month consulting agreement, ending July 31, 2015, whereby the consultant would receive cash payments for work performed on an hourly basis, ranging from $1,650 to $4,875 per month.
17
SIBLING GROUP HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 AND JUNE 30, 2014
(Unaudited)
On March 30, 2015, the Company entered into a one-year consulting agreement where the consultant would receive cash payments on an hourly basis, ranging from $14,000 to $15,000 per month. The Company provided a 30-day notice on May 29, 2015 to terminate the contract, which will terminate on June 30, 2015.
The Company rents its office space unit on a month to month basis in Durham, North Carolina. The Company provided a 90-day notice on May 29, 2015 that it would not be renewing the lease. The Companys obligation will end on August 31, 2015. Rent expense for the nine months ended March 31, 2015 and June 30, 2014 was $19,056 and $18,000, respectively.
Note 10 Subsequent Events
The Company issued a total of 72,857,143 shares of its common stock in exchange for an aggregate purchase price of $5,526,966 after the April 6, 2015 exercise by Shenzhen of certain warrants acquired pursuant to the Securities Purchase Agreement. 42,857,143 of the shares were issued at a price per share of $.07 in connection with the exercise of the A Warrants; and the remaining 30,000,000 shares were issued at a price per share of $0.0842322 in connection with the partial exercise of the B Warrants.
Effective April 6, 2015, the Company issued a total of 6,061,707 shares of its common stock pursuant to an advisory fee agreement with V3 Capital Partners, LLC as a direct result of the April equity raise. The price per share ranged from $0.07 to $0.0842322 for a total value of $460,084.
The Company had reserved 2,000,000 shares of its common stock for compensation to Urban Planet employees and vendors pursuant to the Share Exchange Agreement with Urban Planet. These shares were issued on May 26, 2015, at a price per share of $0.0962 for a total value of $192,400.
Effective as of May 12, 2015, Brian OliverSmith was removed from the Board of Directors of the Company. On May 13, 2015, the Company informed Mr. OliverSmith of the intent to terminate his employment as the Companys Chief Executive Officer to be effective as of July 12, 2015 in accordance with the terms of his employment agreement. On June 18, 2015, the Company and Mr. OliverSmith entered into a Severance and Mutual Release Agreement (the Severance Agreement) pursuant to which Mr. OliverSmith resigned as Chief Executive Officer effective as of June 22, 2015. The Severance Agreement provides that in connection with Mr. OliverSmiths resignation, the Company will pay to Mr. OliverSmith a cash payment equal to $225,000, which includes the payment of amounts due to Mr. OliverSmiths spouse for the settlement of debt and deferred compensation in addition to the severance amount paid to Mr. OliverSmith. The Severance Agreement contains a mutual release of claims by the Company and Mr. OliverSmith and the reaffirmation of Mr. OliverSmiths non-competition, non-solicitation and non-disparagement obligations included in his employment agreement with the Company. The Severance Agreement supersedes all prior agreements between the Company and Mr. OliverSmith with respect to his compensation upon termination, including Mr. OliverSmiths employment agreement.
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ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the financial condition and results of operations of Sibling Group Holdings, Inc. (the Company). The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto.
Overview
Our mission is to discover, develop and deliver resources to expand and improve lifelong learning opportunities and achievement. The mission is accomplished by applying funds from the public capital markets and revenues in a unified strategy of growth and acquisitions to accelerate the improvement of early childhood, K-12, post-secondary and corporate education around the world.
Recent Developments
BlendedSchools.Net
As of May 30, 2014, the Company completed the acquisition of the assets of BlendedSchools.Net (Blended Schools) for a purchase price of $550,000, which included the assumption of $446,187 of Blended Schools debt and cash payments totaling $103,813. In addition, we agreed to pay certain other debts of Blended Schools as provided for in the asset purchase agreement.
Blended Schools provides online curriculum with 192 master courses for the K-12 marketplace, all Common Core compatible; a complete hosted course authoring and learning management system environment featuring both Blackboard and Canvas; and the new Learning Institute, with online courses in Arabic, Chinese, Spanish, French, Japanese, Latin, Russian, German and Hindi, all oriented to meet todays ESL requirements. During fiscal year 2015, sales of the Learning Institute have increased 9.5%, which we believe has been driven by growth in demand for online credit recovery programs that enable students to earn credits necessary for graduation.
Urban Planet Media & Entertainment, Corp.
On January 28, 2015, the Company entered into a share exchange agreement (the Share Exchange Agreement) with Urban Planet Media & Entertainment, Corp. (Urban Planet) and its shareholders pursuant to which the Company issued 10,500,000 shares of its common stock to the shareholders of Urban Planet in exchange for all of the issued and outstanding shares of Urban Planet. As a result, and as contemplated by the Share Exchange Agreement, Urban Planet became a wholly owned subsidiary of the Company.
Each share of preferred stock issued to the former Urban Planet shareholders is convertible by the holder (1) at any time after 24 months after the original issue date or (2) at any time after delivery of notice by the Company of the occurrence of certain conversion events set forth in the certificate of designation establishing the preferred stock into that number of shares of common stock determined by dividing the stated value of such shares of preferred stock, which is $10.00 per preferred share, by the conversion price. The conversion price of the preferred stock is $0.50, subject to adjustment as stated in the certificate of designation.
On June 16, 2015, the Company concluded that it was necessary to write down the value of the investment in Urban Planet, based on industry information from an independent third party, to two times the revenue reported by Urban Planet for the calendar year 2014, which totaled $249,692. As a result, the Company incurred a non-cash impairment charge in the amount of $1,722,408, which is reported as Impairment of Urban Planet assets acquired in the Condensed Consolidated Statements of Operations filed as part of this quarterly report on Form 10-Q. The Companys determination to recognize the impairment charge was based on the expiration of a grant and service agreement that previously contributed to Urban Planet revenues and the Companys decision to suspend the development of a proposed Urban Planet product. The Company does not expect to incur any material future cash expenditures in connection with the write-down of Urban Planet.
The Company implemented certain cost-savings initiatives in an effort to offset the write-down, including a reduction in personnel and termination of the Companys office lease in North Carolina, resulting in annualized savings of $329,104.
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Capital Investments and Change of Control
During the quarter ended March 31, 2015, the Company received a strategic investment from Shenzhen City Qianhai Xinshi Education Management Co., Ltd., a company based and operating in the Peoples Republic of China (Shenzhen). The strategic investment was provided to accelerate the Companys growth and expansion into critical strategic markets around the world, including China.
Effective on February 27, 2015, the Company entered into a Securities Purchase Agreement (the Securities Purchase Agreement) with Shenzhen and certain accredited and institutional investors (together with Shenzhen, the Investors). Pursuant to the Securities Purchase Agreement, the Investors purchased an aggregate of 53,571,429 Units (each, a Unit) for an aggregate purchase price of $3,750,000. Each Unit consists of: (1) a share of the Companys common stock; (2) a warrant giving each of the Investors the right to purchase one additional share of common stock for each share owned at any time and from time to time for a period of five years at an exercise price of $0.07 per share (each, an A Warrant); (3) a warrant giving each of the Investors the right to purchase one additional share of common stock for each share owned at any time and from time to time for a period of one year following the effectiveness of a registration statement covering the resale of the total number of shares of common stock acquired by the Investors in the transaction at an exercise price equal to the five-day volume weighted average price immediately preceding the exercise date (each, a B Warrant); and (4) only as part of and in connection with the purchase of the shares underlying the B Warrants (the B Warrant Shares), a warrant giving each of the Investors the right to purchase 0.50 shares of common stock for each B Warrant Share purchased by such Investors at any time and from time to time for a period of five years at an exercise price equal to the purchase price of the B Warrant Shares (each, an Additional Warrant and together with the A Warrants and the B Warrants, the Warrants). The exercise prices of the Warrants may be reduced if the Company issues additional shares of common stock or securities convertible into common stock at a price lower than the Warrant exercise prices for so long as the Warrants remain outstanding. If all shares underlying all Warrants are ultimately issued, the Company will issue an aggregate of 187,500,001 shares of common stock pursuant to the Securities Purchase Agreement for additional proceeds.
Effective on February 27, 2015, the Company also entered into an Advisory Fee Agreement (the Advisory Fee Agreement) with V3 Capital Partners, LLC and certain of its affiliates (the Advisor) in connection with advisory, due diligence and financing activities performed by the Advisor in connection with the transaction with Shenzhen described herein. Pursuant to the Advisory Fee Agreement, the Company agreed to pay or issue to Advisor: (1) a cash payment of $437,000; (2) $312,000 of Units on the same terms and conditions as those issued in connection with the Shenzhen transaction; and (3) a warrant giving the Advisor the right to purchase up to an aggregate of 26,785,714 shares of common stock at any time and from time to time for a period of five years at an exercise price of $0.07 per share. Additionally, the Company agreed to pay Advisor a pro rata portion of the advisory fees detailed above in (1) and (2) on a similar percentage basis as the above fees upon exercise of any A Warrant, B Warrant or Additional Warrant and the fees described in clause (3) on a similar percentage basis as the above fee on the exercise of the B Warrant. The Company also agreed to pay $100,000 of Shenzhens and Advisors legal and due diligence expenses and a total of $120,000 for ongoing investor relations and advisory services for a twelve-month period.
The Company also entered into a Securities Purchase Agreement with an accredited investor, effective as of February 27, 2015 (the Purchase Agreement). Pursuant to the Purchase Agreement, the investor purchased an aggregate of 1,428,571 shares of the Companys common stock for aggregate proceeds of $100,000. Additionally, the investor received a warrant giving him the right to purchase up to 1,428,571 shares of common stock at any time and from time to time for a period of five years at an exercise price of $0.10 per share.
On April 6, 2015, Shenzhen exercised the A Warrants in full and a portion of the B Warrants resulting in an additional 72,857,143 shares of common stock being issued to Shenzhen in exchange for an aggregate purchase price of $5,526,966. Pursuant to the terms of the Securities Purchase Agreement, 42,857,143 of the shares received upon issuance of the A Warrants were issued at a price per share of $0.07. The remaining 30,000,000 shares received upon the partial exercise of the B Warrants were issued at a price per share of $0.0842322, which is equivalent to the volume weighted average price for the Companys common stock for the five trading days preceding April 6, 2015, the date of exercise.
As a result of the exercise of the B Warrants and pursuant to the terms of the B Warrants, the Company issued Shenzhen Additional Warrants to purchase an aggregate of 15,000,000 shares of the Companys common stock at any time and from time to time for a period of five years from the date of the Additional Warrants at an exercise price per share equal to $0.0842322, the purchase price of the shares issued pursuant to the B Warrants.
Following the exercise of the Warrants, Shenzhen holds 115,714,286 shares of the Companys common stock, or 57.14% of the Companys total issued and outstanding shares of common stock as of June 25, 2015.
20
Pursuant to the terms of the remaining Warrants, Shenzhen has the potential to purchase up to an additional 34,285,714 shares of the Companys common stock. If all shares underlying all Warrants held by Shenzhen are ultimately issued to Shenzhen, Shenzhen will hold an aggregate of 150,000,000 shares of the Companys common stock. Of Shenzhens remaining warrants, 15,000,000 are exercisable at $0.0842322 per share, which would result in an additional $1,263,483 in proceeds to the Company. Because the purchase price of the remaining 19,285,714 shares that Shenzhen has the right to acquire pursuant to its Warrants is dependent on the price of the Companys common stock if and when such Warrants are exercised, the Company is unable to calculate the gross proceeds that would be received upon exercise of such Warrants.
In connection with Shenzhens exercise of the Warrants, pursuant to the Advisory Fee Agreement with the Advisor, the Company issued a total of 6,061,708 shares of common stock and warrants to purchase up to an aggregate of 30,154,269 shares of common stock at any time and from time to time for a period of five years at an exercise price of $0.0842322 per share to the Advisor and its affiliates.
Commencement of Marketing and Acquisition Strategy
The Companys new leadership team has refined the overall Company strategy to concentrate on K-12 online learning tools and created a strategic plan to fully leverage the investment provided by Shenzhen for growth. For the remainder of fiscal 2015 and into fiscal 2016, the Company will focus on developing and enhancing the Blended Schools content to better compete in all markets; refining our sales and marketing to drive an increase in sales; and meeting a growing international demand for U.S. K-12 education tools.
In furtherance of these goals, the Company has engaged a reputable public relations and communications firm to advise on the branding and positioning of the Company in the education marketplace, and has hired a Chief Business Development Officer and new sales team members to improve our sales strategy and efforts. In addition, the Company will continue to form partnerships and develop certain of its products to grow its position in the online education market, including the expanding credit recovery program market. Along these lines, the Company hired a Chief Academic Officer to oversee our academic content development and improvement.
Management Changes
On January 28, 2015, pursuant to the terms of the Share Exchange Agreement with Urban Planet, Maurine Findley resigned as our Chief Executive Officer and was appointed as Chairman of the Board of Directors. In addition, we entered into an employment agreement with Brian A. OliverSmith pursuant to which we appointed him as our Chief Executive Officer, and the Board of Directors appointed him to serve as a member of the Board. On the same date, Amy Lance and Mack Leath resigned from our Board.
Effective March 16, 2015, Andrew Honeycutt resigned from the Companys Board of Directors. The resignation was not related to any disagreement with the Company or due to any matter relating to the Companys operations, policies or practices.
On May 3, 2015, Ms. Findley, Chairman of our Board, unexpectedly passed away.
Effective as of May 12, 2015, Brian OliverSmith was removed from the Board of Directors of the Company. On May 13, 2015, the Company informed Mr. OliverSmith of the intent to terminate his employment as the Companys Chief Executive Officer to be effective as of July 12, 2015 in accordance with the terms of his employment agreement. On June 18, 2015, the Company and Mr. OliverSmith entered into a Severance and Mutual Release Agreement (the Severance Agreement) pursuant to which Mr. OliverSmith resigned as Chief Executive Officer effective as of June 22, 2015. The Severance Agreement provides that in connection with Mr. OliverSmiths resignation, the Company will pay to Mr. OliverSmith a cash payment equal to $225,000, which includes the payment of amounts due to Mr. OliverSmiths spouse for the settlement of debt and deferred compensation in addition to the severance amount paid to Mr. OliverSmith. The Severance Agreement contains a mutual release of claims by the Company and Mr. OliverSmith and the reaffirmation of Mr. OliverSmiths non-competition, non-solicitation and non-disparagement obligations included in his employment agreement with the Company. The Severance Agreement supersedes all prior agreements between the Company and Mr. OliverSmith with respect to his compensation upon termination, including Mr. OliverSmiths employment agreement.
On May 13, 2015, the Board appointed Dave Saba, President of the Company, as the Companys principal executive officer and appointed Robert Todd Jones to serve as a member of the Companys Board.
21
On May 18, 2015, the Company hired Pam Birtolo as Chief Academic Officer to oversee all academic content and instruction. For the past 16 years, Ms. Birtolo has served the K-12 online learning community. She helped start Florida Virtual School and served as its Chief Officer of Education Transformation until July, 2014. She was also the founding principal of Sagemont Virtual School, Florida's first private online high school, which later became University of Miami Online (purchased by Kaplan University). Ms. Birtolo has presented the concepts of distance learning to national audiences and has been published in several educational journals. Her publications include Enquiring Minds Want to Know: the Evolution of an Online High School and Transforming Education through Online Learning.
On May 18, 2015, the Company hired Cecilia Lopez as Chief Business Development Officer. A graduate of Rutgers University, Ms. Lopez began her career in the banking industry, eventually serving as Vice President, Business Banking Group for First Fidelity Bank. Ms. Lopez moved to the educational publishing field where she worked for Addison Wesley and, later, Glencoe McGraw Hill. Ms. Lopez recently served as the Chief Business Development Officer for the Florida Virtual School. She will oversee all of the Companys sales effort and is focused on building the sales team.
On May 26, 2015, the Company eliminated the position of Chief Development Officer as part of the Companys management restructuring. Richard Marshall held the Chief Development Officer position at this time, and his employment with the Company was terminated as a result.
Recent Trends
International demand for U.S. secondary education content has significantly increased as a result of the demand for U.S. college and university degrees. According to the Institute of International Education, the number of students worldwide pursuing higher education degrees from countries outside of their home countries grew from 3.0 million in 2005 to 4.3 million in 2011, and is projected to reach 8.0 million by 2025. As a result, international high schools have implemented dual diploma programs which allows students to receive a diploma from their local high school and from a U.S. based high school.
The Company will leverage local partnerships in countries where there is significant demand for U.S. K-12 content to provide products to the rapidly growing market of international students.
In addition, the growth and quality improvement in online learning and mounting pressure on educators to boost retention and graduation rates have contributed to a substantial growth in online credit recovery programs that allow students to earn credits toward high school graduation. More than half of the school districts in the U.S. offer online courses and services because of their efficiency, low cost and flexibility. We have seen an increase in the sales of our Learning Institute language programs as a result of this growth, and we expect this growth to continue. Furthermore, we intend to develop and improve additional products to expand our presence in this rising market.
Results of Operations
Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014
During the three-month period ended March 31, 2015, we recorded revenue of $601,363, primarily from the Blended Schools division, acquired in 2014, as compared to $0 revenue for the three months ended March 31. 2014. Total operating expenses for the three-month period ended March 31, 2015 were $709,880, consisting of salaries of our management and staff, consulting expenses and professional fees. This is compared to total operating expenses for the three-month period ended March 31, 2014 of $598,801, consisting mainly of consulting expenses and professional fees.
Interest expense on our existing debt for the three month periods ended March 31, 2015 and March 31, 2014 was $107,029 and $13,448, respectively. Amortization of intangibles and debt discount amounted to $173,530 and $0 for the three months ended March 31, 2015 and 2014, respectively.
Nine Months Ended March 31, 2015 Compared to Nine Months Ended March 31, 2014
During the nine-month period ended March 31, 2015, we recorded revenue of $1,701,497, primarily from the Blended Schools division, as compared to $0 revenue for the nine months ended March 31. 2014. Total operating expenses for the nine-month period ended March 31, 2015 were $3,471,356, consisting of salaries of our management and staff, as well as technology expenses, consulting expenses and professional fees. This is compared to total operating expenses for the nine-month period ended March 31, 2014, of $1,380,041, consisting mainly of consulting expenses and professional fees.
22
Interest expense on our existing debt for the nine months ended March 31, 2015 and March 31, 2014 was $202,212 and $15,848, respectively. Amortization of intangibles and debt discount amounted to $397,410 and $0 for the nine months ended March 31, 2015 and 2014, respectively.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $669,293, $1,948,237 in cash and $1,430,242 of intangible assets as of March 31, 2015, compared to a working capital deficit of $1,824,145 and $27,250 in cash and $1,225,461 of intangible assets as of June 30, 2014.
Net cash used by operating activities was $1,099,804 for the nine months ended March 31, 2015, compared to $79,106 for the nine months ended March 31, 2014. The increase of $1,020,698 of cash used by operating activities for the quarter was primarily a result of payments made on obligations versus reduced cash collections of accounts receivable.
We acquired $3,942 fixed assets (net) through the Urban Planet acquisition, have had no capital expenditures for the three months ended March 31, 2015, and have no plans for the purchase of any plant or equipment in the foreseeable future.
On December 5, 2014, the Company issued an 8% Convertible Promissory Note in the aggregate principal amount of $275,000 (the Note) to FireRock Capital, Inc., an unrelated third party. On March 9, 2015, the Company paid off the Note for a total prepayment amount equal to $351,133, which includes the principal amount due, a prepayment amount and accrued and unpaid interest at the rate of 8% per annum.
During the quarter ended March 31, 2015, we received working capital of $3,350,000 in the aggregate from capital investments by investors.
We received an additional $5,526,962 in working capital through the exercise of warrants by Shenzhen on April 6, 2015. These investments provide the funds necessary to develop new business, generate sales, and meet our operating and financing obligations as they become due.
Critical Accounting Policies
The discussion and analysis of the Companys financial condition and results of operations are based upon the Companys consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are summarized in Note 2 to our consolidated financial statements included in our Transition Report on Form 10-K for the six months ended June 30, 2014. In the first nine months of fiscal 2015, there were no changes to the significant accounting policies.
Off Balance Sheet Arrangements
There are no off balance sheet arrangements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
23
ITEM 4.
Evaluation of Disclosure Controls
The Company has established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and, as such, is accumulated and communicated to the Companys management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management, together with our principal executive officer and principal financial officer, evaluated the effectiveness of the Companys disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of March 31, 2015. Based on their evaluation, the principal executive officer and principal financial officer concluded that, due to material weaknesses in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of March 31, 2015.
Material Weaknesses
As previously reported in our Transition Report on Form 10-K for the six months ended June 30, 2014, we identified the following material weaknesses in our internal control over financial reporting: (1) lack of sufficient resources to ensure compliance with U.S. generally accepted accounting principles and the rules and regulations of the SEC, especially with regards to equity-based transactions and tax accounting expertise; and (2) lack of sufficient resources to ensure that information required to be disclosed by the Company in the reports that the Company files or submits to the SEC are recorded, processed, summarized, and reported, within the time periods specified in the SECs rules and forms. The control deficiencies noted did not result in any audit adjustments to the Companys 2014 transitional financial statements.
Management, together with our principal executive officer and principal financial officer, has identified the following additional material weaknesses in our internal control over financial reporting, in addition to those described above: (1) lack of segregation of duties; and (2) inadequate security over information technology.
In light of these material weaknesses in internal control over financial reporting, we completed substantive procedures, including the inspection of support for transactions and balances and tests of the mechanical accuracy of balances, prior to filing this Quarterly Report on Form 10-Q. These additional procedures have allowed management to conclude that, notwithstanding the material weaknesses in our internal control over financial reporting, the consolidated financial statements included in this report fairly present, in all material respects, the Companys financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
In response to the material weaknesses, we have begun to explore and develop a remediation plan for implementing new internal controls over financial reporting and disclosure controls and procedures. Once finalized and placed in operation for a sufficient period of time, we will subject these controls and procedures to appropriate tests in order to determine whether they are operating effectively. Management, with oversight from the Board of Directors, is committed to the remediation of known material weaknesses as expeditiously as possible.
Changes in Internal Control over Financial Reporting
With the oversight of management and our Board of Directors, we have continued to evaluate the underlying causes of the material weaknesses. Other than with respect to the development of an ongoing plan for remediation of the material weaknesses, there has been no change to our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
24
PART II. OTHER INFORMATION
ITEM 1.
We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us that may materially affect us.
ITEM 1A.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Transition Report on Form 10-K for the six months ended June 30, 2014, which could materially affect our business, financial condition and future results. Except as set forth below, there have been no material changes to these risk factors as described in the Transition Report.
We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.
For the six-month transition period ended June 30, 2014, our management team, under the supervision and with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of our internal controls and determined that our internal control over financial reporting was not effective. At March 31, 2015, we concluded that our disclosure controls and procedures were not effective at a reasonable assurance level because of the material weaknesses in our internal control over financial reporting that continue to exist. Until we have been able to complete and test the effectiveness of the remediation of our internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. In addition, although we continually review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such additional weakness or failure to remediate the existing weakness could materially adversely affect our financial condition or ability to comply with applicable financial reporting requirements and the requirements.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company issued a total of 80,072,190 shares of its common stock during the quarter ended March 31, 2015 in unregistered transactions. Other than as described below, the transactions have been previously reported on the Company’s Current Reports on Form 8-K filed with the SEC:
·
On January 8, 2015, the Company issued 111,710 shares of its common stock to a service provider in satisfaction of amounts owed for services totaling $14,500 pursuant to the exemption set forth in Section 4(a)(2) (“Section 4(a)(2)”) of the Securities Act of 1933, as amended; and
·
On January 28, 2015, the Company issued 600,000 shares of its common stock with an aggregate fair value of $57,600 as payment for services rendered by advisors and consultants pursuant to certain consulting and services agreements in reliance on the exemption set forth in Section 4(a)(2).
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
Not Applicable.
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ITEM 5.
(a)
On June 16, 2015, the Company concluded that it was necessary to write down the value of the investment in Urban Planet, based on industry information from an independent third party, to two times the revenue reported by Urban Planet for the calendar year 2014, which totaled $249,692. As a result, the Company incurred a non-cash impairment charge in the amount of $1,722,408, which is reported as Impairment of Urban Planet assets acquired in the Condensed Consolidated Statements of Operations filed as part of this quarterly report on Form 10-Q. The Companys determination to recognize the impairment charge was based on the expiration of a grant and service agreement that previously contributed to Urban Planet revenues and the Companys decision to suspend the development of a proposed Urban Planet product. The Company does not expect to incur any material future cash expenditures in connection with the write-down of Urban Planet.
As described in Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q, the Company issued shares of its common stock in unregistered transactions on January 8, 2015 and January 28, 2015, which description is incorporated herein by reference.
In addition, on May 26, 2015, the Company authorized the issuance of 2,000,000 shares of its common stock to certain employees, shareholders and other service providers to Urban Planet in unregistered transactions in reliance on the exemption set forth in Section 4(a)(2). The shares were issued as compensation for services and in recognition of contributions to Urban Planet and had been reserved by the Company for issuance for these purposes pursuant to the terms of the Share Exchange Agreement.
(b)
There have been no material changes to the procedures by which security holders may recommend nominees to the Companys Board of Directors since the filing of the Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 2014.
ITEM 6.
Exhibit No. |
| Description of Exhibit |
2.1 |
| Share Exchange Agreement by and among Sibling Group Holdings, Inc., Urban Planet Media & Entertainment, Corp. and the Shareholders of Urban Planet Media & Entertainment, Corp. dated as of January 28, 2015 (filed as Exhibit 2.1 to the registrants Current Report on Form 8-K filed with the SEC on January 30, 2015 and incorporated herein by reference). |
3.1 |
| Certificate of Designation of Powers, Preferences and Rights of Series A Convertible Preferred Stock dated January 29, 2015 (filed as Exhibit 3.1 to the registrants Current Report on Form 8-K filed with the SEC on January 30, 2015 and incorporated herein by reference). |
10.1 |
| Employment Agreement dated as of January 28, 2015 by and between Sibling Group Holdings, Inc. and Brian A. OliverSmith (filed as Exhibit 10.1 to the registrants Current Report on Form 8-K filed with the SEC on January 30, 2015 and incorporated herein by reference). |
10.2* |
| Securities Purchase Agreement dated as of March 6, 2015 among Sibling Group Holdings, Inc., Shenzhen City Qianhai Xinshi Education Management Co., Ltd., Oakway International Ltd. and Scot Cohen. |
10.3* |
| Advisory Fee Agreement by and between Sibling Group Holdings, Inc. and V3 Capital Partners, LLC dated as of February 27, 2015. |
10.4* |
| Securities Purchase by and between Sibling Group Holdings, Inc. and Henry Scherich dated as of February 27, 2015. |
31.1* |
| Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
| Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* |
| Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2* |
| Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS* |
| XBRL Instance Document. |
101.SCH* |
| XBRL Taxonomy Extension Schema Document. |
101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* |
| XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document. |
* Filed herewith.
26
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Sibling Group Holdings, Inc. |
| |
|
|
|
|
Dated: June 26, 2015 | By: | /s/ David Saba |
|
|
| David Saba |
|
|
| President |
|
|
| (Principal Executive Officer) |
|
|
|
|
|
Dated: June 26, 2015 | By: | /s/ Angelle Judice |
|
|
| Angelle Judice |
|
|
| Chief Financial Officer |
|
|
| (Principal Financial and Accounting Officer) |
|
|
|
|
|
27
EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this Agreement) is dated as of February 27, 2015 among Sibling Group Holdings, Inc., a Texas corporation (the Company), and the purchasers identified on the signature pages hereto (each, a Purchaser and collectively, the Purchasers).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the Securities Act), the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, certain 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 of the Purchasers, severally and not jointly, agree as follows:
ARTICLE I
DEFINITIONS
1.1
Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated:
Additional Warrants means, collectively, the Common Stock warrants issued upon exercise of the Warrant B, in the form of Exhibit A-3.
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 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.
Business Day means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
Change of Control means the occurrence of any of the following in one or a series of related transactions: (i) an acquisition after the date hereof by an individual or legal entity or group (as described in Rule 13d-5(b)(1) under the Exchange Act) of more than one-third of the voting rights or equity interests in the Company; (ii) a replacement of more than one-third of the members of the Company's board of directors that is not approved by those individuals who are members of the board of directors on the date hereof (or other directors previously approved by such individuals); (iii) a merger or consolidation of the Company or any significant Subsidiary or a sale of more
than one-third of the assets of the Company in one or a series of related transactions, unless following such transaction or series of transactions, the holders of the Company's securities prior to the first such transaction continue to hold at least two-thirds of the voting rights and equity interests in the surviving entity or acquirer of such assets; (iv) a recapitalization, reorganization or other transaction involving the Company or any significant Subsidiary that constitutes or results in a transfer of more than one-half of the voting rights or equity interests in the Company; (v) consummation of a Rule 13e-3 transaction as defined in Rule 13e-3 under the Exchange Act with respect to the Company, or (vi) the execution by the Company or its controlling shareholders of an agreement providing for or reasonably likely to result in any of the foregoing events.
Closing means the closing of the purchase and sale of the Shares and Warrants pursuant to Section 2.1.
Closing Date means the date of the Closing.
Closing Price 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 an Eligible Market or any other national securities exchange, the closing price per share of the Common Stock for such date (or the nearest preceding date) on the primary Eligible Market or exchange on which the Common Stock is then listed or quoted; (b) if prices for the Common Stock are then quoted on the OTC Bulletin Board, the closing bid price per share of the Common Stock for such date (or the nearest preceding date) so quoted; (c) if prices for the Common Stock are then reported in the Pink Sheets published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent closing bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by Purchasers holding a majority of the Securities.
Commission means the Securities and Exchange Commission.
Common Stock means the common stock of the Company, par value $0.0001 per share.
"Common Stock Equivalents" means, collectively, Options and Convertible Securities.
Company Counsel means Legal & Compliance, LLC, counsel to the Company.
"Convertible Securities" means any stock or securities (other than Options) convertible into or exercisable or exchangeable for Common Stock.
Deposit Account Control Resolution means the resolutions passed by the Board of Directors of the Company dated as of the date hereof creating a non-operating account in which the Aggregate Purchase Price and all proceeds from the exercise of Warrants and Additional Warrants shall be deposited.
2
Effective Date means the date that the Registration Statement is first declared effective by the Commission.
Eligible Market means any of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, NASDAQ Global Market or the OTC Market.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Excluded Stock means the issuance of Common Stock or Common Stock Equivalents (A) upon exercise or conversion of any options or other securities described in Schedule 3.1(f) (provided that such exercise or conversion occurs in accordance with the terms thereof, without amendment or modification) or ; (B) in connection with any issuance of shares or grant of options to employees, officers, directors or consultants of the Company pursuant to a stock option plan or other incentive stock plan duly or otherwise pursuant to any employee benefit plan described in Schedule 3.1(f) or hereafter adopted by the Company and approved by its shareholders or in respect of the issuance of Common Stock upon exercise of any such options; or (C) pursuant to a bona fide firm commitment underwritten public offering with a nationally recognized underwriter (excluding any equity lines) in an aggregate offering amount greater than $20,000,000, (D) as required pursuant to the Share Exchange Agreement dated January 28, 2015 executed by the Company, Urban Planet Media & Entertainment, Corp. (Urban Planet) and the shareholders of Urban Planet (the UPM Share Exchange Agreement) or (E) in connection with a bona fide joint venture, strategic partnership, or strategic alliance the primary purpose of which is not to raise cash.
Filing Date means the 30th day following the Closing Date with respect to the initial Registration Statement required to be filed hereunder, and, with respect to any additional Registration Statements that may be required pursuant to Section 6.1(f), the 10th day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required under such Section.
Lien means any lien, charge, claim, security interest, encumbrance, right of first refusal or other restriction.
Losses means any and all losses, claims, damages, liabilities, settlement costs and expenses, including, without limitation, costs of preparation and reasonable attorneys fees.
Options means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities (including all Warrants that can be issued under the Transaction Documents).
Person means any 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 any court or other federal, state, local or other governmental authority or other entity of any kind.
Per Unit Purchase Price means $0.07.
3
Proceeding means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.
Prospectus means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus including post effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
Purchaser Counsel has the meaning set forth in Section 6.2(a).
Registrable Securities means any Common Stock (including Underlying Shares) issued or issuable pursuant to the Transaction Documents, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.
Registration Statement means each registration statement required to be filed under Article VI, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
Required Effectiveness Date means (i) with respect to the initial Registration Statement required to be filed hereunder, the 90th day following the Closing Date, or in the event the Registration Statement shall be reviewed by the Commission, the 180th day following the Closing Date, and (ii) with respect to any additional Registration Statements that may be required pursuant to Section 6.1(f), the 30th day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required under such Section.
Rule 144, Rule 415, and Rule 424 means Rule 144, Rule 415 and Rule 424, respectively, promulgated by the Commission pursuant to the Securities Act, as such Rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
Securities means the Shares, Warrants, Additional Warrants and the Underlying Shares.
Shares means the shares of Common Stock, which are being issued and sold to the Purchasers at the Closing.
Subsidiary means any Person in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest.
4
Trading Day means (a) any day on which the Common Stock is listed or quoted and traded on its primary Trading Market, or (b) if the Common Stock is not then listed or quoted and traded on its primary Trading Market, then a day on which trading occurs on an Eligible Market (or any successor thereto), or (c) if trading ceases to occur on an Eligible Market (or any successor thereto), any Business Day.
Trading Market means the OTC Market or any other Eligible Market, or any national securities exchange, market or trading or quotation facility on which the Common Stock is then listed or quoted.
Transaction Documents means this Agreement, the Warrants, the Additional Warrants, the Transfer Agent Instructions and any other documents or agreements executed in connection with the transactions contemplated hereunder.
"Transfer Agent Instructions" means the Irrevocable Transfer Agent Instructions, in the form of Exhibit E, executed by the Company and delivered to and acknowledged in writing by the Company's transfer agent.
Underlying Shares means the shares of Common Stock issuable upon exercise of the Warrants.
Unit means (i) one Share, (ii) a Warrant A to acquire 1 share of Common Stock, (ii) a Warrant B to acquire one share of Common Stock, and (iii) an Additional Warrant to acquire 0.50 shares of Common Stock upon the exercise of a Warrant B.
Warrant A means each Common Stock purchase warrant in the form of Exhibit A-1.
Warrant B means each Common Stock purchase warrant in the form of Exhibit A-2.
Warrants means, collectively, each of the Warrant A and Warrant B.
ARTICLE II
PURCHASE AND SALE
2.1
(a) Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to each Purchaser, and each Purchaser shall, severally and not jointly, purchase from the Company, such number of Units indicated below such Purchasers name on the signature page of this Agreement at the Per Unit Purchase Price. The aggregate purchase price for the Shares by all of the Purchasers is $3,750,000 (the Aggregate Purchase Price). The Closing shall take place at the offices of Purchasers counsel immediately following the execution hereof, or at such other location or time as the parties may agree.
(b)
Notwithstanding anything to the contrary, the Purchaser, Shenzhen City Qianhai Xinshi Education Management Co., Ltd. ("Shenzhen Times"), may
5
delegate any of its obligations under this Agreement to any of its designated subsidiaries to perform, and may assign any of its rights (including without limitation shares issued by the Company under this Agreement) to any of its designated subsidiaries.
(c) The Company acknowledges that funds arriving from China may be delayed and hereby agrees that Shenzhen Times shall have until March 6, 2015 to provide the wire transfer confirmation issued by Shenzhen Times primary bank (China Merchants Bank) for Shenzhen Times' payment made to Companys bank account controlled under the Deposit Account Control Resolution. Company agrees that it shall allow five (5) Business Days from Shenzhen Times provision of China Merchants Banks wire confirmation for the payment to arrive at Companys designated account. Any delays for such payment to arrive at Companys designated account that are out of Shenzhen Times control shall not constitute Shenzhen Times breach of its payment obligations under this Agreement.
(d)
Shenzhen Times' investments and funding contemplated by this Agreement into the Company shall be subject to and conditioned upon Shenzhen Times' receipt of the Chinese government's requisite prior-approvals and recordings (as the case may be as required by applicable Chinese laws regarding outbound investments), including without limitation, approvals from the National Development and Reform Commission (inclusive of its local branches), the Ministry of Commerce (inclusive of its local branches) and the Chinese foreign exchange authority.
(e) Notwithstanding the pre-funding of the purchase price by the Purchaser, Scot Cohen, prior to the Closing, the Company and the Purchasers acknowledge that the Closing has not occurred until all the Closing conditions herein are satisfied. To the extent that by March 6, 2015, a Closing does not occur, for the purposes of Scot Cohen, the Company and the Purchasers acknowledge that the transaction shall be deemed closed as it relates to Scot Cohen as of March 6, 2015.
2.2
Closing Deliveries.
(a)
At the Closing, the Company shall deliver or cause to be delivered to each Purchaser the following:
(i)
one or more stock certificates, free and clear of all restrictive and other legends (except as expressly provided in Section 4.1(b) hereof), evidencing such number of Shares equal to the number of Units indicated below such Purchaser's name on the signature page of this Agreement, registered in the name of such Purchaser;
(ii)
a Warrant A, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire such number of Underlying Shares indicated below such Purchasers name on the signature page of this Agreement under the heading Warrant A Shares;
(iii)
a Warrant B, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire (i) such number of Underlying Shares indicated below such Purchasers name on the signature page of this Agreement
6
under the heading Warrant B Shares, and (ii) an Additional Warrant, pursuant to which such Purchaser shall have the right to acquire such number of Underlying Shares indicated below such Purchasers name on the signature page of this Agreement under the heading Additional Warrant Shares;
(iv)
a legal opinion of Company Counsel, in the form of Exhibit B, executed by such counsel and delivered to the Purchasers;
(v)
duly executed Transfer Agent Instructions, in the form of Exhibit C;
(vii)
a lock-up letter duly executed by the senior executive officers of the Company and the former shareholders of Urban Planet who own 5% or more of the Companys Common Stock in the form of Exhibit E hereto; and
(viii)
a certificate from a duly authorized officer certifying on behalf of the Company that each of the conditions set forth in Section 5.1 has been satisfied;
(b)
At the Closing and subject to Sections 2.1(b), 2.1(c) and 2.1(d), each Purchaser shall deliver or cause to be delivered (i) to the Companys bank account controlled under the Deposit Account Control Resolution an amount equal to the Per Unit Purchase Price multiplied by the number of Units indicated below such Purchasers name on the signature page of this Agreement under the heading "Units Purchased", in United States dollars and in immediately available funds. The total purchase price payable by each Purchaser shall be set forth under such Purchasers name on the signature page of this Agreement under the heading Purchase Price.
2.3
Post-Closing Obligations.
(a)
After Closing but before March 6, 2015 provided that Shenzhen Times provides wire transfer confirmation referred to in Section 2.1 (c) above, the Company shall address and have taken actions to the reasonable satisfaction of the Purchasers, issues identified in Companys Post-Closing Commitment List in Exhibit G.
(b)
After Closing, the Company shall continue to provide, to the reasonable satisfaction of the Purchasers, collaboration and support to Purchasers to satisfy relevant Chinese government filing requirements on the Purchasers and their Affiliates and Subsidiaries.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1
Representations and Warranties of the Company. The Company hereby represents and warrants to each of the Purchasers as follows:
(a)
Subsidiaries. The Company has no direct or indirect Subsidiaries other than those listed in Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or comparable equity interests of each Subsidiary
7
free and clear of any Lien and all the issued and outstanding shares of capital stock or comparable equity interest of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.
(b)
Organization and Qualification. Each of the Company and the Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), 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 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 do 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, individually or in the aggregate, (i) adversely affect the legality, validity or enforceability of any Transaction Document, (ii) have or result in a material adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole on a consolidated basis, or (iii) adversely impair the Company's ability to perform fully on a timely basis its obligations under any of the Transaction Documents (any of (i), (ii) or (iii), a Material Adverse Effect).
(c)
Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the 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 consent or action is required by the Company, its Board of Directors or its shareholders. Each of the Transaction Documents has been (or upon delivery will be) duly executed by the Company and, assuming the due authorization, execution and delivery by the other parties thereto, is, or when delivered in accordance with the terms hereof, will constitute, the valid and binding obligation of the Company enforceable against the Company in accordance with its terms.
(d)
No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Companys or any Subsidiarys certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, 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) 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 and the rules and regulations
8
of any self-regulatory organization to which the Company or its securities are subject), or by which any property or asset of the Company or a Subsidiary is bound or affected.
(e)
Issuance of the Securities. The Securities (including the Underlying Shares) are duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens and shall not be subject to preemptive rights or similar rights of shareholders. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable upon exercise of the Warrants.
(f)
Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock, options and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) is set forth in Schedule 3.1(f). All outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable and all Securities issued by the Company have been issued in compliance with all applicable securities laws. Except as disclosed in Schedule 3.1(f), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. There are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) and the issue and sale of the Securities (including the Underlying Shares) will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. To the knowledge of the Company, except as specifically disclosed in Schedule 3.1(f), no Person or group of related Persons beneficially owns (as determined pursuant to Rule 13d-3 under the Exchange Act), or has the right to acquire, by agreement with or by obligation binding upon the Company, beneficial ownership of in excess of 5% of the outstanding Common Stock, ignoring for such purposes any limitation on the number of shares of Common Stock that may be owned at any single time.
(g)
SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, the three years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials (together with any materials filed by the Company under the Exchange Act, whether or not required) being collectively referred to herein as the SEC Reports and, together with this Agreement and the Schedules to this Agreement, the Disclosure Materials) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, 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
9
or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (GAAP), except as may be otherwise specified in such financial statements or the notes thereto, and 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. All material agreements to which the Company or any Subsidiary is a party or to which the property or assets of the Company or any Subsidiary are subject are included as part of or specifically identified in the SEC Reports.
(h)
Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports or in Schedule 3.1(h), (i) there has been no event, occurrence or development that, individually or in the aggregate, has had or that could 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 Companys financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, except as disclosed in its SEC Reports, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders 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 stock-based plans.
(i)
Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries that could, individually or in the aggregate, have a Material Adverse Effect. Schedule 3.1(i) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it could, individually or in the aggregate, have a Material Adverse Effect.
(j)
Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and, to the knowledge of the Company, 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 written 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 order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection,
10
occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not, individually or in the aggregate, have or result in a Material Adverse Effect.
(k)
Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries 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 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. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance.
(l)
Private Placement. Neither the Company nor any Person acting on the Companys behalf has sold or offered to sell or solicited any offer to buy the Securities by means of any form of general solicitation or advertising. Neither the Company nor any of its Affiliates nor any Person acting on the Company's behalf has, directly or indirectly, at any time within the past six months, made any offer or sale of any security or solicitation of any offer to buy any security under circumstances that would (i) eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale of the Securities as contemplated hereby or (ii) cause the offering of the Securities pursuant to the Transaction Documents to be integrated with prior offerings by the Company for purposes of any applicable law, regulation or stockholder approval provisions, including, without limitation, under the rules and regulations of any Trading Market. The Company is not, and is not an Affiliate of, an investment company within the meaning of the Investment Company Act of 1940, as amended. The Company is not a United States real property holding corporation within the meaning of the Foreign Investment in Real Property Tax Act of 1980.
(m)
Listing and Maintenance Requirements. The Company has not, in the three years preceding the date hereof, received notice (written or oral) from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
(n)
Registration Rights. Except as described in Schedule 3.1(n), the Company has not granted or agreed to grant to any Person any rights (including piggy-back registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied.
(o)
Application of Takeover Protections. There is no control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Companys charter documents or the laws of its state of incorporation that is or could become applicable to any of the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their
11
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.
(p)
Disclosure. 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 constitutes or might constitute material, nonpublic information. The Company understands and confirms that each of the Purchasers will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure materials provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company are true and correct in all material respects and do 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 the light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed. The Company acknowledges and agrees that (i) 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 or (ii) any statement, commitment or promise to the Company or, to its knowledge, any of its representatives which is or was an inducement to the Company to enter into this Agreement or otherwise.
(q)
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 this Agreement and the transactions contemplated hereby. 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 this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby 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 has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
(r)
Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the "Intellectual Property Rights"). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.
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(s)
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.
(t)
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, individually or in the aggregate, have or 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.
(u)
Transactions With Affiliates and Employees. Except as set forth in SEC Reports filed at least ten days prior to the date hereof, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company 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, 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 or partner.
(v)
Form S-1 Eligibility. The Company is eligible to register the resale of its Common Stock for resale by the Purchasers under Form S-1 promulgated under the Securities Act.
(w)
Solvency. Based on the financial condition of the Company as of the Closing Date, (i) the Companys fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Companys existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Companys assets do not constitute unreasonably small capital to carry on its business for the current fiscal year 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, 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 debt 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).
(x)
Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations,
13
(ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with managements general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(y)
Foreign Corrupt Practices. Neither the Company nor any direct director, officer or authorized employee acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
(z)
Sarbanes-Oxley Act. The Company is in compliance with applicable requirements of the Sarbanes-Oxley Act of 2002 and applicable rules and regulations promulgated by the Commission thereunder in effect as of the date of this Agreement, except where such noncompliance could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
3.2
Representations and Warranties of the Purchasers. Each Purchaser hereby, as to itself only and for no other Purchaser, represents and warrants to the Company as follows:
(a)
Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The purchase by such Purchaser of the Shares and the Warrants hereunder has been duly authorized by all necessary action on the part of such Purchaser. This Agreement has been duly executed and delivered by such Purchaser and constitutes the valid and binding obligation of such Purchaser, enforceable against it in accordance with its terms.
(b)
Investment Intent. Such Purchaser is acquiring the Securities for investment purposes and not with a view to or for distributing such Securities or any part thereof, without prejudice, however, to such Purchasers right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Purchaser to hold Securities for any period of time.
(c)
Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises the Additional Investment Right it will be, an accredited investor as defined in Rule 501(a) under the Securities Act. Such Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act.
14
(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)
General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
(f)
Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Purchasers compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire such securities.
(g)
Legends. Such Purchaser understands that the certificates or other instruments representing the Securities shall bear a restrictive legend in substantially the set forth in Section 4.1(b) below.
The Company acknowledges and agrees that each Purchaser does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1
Transfer Restrictions.
(a)
Securities may only be disposed of pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act, and in compliance with any applicable state securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or to the Company or pursuant to Rule 144, except as otherwise set forth herein, the Company may require the transferor to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration under the Securities Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company and with its transfer agent, without any such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Company that it is an accredited investor as defined in Rule 501(a) under the Securities Act. For so long as any Purchaser owns Securities, the Company will not effect or publicly
15
announce its intention to effect any exchange, recapitalization or other transaction that effectively requires or rewards physical delivery of certificates evidencing the Common Stock.
(b)
The Purchasers agree to the imprinting, so long as is required by this Section 4.1(b), of the following or a substantially similar legend on any certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
Certificates evidencing Securities shall not be required to contain such legend or any other legend (i) while a Registration Statement covering the resale of such Securities is effective under the Securities Act, or (ii) following any sale of such Securities pursuant to Rule 144, or (iii) if such Securities are eligible for sale under Rule 144, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission). The Company shall cause its counsel to issue the legal opinion included in the Transfer Agent Instructions to the Company's transfer agent on the Effective Date. Following the Effective Date or at such earlier time as a legend is no longer required for certain Securities, the Company will use reasonable best efforts to cause its transfer agent, no later than three Trading Days following the delivery by a Purchaser to the Company or the Companys transfer agent of a legended certificate representing such Securities, deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section.
(c)
The Company acknowledges and agrees that a Purchaser may from time to time pledge or grant a security interest in some or all of the Securities in connection with a bona fide margin agreement or other loan or financing arrangement secured by the Securities and, if required under the terms of such agreement, loan or arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of the pledgee, secured party or
16
pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchasers expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder.
4.2
Furnishing of Information. As long as any Purchaser owns Securities, 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. Upon the request of any Purchaser, the Company shall deliver to such Purchaser a written certification of a duly authorized officer as to whether it has complied with the preceding sentence. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly available in accordance with paragraph (c) of Rule 144 such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request to (i) satisfy the provisions of Rule 144 applicable to the issuer of securities relating to transactions for the sale of securities pursuant to Rule 144, and (ii) satisfy any information, request or due diligence, legal, audit or otherwise, that may be requested following the Closing in order for a Purchasers to satisfy any regulatory requirements such Purchaser may need to satisfy whether domestically or internationally, including any requests from regulatory authority in the People Republic of China, and such information, request or due diligence shall be provided in a prompt manner, but in no event later than 5 Trading Days following such request.
4.3
Integration. The Company shall not, and shall use its reasonable best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.
4.4
Reservation and Listing of Securities. The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents. In the event that at any time the then authorized shares of Common Stock are insufficient for the Company to satisfy its obligations in full under the Transaction Documents, the Company shall promptly take such actions as may be required to increase the number of authorized shares. The Company shall in the time and manner required by its Trading Market, prepare and file with such Trading Market an additional shares listing application covering the number of shares of Common Stock issuable under the Transaction Documents and shall take all steps necessary to cause such shares of Common Stock to be approved for listing on its Trading Market as soon as possible.
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4.5
Subsequent Placements.
(a)
From the date hereof until the Effective Date, the Company will not, directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or the Subsidiaries equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for Common Stock or Common Stock Equivalents (any such offer, sale, grant, disposition or announcement being referred to as a Subsequent Placement).
(b)
From the Effective Date until 30 Trading Days after the Effective Date (the Blockout Period), the Company will not, directly or indirectly, effect any Subsequent Placement except as set forth in Section 4.5(e).
(c)
The Blockout Period set forth in Section 4.5(b) above shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, (ii) the Registration Statement is not effective, or (iii) the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of Registrable Securities thereunder.
(d)
From the end of the Blockout Period until the one year anniversary thereof, the Company will not, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with this Section 4.5(d).
(i)
The Company shall deliver to each Purchaser a written notice (the "Offer") of any proposed or intended issuance or sale or exchange of the securities being offered (the Offered Securities) in a Subsequent Placement, which Offer shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the Persons or entities to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with each Purchaser (A) a pro rata portion of the Offered Securities based on such Purchasers pro rata portion of the aggregate purchase price paid by the Purchasers for all of the Shares purchased hereunder (the "Basic Amount"), and (B) with respect to each Purchaser that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Purchasers as such Purchaser shall indicate it will purchase or acquire should the other Purchasers subscribe for less than their Basic Amounts (the Undersubscription Amount).
(ii)
To accept an Offer, in whole or in part, a Purchaser must deliver a written notice to the Company prior to the end of the ten (10) Trading Day period of the Offer, setting forth the portion of the Purchaser's Basic Amount that such Purchaser elects to purchase and, if such Purchaser shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Purchaser elects to purchase (in either case, the "Notice of Acceptance"). If the Basic Amounts subscribed for by all
18
Purchasers are less than the total of all of the Basic Amounts, then each Purchaser who has set forth an Undersubcription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the Available Undersubscription Amount), each Purchaser who has subscribed for any Undersubscription Amount shall be entitled to purchase on that portion of the Available Undersubscription Amount as the Basic Amount of such Purchaser bears to the total Basic Amounts of all Purchasers that have subscribed for Undersubscription Amounts, subject to rounding by the Board of Directors to the extent its deems reasonably necessary.
(iii)
The Company shall have five (5) Trading Days from the expiration of the period set forth in Section 4.5(d)(ii) above to issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by the Purchasers (the "Refused Securities"), but only to the offerees described in the Offer and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in the Offer.
(iv)
In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4.5(d)(iii) above), then each Purchaser may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that the Purchaser elected to purchase pursuant to Section 4.5(d)(ii) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Purchasers pursuant to Section 4.5(c)(ii) above prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Purchaser so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Purchasers in accordance with Section 4.5(d)(i) above.
(v)
Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, the Purchasers shall acquire from the Company, and the Company shall issue to the Purchasers, the number or amount of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to Section 4.5(d)(iv) above if the Purchasers have so elected, upon the terms and conditions specified in the Offer. The purchase by the Purchasers of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and the Purchasers of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to the Purchasers and their respective counsel.
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(vi)
Any Offered Securities not acquired by the Purchasers or other persons in accordance with Section 4.5(d)(iii) above may not be issued, sold or exchanged until they are again offered to the Purchasers under the procedures specified in this Agreement.
(e)
The restrictions contained in paragraphs (a), (b) and (d) of this Section 4.5 shall not apply to Excluded Stock.
4.6
Securities Laws Disclosure; Publicity. The Company shall, on or before 8:30 a.m., New York City time on the third Trading Day following the Closing Date, issue a press release acceptable to the Purchasers disclosing all material terms of the transactions contemplated hereby. Prior to the third business day after the Closing Date, the Company shall file a Current Report on Form 8-K with the Commission (the 8-K Filing) describing the terms of the transactions contemplated by the Transaction Documents and including as exhibits to such Current Report on Form 8-K this Agreement and the form of Warrant, in the form required by the Exchange Act. Thereafter, the Company shall timely file any filings and notices required by the Commission or applicable law with respect to the transactions contemplated hereby and provide copies thereof to the Purchasers promptly after filing. Company shall, at least two Trading Days prior to the filing or dissemination of any disclosure required by this paragraph that does not contain any material non-public information, provide a copy thereof to the Purchasers for their review. The Company and the Purchasers shall consult with each other in issuing any press releases or otherwise making public statements or filings and other communications with the Commission or any regulatory agency or Trading Market with respect to the transactions contemplated hereby, and neither party shall issue any such press release or otherwise make any such public statement, filing or other communication without the prior consent of the other, 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, filing or other communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except to the extent such disclosure (but not any disclosure as to the controlling Persons thereof) is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any Purchaser with any material nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing without the express written consent of such Purchaser. In the event of a breach of the foregoing covenant by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the Transaction Documents, a Purchaser shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its or their respective officers, directors, employees or agents. No Purchaser shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure. Subject to the foregoing, neither the Company nor any Purchaser shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior
20
approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Purchaser shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Each press release disseminated during the 12 months preceding the date of this Agreement did not at the time of release 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 are made, not misleading.
4.7
Use of Proceeds. Unless otherwise instructed in writing by the Purchasers, the aggregate proceeds hereunder and upon exercise of the Warrants shall be deposited into an account controlled pursuant to the Deposit Account Control Resolution. All use of proceeds shall be made pursuant to monthly or, at the Purchasers option, quarterly budgets approved by the Company and majority of the Purchasers.
4.8
Reimbursement. If any Purchaser or any of its Affiliates or any officer, director, partner, controlling Person, employee or agent of a Purchaser or any of its Affiliates (a Related Person) becomes involved in any capacity in any Proceeding brought by or against any Person in connection with or as a result of the transactions contemplated by the Transaction Documents, the Company will indemnify and hold harmless such Purchaser or Related Person for its reasonable legal and other expenses (including the costs of any investigation, preparation and travel) and for any Losses incurred in connection therewith, as such expenses or Losses are incurred, excluding only Losses that result directly from such Purchasers or Related Persons gross negligence or willful misconduct. In addition, the Company shall indemnify and hold harmless each Purchaser and Related Person from and against any and all Losses, as incurred, arising out of or relating to any breach by the Company of any of the representations, warranties or covenants made by the Company in this Agreement or any other Transaction Document, or any allegation by a third party that, if true, would constitute such a breach. The conduct of any Proceedings for which indemnification is available under this paragraph shall be governed by Section 6.4(c) below. The indemnification obligations of the Company under this paragraph shall be in addition to any liability that the Company may otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Purchasers and any such Related Persons. The Company also agrees that neither the Purchasers nor any Related Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the transactions contemplated by the Transaction Documents, except to the extent that any Losses incurred by the Company result from the gross negligence or willful misconduct of the applicable Purchaser or Related Person in connection with such transactions. If the Company breaches its obligations under any Transaction Document, then, in addition to any other liabilities the Company may have under any Transaction Document or applicable law, the Company shall pay or reimburse the Purchasers on demand for all costs of collection and enforcement (including reasonable attorneys fees and expenses). Without limiting the generality of the foregoing, the Company specifically agrees to reimburse the Purchasers on demand for all costs of enforcing the indemnification obligations in this paragraph.
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4.9
Board Seats. The Company hereby agrees that the board of directors of the Company shall not exceed 5 members, of which the Purchasers shall have the right to appoint 2 members to the Companys board of directors.
4.10
Shareholders Rights Plan; 10b5-1 Plans. No claim will be made or enforced by the Company or any other Person that any Purchaser is an Acquiring Person under any shareholders rights plan or similar 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 Underlying Shares under the Transaction Documents or under any other agreement between the Company and the Purchasers.
ARTICLE V
CONDITIONS
5.1
Conditions Precedent to the Obligations of the Purchasers. The obligation of each Purchaser to acquire Securities at the Closing is subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the following conditions:
(a)
Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date when made and as of the Closing as though made on and as of such date; and
(b)
Performance. The Company and each other Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing.
(c)
No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents;
(d)
Adverse Changes. Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would be expected to have or result in a Material Adverse Effect;
(e)
Chinese Government Pre-Approval and Recording. Particular to Shenzhen Times, its investments and funding contemplated by this Agreement into the Company shall be subject to and conditioned upon Shenzhen Times' receipt of the Chinese government's requisite prior-approvals and recording (as the case may be as required by applicable Chinese laws regarding outbound investments), including without limitation, approvals from and recording by the National Development and Reform Commission (inclusive of its local branches), the Ministry of Commerce (inclusive of its local branches) and the Chinese foreign exchange authority;
(f)
Post-Closing Commitment Letter. The Company and Purchaser shall have executed the Post-Closing Commitment Letter in the form attached as Exhibit F hereto
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(g)
No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock shall not have been suspended by the Commission or any Trading Market (except for any suspensions of trading of not more than three Trading Days (whether or not consecutive) solely to permit dissemination of material information regarding the Company) at any time since the date of execution of this Agreement, and the Common Stock shall have been at all times since such date listed for trading on an Eligible Market;
5.2
Conditions Precedent to the Obligations of the Company. The obligation of the Company to sell Securities at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions:
(a)
Representations and Warranties. The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of such date; and
(b)
Performance. The Purchasers shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchasers at or prior to the Closing.
ARTICLE VI
REGISTRATION RIGHTS
6.1
Shelf Registration
(a)
As promptly as possible, and in any event on or prior to the Filing Date, the Company shall prepare and file with the Commission a Shelf Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-1 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-1, in which case such registration shall be on another appropriate form in accordance herewith as the Purchasers may consent) and shall contain (except if otherwise directed by the Purchasers) the Plan of Distribution attached hereto as Exhibit E.
(b)
The Company shall use its best efforts to cause the Registration Statement to be declared effective by the Commission as promptly as possible after the filing thereof, but in any event prior to the Required Effectiveness Date, and shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act until the fifth anniversary of the Effective Date or such earlier date when all Registrable Securities covered by such Registration Statement have been sold publicly (the Effectiveness Period).
(c)
The Company shall notify each Purchaser in writing promptly (and in any event within one Trading Day) after receiving notification from the Commission that the Registration Statement has been declared effective.
(d)
If: (i) any Registration Statement is not filed on or prior to the Filing Date (if the Company files such Registration Statement without affording the Purchasers the
23
opportunity to review and comment on the same as required by Section 6.2(a) hereof, the Company shall not be deemed to have satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days after the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be reviewed, or will not be subject to further review, or (iii) the Company fails to respond to any comments made by the Commission within 10 Trading Days after the receipt of such comments, or (iv) a Registration Statement filed hereunder is not declared effective by the Commission by the Required Effectiveness Date, or (v) after a Registration Statement is filed with and declared effective by the Commission, such Registration Statement ceases to be effective as to all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period without being succeeded within 10 Trading Days by an amendment to such Registration Statement or by a subsequent Registration Statement filed with and declared effective by the Commission, or (vi) an amendment to a Registration Statement is not filed by the Company with the Commission within ten Trading Days after the Commissions having notified the Company that such amendment is required in order for such Registration Statement to be declared effective, or (vii) the Common Stock is not listed or quoted, or is suspended from trading on an Eligible Market for a period of three Trading Days (which need not be consecutive Trading Days) (any such failure or breach being referred to as an Event, and for purposes of clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded, or for purposes of clauses (iii), (v) or (vi) the date which such ten Trading Day-period is exceeded, or for purposes of clause (vii) the date on which such three Trading Day period is exceeded, being referred to as Event Date), then such event shall constitute a default under this Agreement.
(e)
The Company shall not, prior to the Effective Date of the Registration Statement, prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others (other than as contemplated in the Transaction Documents) under the Securities Act of any of its equity securities.
(f)
If the Company issues to the Purchasers any Common Stock pursuant to the Transaction Documents that is not included in the initial Registration Statement, then the Company shall file an additional Registration Statement covering such number of shares of Common Stock on or prior to the Filing Date and shall use its best efforts, but in no event later than the Required Filing Date, to cause such additional Registration Statement to become effective by the Commission.
6.2
Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall:
(a)
Not less than three Trading Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Purchaser and any counsel designated by any Purchaser (each, a Purchaser Counsel) copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the
24
review of each Purchaser and Purchaser Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which Purchasers holding a majority of the Registrable Securities shall reasonably object.
(b)
(i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any event within ten days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Purchasers true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Purchasers thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented
(c)
Notify the Purchasers of Registrable Securities to be sold and Purchaser Counsel as promptly as reasonably possible, and (if requested by any such Person) confirm such notice in writing no later than one Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a review of any Registration Statement; (ii) the Commission comments in writing on any Registration Statement (in which case the Company shall deliver to each Purchaser a copy of such comments and of all written responses thereto); (iii) any Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to any Registration Statement or Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Registration Statement become ineligible for inclusion therein or any statement made in any Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Registration Statement, Prospectus or other document is required so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
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(d)
Use its best efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as possible.
(e)
Furnish to each Purchaser and Purchaser Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.
(f)
Promptly deliver to each Purchaser and Purchaser Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Purchasers in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.
(g)
(i) In the time and manner required by each Trading Market, prepare and file with such Trading Market an additional shares listing application covering all of the Registrable Securities; (ii) take all steps necessary to cause such Registrable Securities to be approved for listing on each Trading Market as soon as possible thereafter; (iii) provide to the Purchasers evidence of such listing; and (iv) maintain the listing of such Registrable Securities on each such Trading Market or another Eligible Market.
(h)
Prior to any public offering of Registrable Securities, use its reasonable best efforts to register or qualify or cooperate with the selling Purchasers and each applicable Purchaser Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Purchaser requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement.
(i)
Cooperate with the Purchasers to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by this Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Purchasers may request.
(j)
Upon the occurrence of any event described in Section 6.2(c)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such
26
Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(k)
Cooperate with any due diligence investigation undertaken by the Purchasers in connection with the sale of Registrable Securities, including, without limitation, by making available any documents and information; provided that the Company will not deliver or make available to any Purchaser material, nonpublic information unless such Purchaser specifically requests in advance to receive material, nonpublic information in writing.
(l)
If Holders of a majority of the Registrable Securities being offered pursuant to a Registration Statement select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, by providing customary legal opinions, comfort letters and indemnification and contribution obligations.
(m)
Comply with all applicable rules and regulations of the Commission.
6.3
Registration Expenses. The Company shall pay (or reimburse the Purchasers for) all fees and expenses incident to the performance of or compliance with this Agreement by the Company, including without limitation (a) all registration and filing fees and expenses, including without limitation those related to filings with the Commission, any Trading Market and in connection with applicable state securities or Blue Sky laws, (b) printing expenses (including without limitation expenses of printing certificates for Registrable Securities and of printing prospectuses requested by the Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel for the Company and up to $5,000 for the Purchaser Counsel, (e) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, and (f) all listing fees to be paid by the Company to the Trading Market.
6.4
Indemnification
(a)
Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Purchaser, the officers, directors, partners, members, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all Losses, as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission 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 form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements, alleged
27
untrue statements, omissions or alleged omissions are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information relates to such Purchaser or such Purchaser's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of an outdated or defective Prospectus after the Company has notified such Purchaser in writing that the Prospectus is outdated or defective and prior to the receipt by such Purchaser of the Advice contemplated in Section 6.5. The Company shall notify the Purchasers promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.
(b)
Indemnification by Purchasers. Each Purchaser shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Purchaser to the Company specifically for inclusion in such Registration Statement or such Prospectus or to the extent that (i) such untrue statements or omissions are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein, or to the extent that such information relates to such Purchaser or such Purchaser's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of an outdated or defective Prospectus after the Company has notified such Purchaser in writing that the Prospectus is outdated or defective and prior to the receipt by such Purchaser of the Advice contemplated in Section 6.5. In no event shall the liability of any selling Purchaser hereunder be greater in amount than the dollar amount of the net proceeds received by such Purchaser upon the sale of the Registrable Securities giving rise to such indemnification obligation.
(c)
Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an Indemnified Party), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the Indemnifying Party) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the
28
Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).
(d)
Contribution. If a claim for indemnification under Section 6.4(a) or (b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include,
29
subject to the limitations set forth in Section 6.4(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6.4(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Purchaser from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.
6.5
Dispositions. Each Purchaser agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. Each Purchaser further agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 6.2(c)(v), (vi) or (vii), such Purchaser will discontinue disposition of such Registrable Securities under the Registration Statement until such Purchaser's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 6.2(j), or until it is advised in writing (the Advice) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.
6.6
No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Purchasers in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right to any of its security holders.
6.7
Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to
30
each Purchaser written notice of such determination and if, within fifteen days after receipt of such notice, any such Purchaser shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Purchaser requests to be registered.
ARTICLE VII
MISCELLANEOUS
7.1
Termination. This Agreement may be terminated by the Company or any Purchaser, by written notice to the other parties, if the Closing has not been consummated by the third Trading Day following the date of this Agreement; provided that no such termination will affect the right of any party to sue for any breach by the other party (or parties).
7.2
Fees and Expenses. Except as expressly set forth in the Transaction Documents or other advisory agreements 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, stamp taxes and other taxes and duties levied in connection with the issuance of any Securities.
7.3
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 supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Company will execute and deliver to the Purchasers such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents. Notwithstanding anything to the contrary herein, Securities may be assigned to any Person in connection with a bona fide margin account or other loan or financing arrangement secured by such Company Securities.
7.4
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 at the facsimile number specified in this Section prior to 6:30 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 at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of deposit with a nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The addresses and facsimile numbers for such notices and communications are those set forth on the signature pages hereof, or such other address or facsimile number as may be designated in writing hereafter, in the same manner, by any such Person.
7.5
Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each of the Purchasers or, in the case of a waiver, by the party against whom enforcement of
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any such waiver is sought. 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 either party to exercise any right hereunder in any manner impair the exercise of any such right. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Purchasers under Article VI and that does not directly or indirecty affect the rights of other Purchasers may be given by Purchasers holding at least a majority of the Registrable Securities to which such waiver or consent relates.
7.6
Construction. 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. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
7.7
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers. Any Purchaser may assign its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the Purchasers. Notwithstanding anything to the contrary herein, Securities may be assigned to any Person in connection with a bona fide margin account or other loan or financing arrangement secured by such Securities.
7.8
No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except that each Related Person is an intended third party beneficiary of Section 4.8 and each Indemnified Party is an intended third party beneficiary of Section 6.4 and (in each case) may enforce the provisions of such Sections directly against the parties with obligations thereunder.
7.9
Governing Law; Venue; Waiver Of Jury Trial. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY AND PURCHASERS HEREBY IRREVOCABLY SUBMIT 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 BROUGHT BY THE COMPANY OR ANY PURCHASER HEREUNDER, 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 WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY PURCHASER, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR
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PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND PURCHASERS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
7.10
Survival. The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery and/or exercise of the Securities, as applicable.
7.11
Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, 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 signature page were an original thereof.
7.12
Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
7.13
Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the 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.
7.14
Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, 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 and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.
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7.15
Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
7.16
Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser hereunder or pursuant to the Warrants or any Purchaser enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company by 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.
7.17
Adjustments in Share Numbers and Prices. In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof, each reference in any Transaction Document to a number of shares or a price per share shall be amended to appropriately account for such event.
7.18
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 of the obligations of any other Purchaser under any Transaction Document. The decision of each Purchaser to purchase Securities pursuant to this Agreement has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of the Subsidiary which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any other Purchaser (or any other Person) relating to or arising from any such information, materials, statements or opinions. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document. The Company hereby confirms that it understands that the Purchasers are not acting as a group as that term is used in Section 13(d) of the Exchange Act. Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no other Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment hereunder. Each Purchaser shall be entitled to independently
34
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 represents that it has been represented by its own separate legal counsel in its review and negotiations of this Agreement and the Transaction Documents.
[SIGNATURE PAGES TO FOLLOW]
35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
SIBLING GROUP HOLDINGS, INC
By:
/s/ Brian A. OliverSmith
Name:
Brian A. OliverSmith
Title:
Chief Executive Officer
Address for Notice:
215 Morris Street Suite 205
Durham, NC 27701
Facsimile No.: 888-413-2910
Telephone No.: 919-237-2755
Attn: Brian OliverSmith
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
SHENZHEN CITY QIANHAI XINSHI EDUCATION MANAGEMENT CO., LTD
By:
__________________________
Name:
Title:
Purchase Price
:
3,000,000
Units Purchased:
42,857,143
Warrant A Shares:
42,857,143
Warrant B Shares:
42,857,143
Additional Warrant:
21,428,571
Address for Notice:
_____________________
_____________________
_____________________
Facsimile No.:
Telephone No.:
Attn:
With a copy to:
Armstrong Teasdale LLP
7700 Forsyth Blvd., Suite 1800
St. Louis, Missouri 63105-1847
Facsimile No.: 314-612-2229
Attn: David W. Braswell, Esq.
[Signature Page to the Securities Purchase Agreement]
SCOT COHEN
__________________________
Scot Cohen
Purchase Price:
550,000
Units Purchased:
7,857,143
Warrant A Shares:
7,857,143
Warrant B Shares:
7,857,143
Additional Warrant:
3,928,571
Address for Notice:
c/o MSN Legal
205 East 42nd Street, 14th Fl
New York, New York 10017
Facsimile No.: 212-504-0863
Attn: Gaurav Malhotra, Esq.
[Signature Page to the Securities Purchase Agreement]
OAKWAY INTERNATIONAL LTD
By:__________________________
Name:
Title:
Purchase Price:
200,000
Units Purchased:
2,857,143
Warrant A Shares:
2,857,143
Warrant B Shares:
2,857,143
Additional Warrant:
1,428,571
Address for Notice:
c/o MSN Legal
205 East 42nd Street, 14th Fl
New York, New York 10017
Facsimile No.: 212-504-0863
Attn: Gaurav Malhotra, Esq.
[Signature Page to the Securities Purchase Agreement]
Exhibits:
A-1
Form of Warrant A
A-2
Form of Warrant B
A-3
Form of Warrant C
B
Form of Opinion of Company Counsel
C
Form of Transfer Agent Instructions
D
Lock-up Letter
E
Plan of Distribution
F
Post Closing Commitment List
EXHIBIT 10.3
V3 Capital Partners, LLC
January 18, 2015
Sibling Group Holdings, Inc.
901 Mopac Expressway South, suite 300
Austin, TX 78746
Re:
Advisory Fee Agreement
Dear Mr. Brian Oliver Smith:
This letter is to confirm the advisory fee agreement between Sibling Group Holdings, Inc. (the Company) and V3 Capital Partners, LLC or its designee (the Advisor), in connection with the advisory, due diligence and financing activities performed by the Advisor relating to a transaction between the Company and Shenzhen City Qisnhai Xinshi Education Management Co., LTD and its subsidiaries and other institutional investors (the Transaction).
Upon the closing of the Transaction, the Company shall immediately pay the Advisor, or its designee, the following:
a.
Cash payment of $557,000 for the purchase of the initial notes under the Transaction;
b.
Units for $312,000 upon same terms and conditions of Units issued under the Transaction; and
c.
50% warrant coverage on the aggregate initial notes issued under the Transaction.
In addition, the Company agrees to pay (i) the Advisor a pro rata portion of each of the fees above on the exercise of any warrants issued under the Transaction, and (ii) $100,000 of Shenzhen City Qisnhai Xinshi Education Management Co., LTD and Advisors legal and due diligence expenses. The Advisor shall have the right, at its option, to offset the amounts due under this agreement from the amount its participates in the Transactiion.
This letter shall be a binding agreement between the Company and the Advisor and shall be governed under New York law.
| Very truly yours, |
|
|
|
|
| _______________________ |
| Scot Cohen |
| Authorized Officer |
ACKNOWLEDGED AND AGREED TO:
Sibling Group Holdings, Inc.
By:________________________
Name:
Brian OliverSmith
Title:
Chief Executive Officer
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this Agreement) is dated as of February _____, 2015, between Sibling Group Holdings, Inc., a Texas corporation (the Company), and the purchaser identified on the signature pages hereto (including its successors and assigns, the Purchaser).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the Securities Act), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the 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 the Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Warrants (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
Action shall have the meaning ascribed to such term in Section 3.1(j).
Affiliate means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
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.
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 Purchaser obligations to pay the Subscription Amount and (ii) the Companys obligations to deliver the Securities, in each case, have been satisfied or waived.
Closing Statement means the Closing Statement in the form on Annex A attached hereto.
Commission or SEC means the United States Securities and Exchange Commission.
Common Stock means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
Common Stock Equivalents means any securities of the Company or 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 The Law Office of James G. Dodrill II, P.A., with offices located at 5800 Hamilton Way, Boca Raton, Florida 33496.
Disclosure Schedules shall have the meaning ascribed to such term in Section 3.1.
Effective Date means the earliest of the date that (a) a Registration Statement covering the Companys Securities has been declared effective by the Commission, (b) all of the Securities have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of the Closing Date provided that a holder of Securities is not an Affiliate of the Company, all of the Securities may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Securities pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
GAAP means United States generally accepted accounting principles applied on a consistent basis during the periods involved.
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).
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.
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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 4.5.
Registration Statement means a registration statement covering the resale of the Shares by the Purchaser.
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 Warrant Shares issuable upon exercise of the Warrants, ignoring any exercise limits set forth therein.
Rule 144 means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
Securities means 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.
Shares means the 1,428,571 shares of Common Stock purchased hereunder.
Subscription Amount shall mean, as to the Purchaser, the aggregate amount to be paid for the Shares and Warrants purchased hereunder as specified below such Purchasers name on the signature page of this Agreement and next to the heading Subscription Amount, in United States dollars and in immediately available funds.
Subsidiary means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
Trading Day means a day on which the New York Stock Exchange (or any successor entity) is open for trading.
Trading Market means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Markets (or any successors to any of the foregoing).
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Transaction Documents means this Agreement, the Warrants and all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
Units means one share of Common Stock and a Warrant to purchase one share of Common Stock.
Warrants means, collectively, the Common Stock purchase warrants delivered to the Purchaser 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, in the form of Exhibit A attached hereto.
Warrant Shares means the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1
Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser agrees to purchase an aggregate of 1,428,571 Units for an aggregate of $100,000 (the Subscription Amount). The Purchaser has delivered to the Company, via wire transfer or a certified check, immediately available funds equal to the Subscription Amount and the Company shall deliver to the Purchaser its respective Shares and Warrants as determined pursuant to Section 2.2(a), and the Company and the Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of Company Counsel or such other location as the parties shall mutually agree.
2.2
Deliveries.
(a)
On or prior to the Closing Date, the Company shall deliver or cause to be delivered to the Purchaser the following:
(i)
this Agreement duly executed by the Company; and
(ii)
The Shares; and.
(iii)
a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to the Shares, with an exercise price equal to $0.10 per share, subject to adjustment therein.
(b)
On or prior to the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the following:
(i)
this Agreement duly executed by such Purchaser; and
(ii)
the Subscription Amount by wire transfer to the account specified in writing by the Company.
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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 on the Closing Date of the representations and warranties of the Purchaser contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
(ii)
all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed;
(iii)
the delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement; and
(iv)
receipt of the Subscription Amount from the Purchaser.
(b)
The respective obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:
(i)
the accuracy in all material 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; and
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1
Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to the Purchaser:
(a)
Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). 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.
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(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 Companys ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a Material Adverse Effect) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c)
Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Companys stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(d)
No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents 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) conflict with or violate any provision of the Companys or any Subsidiarys certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment,
6
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 disclosed to the Purchaser, 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 the filing of Form D with the Commission and 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 other than restrictions on transfer provided for in the Transaction Documents. The Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Warrant Shares at least equal to the Required Minimum on the date hereof.
(g)
Capitalization. The capitalization of the Company is as set forth in the SEC Reports as hereinafter defined or as otherwise disclosed to the Purchaser. Except as disclosed to the Purchaser, 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. Purchaser is aware that contemporaneous with this transaction the Company is undertaking a transaction that will result in the issuance of a significant number of shares of Companys common stock and will result in significant dilution (the Other Transaction). Except as a result of the purchase and sale of the Securities and of the Other Transaction and except as set forth in the SEC Reports or otherwise disclosed to the Purchaser, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchaser) and will not result in a right of any holder of Company securities to adjust the
7
exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Companys capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Companys stockholders.
SEC Reports.
(i)
The Company has filed all reports required to be filed by it under the Securities Act and the United States Securities Exchange Act of 1934, as amended (the Exchange Act), including pursuant to Section 13(a) or 15(d) of the Exchange Act, (the SEC Reports) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.
(j)
Financial Statements. The financial statements of the Company included in the SEC Reports 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 for the periods then ended, subject to normal year-end audit adjustments.
(k)
Material Changes. Except as set forth on Schedule 3.1(i) or included in an SEC Report, (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) that have not been repaid 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 Companys financial statements pursuant to GAAP, (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 members or purchased, redeemed or made any agreements to purchase or redeem any units and (v) the Company has not issued any equity securities to any officer, manager, or Affiliate, except pursuant to existing Company stock option plans.
(l)
Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an Action) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.
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(m)
Private Placement. Assuming the accuracy of the Purchaser representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchaser as contemplated hereby.
(n)
Disclosure. All of the disclosures furnished by or on behalf of the Company to the Purchaser regarding the Company and its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, are true and correct in all material respects and do 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 Company acknowledges and agrees that the Purchaser has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.
(o)
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.
(p)
No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchaser and certain other accredited investors within the meaning of Rule 501 under the Securities Act.
3.2
Representations and Warranties of the Purchaser. The 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. The Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser,
9
enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b)
Own Account. Such Purchaser understands that the Securities are restricted securities and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchasers right to sell the Securities pursuant to a Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
(c)
Purchaser Status. At the time the Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants, it will be an accredited investor.
(d)
Experience of Such Purchaser. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser 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)
General Solicitation. The Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchasers right to rely on the Companys representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1
Transfer Restrictions.
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(a)
The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement.
(b)
The Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] OF THIS [SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
(c)
Certificates evidencing the Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a Registration Statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Shares pursuant to Rule 144, (iii) if such Shares are eligible for sale under Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to its transfer agent (if the Company has a transfer agent) promptly if required by such transfer agent to effect the removal of the legend hereunder. If all or any portion of the Warrants are exercised at a time when there is an effective registration statement to cover the resale of the Shares, or if such Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Shares shall be issued free of all legends. The Company agrees that following the
11
Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, upon request by Purchaser, deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to its transfer agent (if the Company has a transfer agent) that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Shares subject to legend removal hereunder shall be transmitted by its transfer agent (if the Company has a transfer agent) to the Purchaser by crediting the account of the Purchasers prime broker with the Depository Trust Company System as directed by such Purchaser, if such shares are eligible for such transfer.
(d)
The Purchaser agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Companys reliance upon this understanding.
4.2
Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
4.3
Exercise Procedures. Each of the form of Notice of Exercise included in the Warrants set forth the totality of the procedures required of the Purchaser in order to exercise the Warrants. Without limiting the preceding sentences, no ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required in order to exercise any of the Warrants. No additional legal opinion, other information or instructions shall be required of the Purchaser to exercise their Warrants. The Company shall honor exercises of the Warrants and shall deliver Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
4.4
Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes.
4.5
Indemnification of Purchaser. Subject to the provisions of this Section 4.5, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a Purchaser Party) harmless from any and all losses, liabilities, obligations,
12
claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against 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 Partys representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Companys 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 Partys 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 indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
4.7
Reservation of Securities.
(a)
The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.
(b)
If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than 130% of (i) the Required Minimum on such date, minus (ii) the number of shares of Common Stock previously issued pursuant to the Transaction Documents, then the Board of Directors shall use commercially reasonable efforts to amend the Companys certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time (minus the number of shares of Common Stock previously issued pursuant to the Transaction Documents), as soon as possible and in any
13
event not later than the 75th day after such date; provided that the Company will not be required at any time to authorize a number of shares of Common Stock greater than the maximum remaining number of shares of Common Stock that could possibly be issued after such time pursuant to the Transaction Documents.
4.8
Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchaser at the Closing under applicable securities or Blue Sky laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.
ARTICLE V.
MISCELLANEOUS
5.1
Termination. This Agreement may be terminated by the Company or any Purchaser, as to such Purchasers obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchaser, by written notice to the other parties, if the Closing has not been consummated on or before March 15, 2015.
5.2
Fees and Expenses. Except as expressly set forth herein 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 any fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchaser.
5.3
Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4
Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 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 at the facsimile number 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.
5.5
Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser or, in the case of a waiver, by the party against
14
whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
5.6
Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser (other than by merger). The 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 Purchaser and such Person is not engaged in, whether directly or indirectly for itself or through or on behalf of another Person, or otherwise a participant, owner, financer, member of the board of directors of, a consultant to or otherwise, any entity that is engaged in a Competitive Business anywhere in the United States. Competitive Business shall mean owning or operating low-power broadcast television stations.
5.8
No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.
5.9
Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas, 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 Austin, Texas. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in City of Austin, Texas for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.6, the prevailing party in such action, suit or proceeding shall be
15
reimbursed by the other party for its reasonable attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
5.10
Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.
5.11
Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a .pdf format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or .pdf signature page were an original thereof.
5.12
Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13
Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15
Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
5.16
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.
5.17
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
16
drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
5.18
WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
17
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.
SIBLING GROUP HOLDINGS, INC. | Address for Notice: 215 Morris Street, Suite 205 Durham, NC 27701 |
By:__________________________________________ Name: Brian OliverSmith Title: Chief Executive Officer |
|
|
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGES TO SIBLING GROUP HOLDINGS, INC. SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: ____________________________________________________
Signature of Authorized Signatory of Purchaser: __________________________
Name of Authorized Signatory: ____________________________________
Title of Authorized Signatory: _____________________________________
Email Address of Authorized Signatory: ___________________________________________
Facsimile Number of Authorized Signatory: _________________________________________
Address for Notice to Purchaser:
_______________________________________________
_______________________________________________
_______________________________________________
Address for Delivery of Securities to Purchaser (if not same as address for notice):
_______________________________________________
_______________________________________________
_______________________________________________
Subscription Amount: $100,000
No. of Shares of Common Stock:1,428,571
Warrants: 1,428,571
EIN Number: _______________________
[SIGNATURE PAGES CONTINUE]
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Disclosure Schedule
Schedule 3.1(a) Subsidiaries
BLSCH Acquisition, LLC, a Georgia limited liability company
Urban Planet Media & Entertainment Corp., a Delaware corporation
20
Exhibit A
Warrants
21
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, David Saba, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Sibling Group Holdings, Inc. for the quarter ended March 31, 2015;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 26, 2015
| By: | /s/ David Saba |
|
| Name: | David Saba |
|
| Title: | President |
|
|
| (Principal Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Angelle Judice, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Sibling Group Holdings, Inc. for the quarter ended March 31, 2015;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 26, 2015
| By: | /s/ Angelle Judice |
|
| Name: | Angelle Judice |
|
| Title: | Chief Financial Officer |
|
|
| (Principal Financial and Accounting Officer) |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Sibling Group Holdings, Inc. (the Company) on Form 10-Q for the quarter ending March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof, I, David Saba certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2.
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 26, 2015
| By: | /s/ David Saba |
|
| Name: | David Saba |
|
| Title: | President |
|
|
| (Principal Executive Officer) |
|
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Sibling Group Holdings, Inc. (the Company) on Form 10-Q for the quarter ending March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof, I, Angelle Judice certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2.
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 26, 2015
| By: | /s/ Angelle Judice |
|
| Name: | Angelle Judice |
|
| Title: | Chief Financial Officer |
|
|
| (Principal Financial and Accounting Officer) |
|
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