UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): April 12, 2016 (April 6, 2016)
EFACTOR GROUP CORP.
(Exact name of registrant as specified in its charter)
| Nevada | 000-51569 | 84-1598154 | ||
|
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
340 West 42nd Street, Suite 880
New York, New York 10108
(Address of Principal Executive Offices)
(650) 380-8280
(Issuer’s telephone number)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation to the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 1.01 | Entry into a Material Definitive Agreement. |
On April 12, 2016, EFactor Group Corp. (the “Company”) entered into a Securities Purchase Agreement (“Purchase Agreement”) dated as of April 1, 2016 with Magna Equities II, LLC and Increasive Ventures B.V. (the “Lenders”), pursuant to which the Company issued to the Lenders promissory notes in the aggregate principal amount of $225,000 (the “Notes”) for an aggregate purchase price of $200,000. The principal due under the Notes accrues interest at a rate of 12% per annum. All principal and accrued interest under the Notes is due on April 1, 2017 and is convertible into shares of the Company’s common stock at a conversion price equal to the lesser of: (i) 60% of the lowest trading price of the common stock in the five trading days prior to conversion and (ii) $1.00, subject to adjustment upon the occurrence of certain events.
The Purchase Agreement also provides that the Lenders have the right of first refusal to purchase securities in any future offerings by the Company for two years following the closing date of the transaction, subject to certain exceptions, and the Company may not conduct any equity financings during that period unless it complies with the terms and conditions of the right of first refusal. The Company also agreed that, until the later of 180 days and the date the Lenders no longer own any securities of the Company, it will not enter into or discuss with any parties (other than the Lenders) any transaction involving the sale, transfer or other disposition of any securities, assets or rights of the Company or any of its subsidiaries. The Notes include customary events of default including non-payment of the principal or accrued interest due on the Notes. Upon an event of default, all obligations under the Note will become immediately due and payable and the Company will be required to make certain payments to the Lenders.
The Company also entered into a forbearance agreement dated as of April 1, 2016, with the Lenders pursuant to which the Lenders agreed not to exercise their remedial rights under the other promissory notes previously issued to the Lenders by the Company which are currently in default, subject to the terms and conditions thereof, until the earlier of April 1, 2017 or the occurrence of an event of default under the agreement (the “Forbearance Agreement”). The Forbearance Agreement contains a number of events of default, including the Company’s failure to comply with any term, condition or covenant of the agreement, the occurrence of a default with respect to other indebtedness of the Company after the date of the agreement and the filing of a petition under the bankruptcy or insolvency laws.
In connection with the Purchase Agreement and the Forbearance Agreement, the Company entered into a security agreement dated as of April 1, 2016, with the Lenders, pursuant to which the Company granted a first priority security interest in all of the Company’s assets to secure the Company’s obligations under the Notes and all other promissory notes previously issued to the Lenders by the Company (the “Security Agreement”). In addition, the Company entered into a stock pledge and security agreement with the Lenders dated as of April 1, 2017, pursuant to which the Company granted to the Lenders, a security interest in the shares of capital stock of all of the Company’s subsidiaries (the “Pledge Agreement”).
The foregoing summaries of the terms of the Notes, the Purchase Agreement, the Forbearance Agreement, the Security Agreement and the Pledge Agreement are subject to, and qualified in their entirety by, the agreements and instruments attached hereto as Exhibits 4.1, 10.1, 10.2, 10.3 and 10.4, respectively, which are incorporated by reference herein.
| Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information set forth under Item 1.01 above with respect to the Notes, the Purchase Agreement and the related agreements is incorporated herein by reference.
| Item 3.02 | Unregistered Sales of Equity Securities. |
The information set forth under Item 1.01 above with respect to the issuance of the Notes is incorporated herein by reference. The issuance of the Notes was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(a)(2) of the Act.
| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On April 6, 2016, Thomas Trainer resigned as a director and chairman of the board of directors of the Company, effective immediately. Mr. Trainer’s resignation did not result from any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
| Exhibit No. | Description | |
| 4.1 | Form of Promissory Note issued to Lenders | |
| 10.1 | Securities Purchase Agreement, dated as of April 1, 2016, by and among the Company and the Lenders | |
| 10.2 | Forbearance Agreement, dated as of April 1, 2016, by and among the Company and the Lenders | |
| 10.3 | Security Agreement, dated as of April 1, 2016, by and among the Company and the Lenders | |
| 10.4 | Stock Pledge and Security Agreement, dated as of April 1, 2016, by and among the Company and the Lenders |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: April 12, 2016
| EFACTOR GROUP CORP. | ||
| By: | /s/ Mark Noffke | |
| Name: Mark Noffke | ||
| Title: Chief Financial Officer | ||
Exhibit 4.1
NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
| Principal Amount: $112,500 | Issue Date: April 1, 2016 |
| Purchase Price: $100,000 |
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, EFACTOR GROUP CORP., a NEVADA corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of __________________, or registered assigns (the “Holder”) the sum of One Hundred Twelve Thousand Five Hundred Dollars ($112,500), on April 1, 2017 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of twelve percent (12%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise, compounded on a monthly basis. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth in Section 1.9 hereof. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
This Note is free from all Liens with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and/or any other person/entity and will not impose personal liability upon the holder thereof. This Note shall rank pari passu with all other Notes issued pursuant to the Purchase Agreement.
The following terms shall apply to this Note:
ARTICLE 1. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from time to time, and at any time, except as defined in the subsequent paragraph, during the period beginning on the date of this Note and ending on the later of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock (the “Beneficial Ownership Limitation”). For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver) provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the outstanding shares of the Common Stock. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, provided, however, that the Company shall have the right to pay any or all interest in cash plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
1.2 Conversion Price.
(a) Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall be the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean the lesser of (i) 40% discount from the lowest daily trading price during any of the five (5) trading days prior to conversion, or (ii) a fixed price of $1.00. “Trading Price” means, for any security as of any date, the lowest trading price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCQB”) as reported by a reliable reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder (i.e. Bloomberg). If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is traded for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. If the Borrower’s Common Stock is chilled for deposit at DTC and/or becomes chilled at any point while this Agreement remains outstanding, an additional 8% discount will be attributed to the Conversion Price defined hereof. If the Borrower is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors, where applicable to raise the number of authorized shares to satisfy the Notice of Conversion.
(b) Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.
1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the Notes issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Notes issued pursuant to the Purchase Agreement (based on the Conversion Price of the Notes in effect from time to time) (the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. Commencing on the expiration of the first month from the issue date of this Note, the Reserved Amount shall be recalculated each month based upon the Variable Conversion Price and the Company shall notify the Transfer Agent and the Holder in writing by the fifth day of the following month of the new Reserved Amount. In the event the Company does not notify the Transfer Agent of the new Reserved Amount in a timely manner, the Holder shall have the absolute right to notify the Transfer Agent, without any further action by the Company. Notwithstanding the foregoing, in no event shall the Reserved Amount be lower than the initial Reserved Amount, regardless of any prior conversions. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
1.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by: (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (but in any event the fifth (5th) business day being hereinafter referred to as the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of the this Note) in accordance with the terms hereof and the Purchase Agreement.
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article 1, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.
(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate or interfere with such conversion right are difficult if not impossible to quantify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.
(h) Compensation for Buy-In on Failure to Timely Deliver Common Stock Upon Conversion. In addition to any other rights available to the Holder, if the Borrower fails for any reason to deliver to the Holder such certificate or certificates by the Deadline, and if after such Deadline the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock which the Holder was entitled to receive upon the conversion relating to such Deadline (a “Buy-In”), then the Borrower shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Borrower had timely complied with its delivery requirements under Section 1.4(d). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Borrower shall be required to pay the Holder $1,000. The Holder shall provide the Borrower written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Borrower, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulations S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance, but in no event shall the Conversion Price be above the original Conversion Price.
The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.
(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 19.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.
1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.
1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, so long as the Borrower has not received a Notice of Conversion from the Holder, then at any time during the period beginning on the Issue Date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay all or a portion of the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9, provided however, that any prepayment of this Note shall be made pro rata in proportion to the unpaid principal balances of this Note and all other Notes issued pursuant to the Purchase Agreement. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered address and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers and Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
1.10 Certain Definitions. The following terms have the following meanings:
(a) “Contingent Obligation” shall mean as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.
(b) “Indebtedness” shall mean, with respect to any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all capital lease obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under acceptance, letter of credit, surety bond or similar facilities, (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any capital stock of such Person, (h) all obligations for any earn-out consideration, (i) the liquidation value of preferred capital stock of such Person, (j) all guarantee obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (i) above, (k) all obligations of the kind referred to in clauses (a) through (i) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation and all obligations of such Person in respect of hedge agreements; and (l) all Contingent Obligations in respect to indebtedness or obligations of any Person of the kind referred to in clauses (a)-(k) above. The Indebtedness of any Person shall include, without duplication, the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor.
(c) “Liabilities” shall mean all direct and/or indirect liabilities, Indebtedness and obligations of any kind of Borrower and/or its Subsidiaries to the Holder, howsoever created, arising or evidenced, whether now existing or hereafter arising (including those acquired by assignment), absolute or contingent, due or to become due, primary or secondary, joint or several, whether existing or arising through discount, overdraft, purchase, direct loan, participation, operation of law, or otherwise, all Liabilities, Indebtedness and obligations of Borrower and/or its Subsidiaries to the Holder pursuant to this Note, and/or any of the other Transaction Documents, any letter of credit, any standby letter of credit, and/or outside attorneys’ and paralegals’ fees or charges relating to the negotiation and preparation of the Transaction Documents, the actions required to be taken herein and or therein and the enforcement of Holder’s rights, remedies and powers under this Agreement, the Note and/or any other expenses and/or Transaction Documents.
(d) “Permitted Governmental Indebtedness” means Indebtedness provided by the Export and Import Bank of the United States of America or other similar governmental entity for the purpose of supporting product sales by the Borrower.
(e) “Permitted Indebtedness” means (i) Indebtedness of the Borrower evidenced by the Notes, the Agreement and/or any other Transaction Document in favor of the Holders thereof including all Liabilities, (ii) Indebtedness of the Borrower set forth in the unaudited condensed, consolidated financial statements of the Borrower, included in the Borrower’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2015 filed with the SEC, (iii) Indebtedness secured by Permitted Liens described in clauses “(iv)” and “(v)” of the definition of Permitted Liens, and (iv) Permitted Governmental Indebtedness.
(f) “Permitted Liens” means (i) any Lien for delinquent taxes being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with US GAAP, and/or (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent.
(g) “Person” shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, county, city, municipal or otherwise including, without
(h) “Subsidiary” shall mean, with respect to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.
(i) “Lien” shall mean a lien, mortgage, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction, clouds on title and/or encumbrances.
ARTICLE 2. CERTAIN COVENANTS
2.1 Negative Covenants As long as any portion of this Note remains outstanding, unless the holders of 75% of the aggregate principal amount of the outstanding Notes issued under the Purchase Agreement shall have otherwise given prior written consent, the Borrower shall not, and shall not permit any of its Subsidiaries (whether or not a subsidiary on the Issue Date) to, directly or indirectly:
(a) other than Indebtedness existing as of the Issue Date, enter into, create, incur, assume, guarantee or suffer to exist any Indebtedness in excess of $100,000;
(b) other than Permitted Liens enter into, create, incur, assume or suffer to exist any Liens, on or with respect to any of the Company’s and/or its Subsidiaries property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
(c) except for an increase in the Borrower’s authorized shares, amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;
(d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock equivalents;
(e) repay, repurchase or offer to repay, repurchase or otherwise acquire any indebtedness, other than the Notes if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;
(f) pay cash dividends or distributions on any equity securities of the Borrower;
(g) sell, lease or otherwise dispose of any portion of its assets. Any consent to the disposition of any assets may be conditioned on a use of the proceeds of disposition specified by the Holders of the Notes;
(h) so long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $1,000;
(i) enter into any transaction with any affiliate of the Borrower which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s length basis and expressly approved by a majority of the disinterested directors of the Borrower (even if less than a quorum otherwise required for board approval); or
(j) enter into any agreement with respect to any of the foregoing.
ARTICLE 3. EVENTS OF DEFAULT
If any of the following events of default (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
3.2 Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing( electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove ( or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion.
3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and/or any other Transaction Document;
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, any Transaction Document), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note and/or any other Transaction Document or the Purchase Agreement;
3.5 Bankruptcy, Receiver or Trustee. The Borrower or any Subsidiary of the Borrower shall commence, or there shall be commenced against the Borrower or any Subsidiary of the Borrower under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Borrower or any subsidiary of the Borrower commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any subsidiary of the Borrower or there is commenced against the Borrower or any subsidiary of the Borrower any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 61 days; or the Borrower or any subsidiary of the Borrower is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any Subsidiary of the Borrower suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty one (61) days; or the Borrower or any subsidiary of the Borrower makes a general assignment for the benefit of creditors; or the Borrower or any subsidiary of the Borrower shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Borrower or any subsidiary of the Borrower shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Borrower or any subsidiary of the Borrower shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Borrower or any subsidiary of the Borrower for the purpose of effecting any of the foregoing;
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any Subsidiary of the Borrower or any of their respective property or other assets for more than $25,000, and shall remain unvacated, unbonded or unstayed for a period of five (5) days;
3.7 Indebtedness Default. The Borrower or any Subsidiary of the Borrower shall default after the Issue Date in any of its obligations under any other Note, Indebtedness, debenture, instrument, agreement, mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any Indebtedness of the Borrower or any Subsidiary of the Borrower, whether such Indebtedness now exists or shall hereafter be created;
3.8 Delisting of Common Stock; DTC Chill. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCQB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange or there shall be no bid price for the stock for a period of one business day or the Depository Trust Company places a chill on new deposits of Common Stock, which is not removed within ten (10) trading days;
3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act; provided however, if the Borrower files its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 by May 31, 2016 and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2016 by June 30, 2016, the Company shall not be in violation of this Section 3.9.
3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
3.12 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
3.13 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.
3.15 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocable reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Holder and the Borrower.
3.16 Failure to Pay Post-Closing Expenses. The failure by Borrower to pay any and all Post-Closing Expenses as defined in section 4.6.
3.17 Delisting. From and after the initial trading, listing or quotation of the Common Stock on a Principal Market, an event resulting in the Common Stock no longer being traded, listed or quoted on a Principal Market; failure to comply with the requirements for continued quotation on a Principal Market; or notification from a Principal Market that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for seven (7) trading days following such notification.
3.18 Cross-Default. Notwithstanding anything to the contrary contained in this Note or any of the other Transaction Documents, a breach or default by the Borrower and/or any of its Subsidiaries of any covenant or other term or condition contained in any other Note issued under the Purchase Agreement or any of the Transaction Documents, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Borrower, be considered a default under this Note and the Transaction Documents, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder.
3.19 Remedies.
(a) Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date (a “Maturity Default”), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein).
(b) Upon the occurrence and during the continuation of any Event of Default other than a Maturity Default, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 140% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of such breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date, multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at low or in equity.
If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.
ARTICLE 4. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
EFACTOR GROUP CORP.
340 West 42nd Street, Suite 880
New York, NY 10108
Attn: Mark Noffke, Chief Financial Officer
If to the Holder:
_______________
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holders of all Notes issued under the Purchase Agreement. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
4.6 Post-Closing Expenses. The Borrower will bear any and all miscellaneous expenses that may arise as a result of this Agreement post-closing. These expenses include, but are not limited to, the cost of legal opinion production, transfer agent fees, equity issuance fees, etc. The failure to pay any and all Post-Closing Expenses will be deemed an Event of Default.
4.7 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document 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.
4.8 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
4.10 Relationship to Security Agreement. This Note is one of the Notes referred to in the Security Agreement as amended, restated, and/or supplemented (the “Security Agreement”) and the Pledge and Security Agreement as amended, restated, and/or supplemented, (the “Pledge Agreement”) dated as of the date hereof by and between the Borrower, the Holder and the other parties named in any such agreements. This Note is entitled to the benefits of, shall be construed in accordance with, and is secured by the Liens and security interests granted in the Security Agreement and the Pledge Agreement.
4.11 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
4.12 Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Borrower (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
(Signature Pages Follow)
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer as of April 1, 2016.
| EFACTOR GROUP CORP. | ||
| By | /s/ Mark Noffke | |
|
Name: Mark Noffke Title: Chief Financial Officer | ||
Exhibit A.
NOTICE OF CONVERSION
The undersigned hereby elects to convert $________________ of the principal amount of the Note (defined below) into Shares of Common Stock of EFACTOR GROUP CORP., a NEVADA Corporation (the “Borrower”) according to the conditions of the Convertible Note of the Borrower dated as of April 1, 2016 (the “Note”). No fee will be charged to the Holder or Holder’s Custodian for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
| ¨ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). | |
| Name of DTC Prime Broker: ___________________________________________ | ||
| Account Number: __________________________________________________ | ||
| ¨ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below: | |
| Name: | ||
| EIN #: |
| Date of Conversion: | |
| Conversion Price: | |
| Shares to Be Delivered: | |
|
Remaining Principal Balance Due After This Conversion: |
|
| Signature |
|
| Print Name: | Joshua Sason |
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), is made as of April 1, 2016, by and between EFACTOR GROUP CORP., a Nevada corporation, with its principal offices located at 340 West 42nd Street Suite 880 New York, NY 10108 (the “Company”), MAGNA EQUITIES II, LLC, a New York corporation, with its address at 40 Wall Street, New York, New York 10005 (“Magna”) and Increasive Ventures B.V. with its principal address at Stevensweg 2, 2141 VL Vijfhuizen, The Netherlands (“IV”, each a “Buyer” and together with Magna, collectively, the “Buyers”).
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);
B. Each Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement a 12% senior secured convertible promissory note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of $112,500 (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, each a “Note” and collectively, the “Notes”), convertible into shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note.
C. Each Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of the Notes as is set forth immediately below its name on the signature pages hereto; and
NOW THEREFORE, the Company and the Buyers severally (and not jointly) hereby agree as follows:
1. Purchase and Sale of Notes.
(a) Purchase of Note. On or prior to the Closing Date (as defined below), the Company shall issue and sell to each Buyer and, subject to the terms and conditions set forth in this Agreement, each Buyer agrees to purchase from the Company a Note for a purchase price of $100,000 per Note (the “Purchase Price”).
(b) Form of Payment. On or prior to the Closing Date, each Buyer shall have paid the Purchase Price per Note by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against future delivery of the Notes. At the Closing, the Company shall deliver such duly executed Notes and other Transaction Documents (as defined below) on behalf of the Company, to each Buyer, against delivery of such Purchase Price.
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(c) Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Notes pursuant to this Agreement (the “Closing Date”) shall be 12:00 noon, Eastern Standard Time on or about April 12, 2016, or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.
(d) Security Agreement. On the Closing Date, the Company shall have duly authorized and delivered to the Buyers a Security Agreement executed by the Company in favor of the Buyers dated as of the Closing Date in the form attached hereto as Exhibit B (the “Security Agreement”), and such Security Agreement shall be in full force and effect as of the Closing Date.
(e) Pledge Agreement; Escrow Agreement. On the Closing Date, the Company shall have duly authorized and delivered to the Buyers (i) a Security and Stock Pledge Agreement with respect to the Pledged Securities and Pledge Collateral (as such terms are defined in the Pledge Agreement) all the issued and outstanding equity interests (the “Pledged Equity”) in each of the Company’s Subsidiaries (defined below), in the form of Exhibit C attached hereto (the “Pledge Agreement”), which shall be in full force and effect as of the Closing Date; and (ii) an Escrow Agreement, in the form of Exhibit D attached hereto (the “Escrow Agreement”) appointing an escrow agent to hold the Pledged Securities and Pledge Collateral in escrow pursuant to and in accordance with the terms of the Escrow Agreement.
(f) Certain Definitions. Capitalized Terms not otherwise defined herein shall have the meanings set forth in the Notes.
2. Buyer’s Representations and Warranties. Each Buyer for itself only and not for the other Buyer represents and warrants to the Company that:
(a) Investment Purpose. As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note, (such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
(b) Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D of the 1933 Act (an “Accredited Investor”).
(c) Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
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(d) Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
(e) Legends. The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, it will be considered an Event of Default of the Note.
(f) Authorization; Enforcement. This Agreement has been duly and validly authorized by the Buyer. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.
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(g) Residency. The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.
3. Representations and Warranties of the Company. The Company represents and warrants to each Buyer that:
(a) Organization and Qualification. The Company and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth a list of all of the subsidiaries of the Company (the “Subsidiaries”), whose issued and outstanding securities are owed by the Company and which are being pledged and will be held pursuant to and in accordance with the Pledge Agreement and the Escrow Agreement, respectively, and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
(b) Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Notes, the Security Agreement, the Pledge Agreement, the Escrow Agreement, the Transfer Agent Letters (as defined below) and each of the other agreements, documents and instruments expressly contemplated by this Agreement or otherwise relating to the Notes, and any amendments, renewals, restatements, replacements or other modifications of the foregoing from time to time and to consummate the transactions contemplated hereby and thereby and to issue the Note, in accordance with the terms hereof and thereof (collectively, the “Transaction Documents”), (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Notes, the reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors, including by a majority of the disinterested directors, and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) each of the Transaction Documents has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other Transaction Documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such Transaction Documents will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.
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(c) Capitalization. As of the date hereof, the authorized capital stock of the Company consists of: (i) 300,000,000 shares of Common Stock, of which 4,376,752 shares are issued and outstanding; no shares are reserved for issuance except (i) 63,792 shares pursuant to the Company’s stock option plans, (ii) 7,807,373 shares issuable upon conversion of all outstanding convertible notes, and (iii) 1,993,629 shares reserved for issuance pursuant to warrants exercisable for shares of Common Stock. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable and have been issued in compliance with all federal and state securities laws. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the effective date of this Agreement, (i) except as set forth in this Section 3(c), there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) except as set forth on Schedule 3(c)(1), there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) except as set forth on Schedule 3(c)(2) and for the Notes and the notes issued to the Buyers and warrants previously issued to each Buyer, 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) that will be triggered by the issuance of the Notes or the Conversion Shares. Except as set forth in the SEC Documents, none of the Company’s and/or any of its Subsidiaries’ assets (whether tangible or non-tangible), including, but not limited to, any securities of any of the Company’s Subsidiaries is directly and/or indirectly subject to any Liens. Neither the Company nor any of its Subsidiaries is a direct or indirect party to any security agreement, pledge agreement or other agreement, relating or effecting any of the Company’s and/or its Subsidiaries’ assets and no third party has any claim, asserted any claim or informed the Company and/or any of its Subsidiaries that it believes it has a claim in or to any of the Company’s and/or its Subsidiaries assets. All issued and outstanding securities of the Subsidiaries are owed beneficially and of record by the Company free and clear of all Liens.
(d) Issuance of Shares and Notes. The Conversion Shares and the Notes are duly authorized, and the Conversion Shares are reserved for issuance and the Notes and the Conversion Shares when issued will be validly issued, fully paid and non-assessable, and free from Liens and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and/or any other person and will not impose personal liability upon the holder thereof.
(e) Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
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(f) No Conflicts. The execution, delivery and performance of this Agreement, the Note and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) conflict with or result in a violation of any provision of the Articles of Incorporation or By-laws of the Company or any Subsidiary, each as amended through and including the Closing Date (collectively, the “Internal Documents”), (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, note, debenture, indenture, and/or any other Indebtedness (as defined below), and/or interest evidencing any such Indebtedness, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or by which any of its and/or any of its Subsidiaries’ assets are bound by and/or subject to or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company and/or any of its Subsidiaries or their respective securities and/or assets are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Neither the Company nor any of its Subsidiaries is in violation of their Internal Documents or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as a Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, neither the Company nor any of its Subsidiaries is required to obtain any corporate, shareholder and/or other consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform each of its respective obligations under this Agreement, the Note and/or any of the other Transaction Documents in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and to issue the Conversion Shares upon conversion of the Note. All consents, authorizations, orders, filings and registrations which the Company and/or any of its Subsidiaries is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Over-the-Counter Bulletin Board (the “OTCQB”) and does not reasonably anticipate that the Common Stock will be delisted by the OTCQB in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
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(g) SEC Documents; Financial Statements. As of the date hereof, except for the failure of the Company to file its Annual Report on Form 10-K for the year ended December 31, 2015 on or prior to March 30, 2016, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). The Company has delivered to the Buyers true and complete copies of the SEC Documents, except for such exhibits and incorporated documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to four months prior to the date hereof and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act.
(h) Absence of Certain Changes. Except as set forth in the SEC Documents, since the date of the latest financial statements included in the SEC reports: (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) neither the Company nor any of its Subsidiaries has incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to United States generally accepted accounting principles (“GAAP”) or disclosed in filings made with the SEC, (iii) neither the Company nor any of its Subsidiaries has altered its method of accounting, (iv) neither the Company nor any of its Subsidiaries has declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of their respective capital stock and (v) neither the Company nor any of its Subsidiaries has issued any equity securities to any officer, director or affiliate, except pursuant to existing Company equity incentive plans. Neither the Company nor any of its Subsidiaries has pending before the SEC any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement, no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one trading day prior to the date that this representation is made.
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(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 or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. To the knowledge of the Company, there are no threatened proceedings against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
(j) Patents, Copyrights, etc. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable each to conduct their respective business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
(k) No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect. Except as set forth in the SEC Documents or in Schedule 3(k), neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, note, instrument, loan, credit agreement, security agreement, pledge agreement or any other material agreement or instrument to which any of such entities is a party or by which any of such entities’ properties and/or assets is directly and/or indirectly 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 (ii) 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 applicable to its business and all such laws that affect the environment, except in each of the foregoing cases as could not have or reasonably be expected to result in a Material Adverse Effect.
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(l) Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other income tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and 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, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
(m) Certain Transactions. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties that are disclosed in the Company’s SEC documents, and none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (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 corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
(n) Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyers pursuant hereto and otherwise in connection with the transactions contemplated hereby and/or in the other Transaction Documents is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or 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 (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
(o) Acknowledgment Regarding Buyers’ Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company and/or any of its Subsidiaries (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by any Buyer or any of their respective representatives or agents in connection with this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby is not advice or a recommendation and is merely incidental to a Buyer’s purchase of the Securities. The Company further represents to each Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
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(p) No Integrated Offering. Neither the Company, any of its Subsidiaries nor any of their respective affiliates, nor any person acting on behalf of the Company, any of its Subsidiaries or their respective affiliates, will sell, offer for sale, or solicit offers to buy or otherwise negotiate with respect to any security (as defined in the 1933 Act) which will be integrated with the sale of the securities in a manner which would require the registration of the securities under the Securities Act of 1933, or require stockholder approval, under the rules and regulations of the trading market for the common stock. The Company will take all action that is appropriate or necessary to assure that its offerings of other securities will not be integrated for purposes of the 1933 Act or the rules and regulations of the trading market, with the issuance of securities contemplated hereby.
(q) No Brokers. Neither the Company nor any of its Subsidiaries has taken action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.
(r) Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits. In the prior six months to the date hereof, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
(s) Environmental Matters.
(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
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(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
(t) Title to Property. The Company and its Subsidiaries each have exclusive and sole good and marketable title in fee simple to all real property owned by them and good and marketable title to all personal property and/or other assets owned by them, in each case free and clear of all direct and/or indirect liens, security interests, pledges, encumbrances, defects and/or other clouds on title. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases.
(u) Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such 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 at a cost that would not have a Material Adverse Effect. The Company has provided to each Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.
(v) Internal Accounting Controls. Except as set forth in the SEC Reports, the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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(w) Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
(x) Application of Takeover Protections. The Company, its Subsidiaries and the Board of Directors of each has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s articles of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to a Buyer as a result of a Buyer, the Company and/or the Company’s Subsidiaries fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation, as a result of the Company’s issuance of the Securities, the Buyers’ ownership of the Securities and/or the actions and/or transactions contemplated by the Security Agreement, the Pledge Agreement and/or the other Transaction Documents.
(y) No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.
(z) No Disagreements with Accountants and Lawyers; Outstanding SEC Comments. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is or immediately after the Closing Date will be current with respect to any fees owed to its accountants which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents. There are no unresolved comments or inquiries received by the Company or its Affiliates from the SEC which remain unresolved as of the date hereof.
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(aa) Bad Actor Disqualification.
(i) No Disqualification Events. With respect to Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act ("Regulation D Securities"), none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering, any beneficial owner of 20% or more of the Company's outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an "Issuer Covered Person" and, together, "Issuer Covered Persons") is subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a "Disqualification Event"), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Buyers a copy of any disclosures provided thereunder.
(ii) Other Covered Persons. The Company is not aware of any person that (i) has been or will be paid (directly or indirectly) remuneration for solicitation of the Buyers in connection with the sale of the Securities and (ii) who is subject to a Disqualification Event.
(iii) Notice of Disqualification Events. The Company will notify the Buyers in writing of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person, prior to any Closing of this Offering.
(bb) Certain Actions. Neither the Company nor any Subsidiary is aware of any actions taken and/or contemplated to be taken to effectuate any change of control of the Company and/or any Subsidiary, the acquisition, sale, transfer and/or other disposition of any securities, assets and/or rights of the Company and/or any Subsidiary.
(cc) Indebtedness. Other than as set forth in the SEC Documents or the schedules hereto, neither the Company nor any of its Subsidiaries has and or is obligated to pay any Indebtedness.
(dd) Liens. Other than Permitted Liens, neither the Company nor any Subsidiary and/or any of their respective assets are subject to any Liens.
(ee) Breach of Representations and Warranties by the Company. If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to each Buyer pursuant to this Agreement, it will be considered an Event of default under the Notes.
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(ff) Bankruptcy Status; Indebtedness. Neither the Company nor any Subsidiary has any current intention or expectation to file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the date of this Agreement. All outstanding Indebtedness of the Company and/or its Subsidiaries is set forth in the SEC Documents.
(gg) Subsidiary Rights. The Company has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or any Subsidiary.
4. COVENANTS.
(a) Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.
(b) Form D; Blue Sky Laws; Form 8-K. The Company agrees to file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyers at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. The Company shall file a Current Report on Form 8-K disclosing this transaction not later than one business day after the Closing Date.
(c) Use of Proceeds. The Company shall use the proceeds received by the Company from the Buyers from the sale of the Notes (i) to pay $50,000 to HT Skills Ltd., and (ii) $5,000 to each of the Buyer’s respective legal counsel and the Company’s legal counsel and (iii) the balance for working capital.
(d) Right of First Refusal. Unless it shall have first delivered to the Buyers, at least seventy two (72) hours prior to the closing of such Future Offering (as defined herein), written notice describing the proposed Future Offering, including the terms and conditions thereof and proposed definitive documentation to be entered into in connection therewith, and providing each Buyer an option during the seventy two (72) hour period following delivery of such notice to purchase the securities being offered in the Future Offering on the same terms as contemplated by such Future Offering (the limitations referred to in this sentence and the preceding sentence are collectively referred to as the “Right of First Refusal”) (and subject to the exceptions described below), the Company will not conduct any equity financing (including debt with an equity component or debt convertible into equity securities) (hereinafter referred to as “Future Offerings”) during the period beginning on the Closing Date and ending two (2) years following the Closing Date. In the event the terms and conditions of a proposed Future Offering are amended in any respect after delivery of the notice to each Buyer concerning the proposed Future Offering, the Company shall deliver a new notice to each Buyer describing the amended terms and conditions of the proposed Future Offering and each Buyer thereafter shall have an option during the seventy two (72) hour period following delivery of such new notice to purchase its pro rata share of the securities being offered on the same terms as contemplated by such proposed Future Offering, as amended. The foregoing sentence shall apply to successive amendments to the terms and conditions of any proposed Future Offering. The Right of First Refusal shall not apply to any transaction involving (i) issuances of securities in a firm commitment or “best efforts” underwritten public offering (excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or firm commitment or “best efforts” secondary offering or (ii) issuances of securities as consideration for a merger, consolidation or purchase of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or license by the Company. The Right of First Refusal also shall not apply to the issuance of securities upon exercise or conversion of the Company’s options, warrants or other convertible securities outstanding as of the date hereof or to the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan approved by the shareholders of the Company.
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(e) Financial Information. Upon written request the Company agrees to send or make available the following reports to each Buyer until such Buyer transfers, assigns, or sells all of the Securities: (i) within two (2) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the shareholders of the Company, copies of any notices or other information the Company makes available or gives to such shareholders.
(f) Authorization and Reservation of Shares. The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion or exercise of the outstanding Note and issuance of the Conversion Shares in connection therewith (based on the Conversion Price of the Note in effect from time to time) and as otherwise required by the Note. The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of Note without the consent of the Buyers. The Company shall at all times maintain the number of shares of Common Stock so reserved for issuance at an amount (“Reserved Amount”) equal to four times the number that is then actually issuable upon full conversion of the Note and Additional Note (based on the Conversion Price of the Note in effect from time to time). If at any time the number of shares of Common Stock authorized and reserved for issuance (“Authorized and Reserved Shares”) is below the Reserved Amount, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of shareholders to authorize additional shares to meet the Company’s obligations under this Section 4(f), in the case of an insufficient number of authorized shares, obtain shareholder approval of an increase in such authorized number of shares, and voting the management shares of the Company in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Reserved Amount. If the Company fails to obtain such shareholder approval within thirty (30) days following the date on which the number of Reserved Amount exceeds the Authorized and Reserved Shares, it will be considered an Event of default under Section 3.4 of the Note.
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(g) Listing. The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as any Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note. The Company will obtain and, so long as any Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCQB or any equivalent replacement exchange, the Nasdaq Global Select Market, Nasdaq Global Market or Nasdaq Capital Market (collectively, “Nasdaq”), , the New York Stock Exchange (“NYSE”), or the NYSE MKT (“NYSE MKT”) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to each Buyer copies of any notices it receives from the OTCQB and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems. If the market price of the Company’s Common Stock shall at any time fall below the price required to continue to be quoted on the Company’s then principal exchange or automated quotation system, the Company shall as soon as practicable take all actions necessary to effect a reverse split of the Company’s Common Stock, such that the price would then be at least fifty percent (50%) above the required price, post-split. If the Company fails to achieve the required reverse split within thirty (30) days following the date on which the price fell below the required minimum trading price, it will be considered an Event of default under Section 3.4 of the Note.
(h) Corporate Existence. So long as any Note remains outstanding, the Company shall maintain its and each of its Subsidiaries’ corporate existence and shall not directly and/or indirectly sell, transfer and/or otherwise dispose of any of its or any of its Subsidiaries’ assets including, but not limited to, the Pledged Equity and/or allow any lien to be placed on any of such assets or the Pledged Equity, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the other Transaction Documents and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the Nasdaq, NYSE or the NYSE MKT.
(i) No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
(j) Breach of Covenants. If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyers pursuant to this Agreement, it will be considered an Event of default under Section 3.4 of the Notes.
(k) Failure to Comply with the 1934 Act. So long as the Buyers beneficially own the Notes, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act; provided, however, if the Company files its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 by May 31, 2016 and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2016 by June 30, 2016, the Company shall not be in default in respect of this covenant.
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(l) Trading Activities. Neither the Buyers nor their affiliates has an open short position in the common stock of the Company and the Buyers agree that they shall not, and that they will cause their affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.
(m) Exclusivity. Until the later of (i) one hundred eighty (180) days after the Issuance Date and (ii) the date the Buyers nor any of their affiliates hold any Securities, neither the Company, any Subsidiary nor any of their respective agents, employees, affiliates and/or any person acting on their behalf shall, directly or indirectly, initiate, publicly announce, seek, negotiate, solicit. encourage enter into or discuss with any Person other than the Buyers, any transaction involving the sale, issuance, transfer, assignment and/or other disposition of any securities, assets and/or rights of the Company and/or any of its Subsidiaries including, but not limited to, the Pledge Agreement or any other transaction having an effect or result similar thereto. Neither the Company, any of its Subsidiaries nor any of their respective employees, officers, directors, affiliates, representatives, agents or other related persons shall, directly and/or indirectly negotiate, discuss, enter into any transaction and/or agreement with one Buyer and not the other Buyer and shall provide the same documents and other information it provides to one Buyer simultaneously to the other Buyer.
(n) Non-Frustration of Purpose. So long as either Buyer or its affiliates hold any Securities, neither the Company nor any of its affiliates or Subsidiaries, nor any of its or their respective officers, employees, directors, agents or other representatives, will effect, enter into, announce or recommend to its stockholders any agreement, plan, arrangement or transaction the terms of which would or would reasonably be expected to (i) have a material adverse effect on the Buyers’ investment in the Notes or Conversion Shares and/or the other actions and/or transactions contemplated by the Transaction Documents or (ii) restrict, delay, conflict with or impair the ability or right of the Company to timely perform its obligations under this Agreement, the Notes, and/or other Transaction Documents including, without limitation, the obligation of the Company to timely deliver shares of Common Stock to the Buyers or their affiliates in accordance with this Agreement or the Notes.
(o) Restricted Transactions. Until the later the date neither Buyer and/or any of their respective affiliates hold any Securities, neither the Company nor any of its affiliates or Subsidiaries, nor any of its or their respective officers, employees, directors, agents or other representatives, will, without the prior written consent of the Investor, directly or indirectly, solicit, accept, enter into, announce, or otherwise cooperate in any way, assist or participate in or facilitate or encourage, any exchange (i) of any security of the Company or any of its subsidiaries for any other security of the Company or any of its subsidiaries, except to the extent (x) consummated pursuant to an exchange registered under a registration statement of the Company filed pursuant to the 1933 Act and declared effective by the SEC or (y) such exchange is exempt from registration pursuant to an exemption provided under the 1933 Act (other than Section 3(a)(10) of the 1933 Act) or (ii) of any indebtedness or other securities of the Company or any of its subsidiaries relying on the exemption provided by Section 3(a)(10) of the 1933 Act. Notwithstanding the foregoing or anything contained herein to the contrary, neither the Company nor any of its affiliates or subsidiaries, nor any of its or their respective officers, employees, directors, agents or other representatives, will, without the prior written consent of the Buyers (which consent may be withheld, delayed or conditioned in the Buyers’ sole discretion), directly or indirectly, cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any third party to effect any acquisition of securities of the Company by such third party from an existing holder of such securities in connection with a proposed exchange of such securities of the Company (whether pursuant to Section 3(a)(9) or 3(a)(10) of the 1933 Act or otherwise).
| 17 |
5. Transfer Agent Instructions. The Company covenants and agrees that it will at all times while any Securities remain outstanding maintain a duly qualified independent transfer agent. On or prior to the initial Closing Date, the Company shall provide a copy of its agreement with the transfer agent to each Buyer. If a new transfer agent is appointed at any time, the Company shall provide each Buyer with a copy of the new agreement within three (3) business days of its execution. The Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of each Buyer or its nominee, for the Conversion Shares in such amounts as specified from time to time by the applicable Buyer to the Company upon conversion of the Notes in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Company proposes to replace its transfer agent, the Company shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Company and the Company. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(e) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(e) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Notes; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Conversion Shares to be issued to the Buyers upon conversion of or otherwise pursuant to the Notes as and when required by the Notes and this Agreement; and (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Buyers upon conversion of or otherwise pursuant to the Notes as and when required by the Notes and this Agreement. If a Buyer provides the Company, at the cost of such Buyer, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) such Buyer provides reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by such Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyers, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyers shall be entitled, in addition to all other available remedies, to seek an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
| 18 |
6. Conditions to the Company’s Obligation to Sell and Perform. The obligation of the Company hereunder to issue and sell the Notes to the Buyers at the Closing and perform all other actions and/or transactions as contemplated by this Agreement and the other Transaction Documents, is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
(a) Each Buyer shall have executed this Agreement and delivered the same to the Company.
(b) Each Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
(c) The representations and warranties of the each Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the applicable Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Buyer at or prior to the Closing Date.
(d) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
7. Conditions to The Buyers’ Obligation to Purchase. The obligation of each Buyer to purchase the Notes at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for the Buyers’ sole benefit and may be waived by the Buyers (but solely as to such Buyer) at any time in its sole discretion:
(a) The Company shall have executed and delivered to each Buyer the following:
| (i) | this Agreement |
| (ii) | the Security Agreement and all other documents contemplated therein including, but not limited to, UCC-1 financing statements in form and on terms satisfactory to the Buyers |
| (iii) | the Pledge Agreement and all other documents contemplated therein including, but not limited to, the Pledged Securities (as defined in the Pledge Agreement), the Pledge Collateral and stock transfer powers for the Pledged Securities executed but not dated in form and substance satisfactory to the Buyers |
| 19 |
| (iv) | the Escrow Agreement |
| (v) | such other documents, instruments and/or certificates requested by the Buyers |
(b) The Company shall have delivered to each Buyer a duly executed Note (in such denominations as each Buyer shall request) in accordance with Section 1(b) above.
(c) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to each Buyer, which shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.
(d) The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement and the other Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Each Buyer shall have received a certificate or certificates, executed by the chief executive officer and chief financial officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyers including, but not limited to certificates with respect to the Company’s Internal Documents and Board of Directors’ resolutions relating to the transactions contemplated hereby and in the other Transaction Documents.
(e) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement and in the other Transaction Documents.
(f) No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company and/or any Subsidiary including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations, or in the sole discretion of Buyers, the transaction’s risk profile, market pricing or implied volatility substantially changes, due diligence concerns arise, or any other conditions material to the successful closing of the transaction are not acceptable to the Buyers.
(g) The Conversion Shares shall have been authorized for quotation on the OTCQB and trading in the Common Stock on the OTCQB or such equivalent exchange and shall not have been suspended by the SEC or the OTCQB or such equivalent exchange.
| 20 |
8. Governing Law; Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by any party hereto (including the Subsidiaries who are not a party hereto but are controlled by and are affiliates of the Company) against any other party directly and/or indirectly concerning, related to and/or arising out of this Agreement, any other Transaction Document and/or the actions and/or other transactions contemplated hereby and/or thereby shall be brought only and exclusively in the state courts or in the federal courts located in the state, city and county of New York. The parties hereto (including the Subsidiaries who are not a party hereto but are controlled by and are affiliates of the Company) hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The prevailing party(s) shall be entitled to recover from the other party(s) its reasonable attorney's fees and costs (except neither Buyer shall be obligated to pay the other Buyer unless one Buyer brings action against the other). In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Documents, 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.
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.
(b) Counterparts; Signatures by Facsimile. 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 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.
(c) Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
(d) 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.
| 21 |
(e) Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyers make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of each Buyer.
(f) Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, email or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile and/or email with accurate confirmation generated by the transmitting facsimile machine or emailing computer, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company:
EFACTOR GROUP CORP.
340 West 42nd Street, Suite 880
New York, NY 10108 USA
Attn: Mark Noffke
Email: markn@efactorgroup.com
Facsimile: 888-311-9659
If to MAGNA:
MAGNA GROUP
40 Wall Street
New York, NY 10005
Attn: Joshua Sason, Managing Member
Email: joshua.sason@mag.na
Facsimile: _N/A_____
| 22 |
If to IV:
INCREASIVE VENTURES B.V:
Increasive Ventures B.V.
Stevensweg 2,
2141 VL Vijfhuizen,
The Netherlands
Attn: Ad Prins
Email: ad@whiteeagle.nl
Facsimile: N/A
Each party shall provide written notice to the other parties of any change in address.
(g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(e), any Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from a Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
(h) Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
(i) Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyers. The Company agrees to indemnify and hold harmless each of the Buyers and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or the Transaction Documents or any of its covenants and obligations under this Agreement or the Transaction Documents, including advancement of expenses as they are incurred.
(j) Publicity. The Company, and each of the Buyers shall have the right to review a reasonable period of time before issuance of any press releases, SEC, OTCQB or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of each of the Buyers, to make any SEC, OTCQB (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations; provided however, each of the Buyers shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon and no such press release shall be issued without the prior approval of the Buyers).
| 23 |
(k) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby.
(l) No Strict Construction. 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.
(m) Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyers by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement and the Transaction Documents will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyers shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to seek an injunction or injunctions restraining, preventing or curing any breach of this Agreement or the Transaction Documents and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever a Buyer 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 Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion of a Note, the Buyer shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice.
(o) Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by Buyers in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Buyers with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by the Buyers to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Buyers’ election.
| 24 |
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
| EFACTOR GROUP CORP. | ||
| By: | /s/ Mark Noffke | |
| Name: Mark Noffke | ||
| Title: Chief Financial Officer | ||
| MAGNA EQUITIES II, LLC | ||
| By: | /s/ Joshua Sason | |
| Name: Joshua Sason | ||
| Title: Managing Member | ||
INCREASIVE VENTURES B.V.
| By: | /s/ Ad Prins | |
| Name: Ad Prins | ||
| Title: Managing Director |
| 25 |
EXHIBIT A
FORM OF NOTE
| 26 |
EXHIBIT B
SECURITY AGREEMENT
| 27 |
EXHIBIT C
PLEDGE AGREEMENT
| 28 |
EXHIBIT D
ESCROW AGREEMENT
| 29 |
SCHEDULE 3(a)
LIST OF SUBSIDIARIES’ NAME, ADDRESS AND PLACE OF INCORPORATION
| Name of Subsidiary | Address | Jurisdiction of Incorporation | ||
| The E-Factor Corporation |
340 West 42nd Street, Suite 880 New York, NY 10108 USA |
Delaware | ||
| MCC International Limited |
Southampton Science Park 2 Venture Road Chilworth, Southampton |
United Kingdom | ||
| RocketHub Inc. |
119 W. 24th Street 4th Floor New York, NY 10011 |
New York | ||
| ELEQT Ltd |
29 Portland Place London W1B 1QB UK |
United Kingdom | ||
| HT Skills Ltd |
321 Chase Road London, N14 6JT GB |
United Kingdom | ||
| GroupCard BV |
Hornweg 5 1432 GD Aalsmeer Postbus 8004 1180 LA Amstelveen The Netherlands |
The Netherlands | ||
| Member Digital Ltd |
The Guild Guildhall High Street Bath BA1 5EB United Kingdom |
United Kingdom | ||
| SubHub LLC |
The Guild Guildhall High Street Bath BA1 5EB United Kingdom |
Florida | ||
| Robson Dowry Associates Ltd. |
7 Berkeley Square Clifton, Bristol BS8 1HG United Kingdom |
United Kingdom |
| 30 |
SCHEDULE 3(c)(1)
REGISTRATION RIGHTS
| · | Promissory Note dated January 9, 2015 |
| · | Promissory Notes dated January 26, 2015, September 21, 2015 and February 5, 2016 |
| 31 |
SCHEDULE 3(c)(2)
ANTI-DILUTION PROVISIONS
| · | Promissory Note dated 11/13/2015 |
| · | Promissory Note dated 11/20/2015 |
| · | Promissory Note dated 11/20/2015 |
| · | Promissory Note dated 11/23/2015 |
| · | Promissory Note dated 1/13/2016 |
| · | Promissory Note dated 1/27/2016 |
| · | Promissory Note dated 1/28/2016 |
| · | Promissory Note dated 1/28/2016 |
| · | Promissory Note dated 11/24/2015 |
| 32 |
SCHEDULE 3(k)
DEFAULTS
| Promissory Notes | ||||||||||||||||
| Date | Amount | Maturity date | ||||||||||||||
| 5/13/2008 | € | 15,000 | N/A | |||||||||||||
| 12/6/2012 | $ | 200,000 | 12/5/2013 | |||||||||||||
| 7/20/2010 | € | 15,000 | N/A | |||||||||||||
| 8/30/2013 | $ | 39,610 | 10/29/2014 | |||||||||||||
| 8/30/2013 | 100,000 | 10/29/14 | ||||||||||||||
| 10/22/2013 | $ | 85,000 | 4/22/2014 | |||||||||||||
| 10/26/2012 | $ | 40,000 | 11/15/2012 | |||||||||||||
| 12/26/2013 | $ | 20,399 | 6/28/2014 | |||||||||||||
| 12/22/2014 | 17,500.00 | 2/28/2014 | ||||||||||||||
| 1/2/2014 | 62,180.00 | 2/28/2014 | ||||||||||||||
| 1/9/2014 | 13,559.00 | 2/28/2014 | ||||||||||||||
| 11/1/2013 | 40,739.00 | 1/14/2014 | ||||||||||||||
| 7/30/2014 | 36,833.00 | 8/30/2014 | ||||||||||||||
| 9/3/2014 | 129,658.00 | 3/3/2015 | ||||||||||||||
| 10/30/2015 | 154,000.00 | 12/15/2015 | ||||||||||||||
| 7/22/2015 | 120,000.00 | 11/19/2015 | ||||||||||||||
| 7/31/2015 | 1,250,000.00 | 12/31/2015 | ||||||||||||||
| 6/19/2015 | 226,560.00 | 10/31/2015 | ||||||||||||||
| 1/9/2015 | 125,000.00 | 1/9/2016 | ||||||||||||||
| 1/26/2015 | 78,750.00 | 7/25/2015 | ||||||||||||||
| 9/21/2015 | 19,300.00 | 9/21/2016 | ||||||||||||||
| 2/5/2016 | 58,300.00 | 2/5/2017 | ||||||||||||||
| 3/2/2015 | 175,000.00 | 3/1/2016 | ||||||||||||||
| 3/2/2015 | 200,000.00 | 3/1/2016 | ||||||||||||||
| 2/26/2015 | 25,000.00 | 2/26/2016 | ||||||||||||||
| 3/15/2015 | 15,000.00 | 3/14/2016 | ||||||||||||||
| 3/27/2015 | 29,500.00 | 3/26/2016 | ||||||||||||||
| 4/8/2015 | 200,000.00 | 4/7/2016 | ||||||||||||||
| 5/1/2015 | 53,000.00 | 4/30/2016 | ||||||||||||||
| 5/22/2015 | 200,000.00 | 5/21/2016 | ||||||||||||||
| 5/27/2015 | 85,000.00 | 5/26/2016 | ||||||||||||||
| 11/13/2015 | 110,000.00 | 11/12/2016 | ||||||||||||||
| 11/20/2015 | 29,700.00 | 11/19/2016 | ||||||||||||||
| 11/20/2015 | 57,750.00 | 11/19/2016 | ||||||||||||||
| 11/17/2015 | 11,000.00 | 2/17/2016 | ||||||||||||||
| 11/20/2015 | 5,500.00 | 12/31/2015 | ||||||||||||||
| 11/23/2015 | 5,500.00 | 12/31/2015 | ||||||||||||||
| 11/23/2015 | 5,500.00 | 12/31/2015 | ||||||||||||||
| 1/13/2016 | 50,000.00 | 1/12/2017 | ||||||||||||||
| 1/27/2016 | 63,000.00 | 10/26/2016 | ||||||||||||||
| 1/28/2016 | 35,000.00 | 1/27/2017 | ||||||||||||||
| 3/11/2016 | 60,000.00 | 3/11/2017 | ||||||||||||||
| 1/28/2016 | 35,000.00 | 1/27/2017 | ||||||||||||||
| 11/24/2015 | 150,000.00 | 11/23/2016 | ||||||||||||||
| 4/27/2015 | 150,000.00 | 8/31/2015 | ||||||||||||||
| 1/31/2013 | 10,000.00 | 5/31/2016 | ||||||||||||||
| 4/27/2012 | 20,000.00 | 8/31/2015 | ||||||||||||||
| 4/27/2012 | 10,000.00 | 8/31/2015 | ||||||||||||||
| 4/27/2012 | 30,000.00 | 4/27/2015 | ||||||||||||||
| 4/27/2012 | 25,000.00 | 4/27/2015 | ||||||||||||||
| 4/27/2012 | 10,000.00 | 4/27/2015 | ||||||||||||||
Other Defaults
| · | Employment and non-competition agreement dated as of July 30, 2012. |
| · | Company Voluntary Arrangement for MCC International, Ltd. |
| 33 |
Exhibit 10.2
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (this “Agreement”), is made as of April 1, 2016, by and between EFACTOR GROUP CORP., a Nevada corporation, with its principal offices located at 340 West 42nd Street, Suite 880, New York, NY 10108 (the “Company”), MAGNA EQUITIES II, LLC, a New York corporation, with its address at 40 Wall Street, New York, New York 10005 (“Magna”) and Increasive Ventures B.V. with its principal address at Stevensweg 2, 2141 VL Vijfhuizen, The Netherlands (“IV”, each a “Lender” and together with Magna, collectively, the “Lenders”).
RECITALS
A. The Company and Lenders entered into that certain Securities Purchase Agreement dated as of April 1, 2016 (the “Purchase Agreement”), that certain Security Agreement, dated as of April 1, 2016 (the “Security Agreement”) and that certain Stock Pledge and Security Agreement, dated as of April 1, 2016 (the “Pledge Agreement”). Capitalized terms used and not otherwise defined in this Agreement shall have the meaning set forth or provided for in the Purchase Agreement.
B. The Company issued to Lenders the promissory notes, on the dates and upon the terms as set forth on Exhibit A hereto (the “Prior Notes”).
C. The Company hereby acknowledges and confirms that events of default have occurred and are continuing for each of the Prior Notes by reason of the Company’s failure to (collectively, the “Specified Events of Default”) pay in full upon the respective maturity dates the outstanding principal balance of each of the Prior Notes together with accrued and unpaid interest and other amounts thereon. The Company further acknowledges and confirms that the Specified Events of Default have not been waived by the Lenders.
D. The Company acknowledges and agrees that, as a result of the existence of the Specified Events of Default, the Lenders have the right to exercise their rights and remedies under the Prior Notes. The Company has requested, notwithstanding that the Specified Events of Default exist and are continuing under the Prior Notes and have not been waived or cured, that the Lenders forbear from exercising remedial rights on account of such Specified Events of Default during the period of time (hereinafter, the “Forbearance Period”) commencing as of the date hereof and ending on the Termination Date (as defined below).
E. Solely with respect to the Specified Events of Default, the Lenders have agreed to forbear from exercising remedial rights under the Prior Notes, applicable law and otherwise, but only subject to and in accordance with the terms and conditions set forth herein. Except as expressly set forth in this Agreement, the agreements of the Lenders to forbear in the exercise of their respective rights and remedies under the Prior Notes in respect of the Specified Events of Default during the Forbearance Period do not in any manner whatsoever limit any right of the Lenders to insist upon strict compliance with this Agreement or the Prior Notes during the Forbearance Period or thereafter.
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F. Nothing has occurred that constitutes or otherwise can be construed or interpreted as a waiver of, or otherwise impair, modify or limit in any respect, any rights or remedies the Lenders have or may have, arising as the result of any defaults or events of default under the Prior Notes (including the Specified Events of Default) applicable law or in equity. The Lenders’ actions in entering into this Agreement are without prejudice to the rights of the Lenders to pursue any and all remedies under the Prior Notes, pursuant to applicable law or in equity available to them in their sole discretion upon the termination (whether upon expiration thereof or otherwise) of the Forbearance Period and thereafter.
G. Identification of the Specified Events of Default in this Agreement does not constitute an agreement by the Lenders that there are no other defaults or events of default currently existing under the Prior Notes, and the Lenders have reserved all rights and remedies with respect to any such other defaults or events of default under the Prior Notes.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and each of the Lenders agree as follows:
AGREEMENTS
1. Incorporation of Recitals; Extension of Maturity Date; Forbearance.
(a) Incorporation of Recitals. The Recitals to this Agreement are hereby incorporated by reference as fully set forth herein and the Company represents, warrants, and acknowledges that such Recitals are true and correct. The Company hereby acknowledges and confirms (i) the occurrence and continuance of the Specified Events of Default, (ii) that the Specified Events of Default are material in nature, (iii) that the Specified Events of Default have not been waived by the Lenders or cured by the Company, and (iv) that the Lenders are entitled to exercise all rights and remedies under the Prior Notes.
(b) Forbearance Period. Subject to the terms and conditions herein set forth and in reliance upon the Company’s representations, acknowledgments, agreements and warranties herein contained and contained in the Purchase Agreement, the Lenders, without waiving the Specified Events of Default or the Lenders’ rights and remedies at law, or in equity relating thereto, and subject to the terms and conditions set forth herein, agree to forbear in the exercise of their rights and remedies under the Prior Notes based on the Specified Events of Default until the earlier to occur of (the “Termination Date”): (a) 5 p.m. prevailing Eastern Time on April 1, 2017; or (b) a Forbearance Event of Default (as defined hereinafter) under this Agreement. On the Termination Date, the agreement of the Lenders to forbear from exercising their respective rights and remedies under the Prior Notes based on the Specified Events of Default will automatically and immediately terminate. The Lenders’ agreement to forbear is conditional, temporary and limited in nature and shall not be deemed: (i) to preclude or prevent the Lenders from exercising any rights and remedies under the Prior Notes, applicable law or otherwise arising on account of (A) any default or event of default under the Prior Notes other than the Specified Events of Default, or (B) the Specified Events of Default from and after the Termination Date, (ii) to effect any amendment of the Prior Notes, which shall remain in full force and effect in accordance with their terms; (iii) to constitute a waiver of the Specified Events of Default or any other default or event of default under the Prior Notes (whether now existing or hereafter occurring) (each default or event of default other than any Default, an “Other Default”) or any term or provision of the Prior Notes; or (iv) to establish a custom or course of dealing among the Company and the Lenders. The Company further acknowledges and agrees that interest on the Prior Notes will continue to accrue in accordance with the terms of the Prior Notes.
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(c) No Waiver. Nothing in this Agreement should in any way be deemed (i) a waiver of the Specified Events of Default or any Other Default or any term or provision of the Prior Notes or (ii) an agreement to forbear from exercising any rights or remedies with respect to the Specified Events of Default (except as expressly set forth herein) or any Other Default. The Lenders have not waived or released, are not by this Agreement waiving or releasing, and have no present intention of waiving or releasing, the Defaults or any Other Default, or any remedies or rights of the Lenders with respect thereto, all of which are hereby expressly reserved. Any waiver of the Specified Events of Default or any Other Default shall be effective only if set forth in a written instrument executed by each Lender and the Company.
(d) Forbearance Events of Default. Each of the following constitutes an immediate default and event of default (a “Forbearance Event of Default”) under this Agreement and, notwithstanding anything contained in any Prior Notes, including any provisions requiring any Lender to provide the Company or any other person with prior notice or an opportunity to cure:
| (i) | Any representation or warranty made by the Company in this Agreement or any document or statement furnished or to be furnished by or on behalf of the Company in connection with this Agreement is false or misleading in any material respect as of the date made. |
| (ii) | Failure of the Company to observe any term, condition, or covenant set forth in this Agreement. |
| (iii) | The validity, binding nature of, or enforceability of any material term or provision of this Agreement is disputed by, on behalf of, or in the right or name of the Company or any material term or provision of this Agreement is found or declared to be invalid, avoidable, or unenforceable by any court of competent jurisdiction. |
| (iv) | The occurrence of an Other Default; and, |
| (v) | The filing of a petition under any bankruptcy or insolvency law either by or against the Company or any Subsidiary. |
2. Acknowledgment of and Reaffirmation of Obligations. The Company hereby acknowledges, confirms and agrees that as of the date of this Agreement, the unpaid principal balance of each of the Prior Notes is as set forth on Exhibit A hereto and the accrued and unpaid interest due and owing to the Lenders on the Prior Notes is as set forth on Exhibit A hereto. The principal balanced and accrued and unpaid interest on the Prior Notes as set forth on Exhibit A hereto shall be referred to as the “Obligations.”
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3. Consideration; Grant of Security Interests. As partial consideration for the Lenders’ forbearance and to ensure the complete and timely payment of the Obligations of the Company under the Prior Notes, now or hereafter existing from time to time, the Company has entered into the Security Agreement, pursuant to which the Company granted to the Lenders a valid and continuing first priority security interest and Lien on the Collateral (as such terms are defined in the Security Agreement) and the Pledge Agreement, pursuant to which the Company pledged all of the issued and outstanding capital stock of its Subsidiaries (as such term is defined in the Pledge Agreement) to the Lenders.
4. Authority to File. The Company, with respect to any Collateral in which it has an interest, by this Agreement irrevocably authorizes Lenders at any time and from time to time to file in any jurisdiction any initial financing statements and amendments thereto that (i) indicate the Collateral as the collateral covered thereby, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of the applicable jurisdiction, (ii) describes the Collateral in generic terms such as “all assets” or similar description, and (iii) contain any other information required by Article 9 of the applicable Uniform Commercial Code for the sufficiency or filing office acceptance of any financing statement or amendment. The Company also ratifies its authorization for Lenders to have filed in any jurisdiction any like initial financing statements or amendments thereto if filed prior to the date of this Agreement.
5. Representations and Warranties. In order to induce Lenders to enter into this Agreement, the Company, hereby acknowledges, represents, warrants to Lenders that:
(a) Each of the representations and warranties made by the Company to the Lenders in each of the Purchase Agreement, the Security Agreement and the Pledge Agreement are incorporated herein by reference and remain accurate, true and correct as of the date hereof.
(b) The Company: (i) is a corporation duly organized, validly existing and in good standing, under the laws of the State of Nevada, (ii) has all requisite corporate power and authority to own its properties and assets and to carry on its business as now being conducted, (iii) has all requisite legal and corporate power and authority to enter into this Agreement and to carry out and perform its obligations under the terms hereof.
(c) The Company’s execution, delivery and performance of this Agreement will not violate, or conflict with or constitute a default under, the terms of (i) the Company’s certificate of incorporation or bylaws (ii), any statute, regulation, ordinance, rule of law, or (iii) agreement, contract, mortgage, indenture, bond, bill, note, judgment, order or decree of any court or arbitrator to which the Company is a party or other instrument or writing binding upon the Company or to which the Company is subject, except in the case of (iii) as would not result in a material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its subsidiaries, if any, taken as a whole.
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(d) All corporate action on the part of the Company, its officers and directors necessary for the Company’s authorization, execution and delivery of, and the performance of Company’s obligations under this Agreement has been taken, including the approval by the disinterested directors of the Company. The Company has duly executed and delivered this Agreement. This Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) the effect of rules of law governing the availability of equitable remedies.
6. Miscellaneous.
(a) Assignment. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of the Company and each of the Lenders; provided, however, that no party hereto may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the other parties and any prohibited assignment shall be void.
(b) Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.
(c) Reservation of Rights. This Agreement is not (a) a waiver of or consent to a modification of any term of the Prior Notes, and (b) except as expressly set forth herein, does not prejudice any right or rights which the Lenders now have or may have in the future. The Lenders hereby reserve and preserve, and the Company hereby acknowledges and agrees that the Lenders have not waived, the Lenders’ rights and remedies under the Prior Notes, at law, and in equity with respect to the Specified Events of Default, any Forbearance Event of Default, or any other matters
(d) Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(e) Consent to Forum. ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED THERETO SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
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(f) Waiver of Jury Trial. EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COMPANY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.
(g) Counterparts; Effectiveness. This Agreement and any amendments, waivers, consents, or supplements may be executed in any number of counterparts in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. Delivery of an executed counterpart of a signature page to this Agreement, any amendments, waivers, consents or supplements by Facsimile shall be as effective as delivery of a manually executed counterpart thereof.
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IN WITNESS WHEREOF, this Agreement is executed and delivered as of the date first written above.
| EFACTOR GROUP CORP. | |||
| By: | /s/ Mark Noffke | ||
| Name: Mark Noffke | |||
| Title: Chief Financial Officer | |||
| MAGNA EQUITIES II, LLC | |||
| By: | /s/ Joshua Sason | ||
| Name: Joshua Sason | |||
| Title: Managing Member | |||
| INCREASIVE VENTURES B.V. | |||
| By: | /s/ Ad Prins | ||
| Name: Ad Prins | |||
| Title: Managing Director | |||
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EXHIBIT A
| Note | Issue Date | Principal Amount | Maturity Date | |||||
| Increasive Ventures BV | 7/31/2015 | 1,250,000.00 | 12/31/2015 | |||||
| Magna Tranche I Convertible Note | 3/2/2015 | 175,000.00 | 3/1/2016 | |||||
| Magna Tranche I Third Party Note Purchase | 3/2/2015 | 200,000.00 | 3/1/2016 | |||||
| Magna Tranche II Convertible Note | 3/15/2015 | 15,000.00 | 3/14/2016 | |||||
| Magna Tranche III Convertible Note | 3/27/2015 | 29,500.00 | 3/26/2016 | |||||
| Magna Tranche IV Third Party Note Purchase | 4/8/2015 | 200,000.00 | 4/7/2016 | |||||
| Magna Tranche V Convertible Note | 5/1/2015 | 53,000.00 | 4/30/2016 | |||||
| Magna Tranche VI Third Party Note Purchase | 5/22/2015 | 200,000.00 | 5/21/2016 | |||||
| Magna Tranche VII Convertible Note | 5/27/2015 | 85,000.00 | 5/26/2016 | |||||
Exhibit 10.3
SECURITY AGREEMENT
This SECURITY AGREEMENT, is made as of April 1, 2016 (this “Agreement”), by and among EFACTOR GROUP CORP., a Nevada corporation (“Efactor”), and each of the subsidiaries of Efactor (the “Subsidiaries” and together with Efactor, collectively, the “Grantor”), in favor of each of MAGNA EQUITIES II, LLC (“Magna”) and INCREASIVE VENTURES B.V., a Netherlands limited company (“Increasive” and together with Magna, each a “Secured Party” and collectively, the “Secured Parties”).
WITNESSETH:
WHEREAS, pursuant to the Securities Purchase Agreement, dated as of the date hereof (as amended, restated or otherwise modified from time to time, including all schedules and exhibits thereto, the “Purchase Agreement”), by and between the Grantor and the Secured Parties, the Grantor agreed to sell, and the Secured Parties agreed to purchase, the Notes (as defined in the Purchase Agreement);
WHEREAS, prior to the date hereof, the Secured Parties have purchased from the Company the unsecured notes set forth on Exhibit A hereto (the “Prior Notes”), which such Prior Notes are in default;
WHEREAS, pursuant to the Forbearance Agreement, dated as of the date hereof (as amended, restated or otherwise modified from time to time, including all schedules and exhibits thereto, the “Forbearance Agreement”), the Secured Parties agreed to forbear from exercising their remedial rights under the Prior Notes;
WHEREAS, as partial consideration for and to induce the Secured Parties to enter into the Purchase Agreement and to purchase the Notes, and to enter into the Forbearance Agreement, the Grantors have agreed to grant to the Secured Parties first priority security interests in all of Grantors’ Collateral (as defined below) to secure all of the Company’s Obligations to the Securities Parties;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are by this Agreement acknowledged by the parties, the parties hereto agree as follows:
1. Certain Definitions, Construction.
(a) Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 8 or Article 9 of the UCC shall have the respective meanings given such terms in Article 8 or Article 9 of the UCC, as applicable. All capitalized terms not otherwise defined herein or in the UCC sections provided above, shall have the meaning ascribed to them in the Purchase Agreement.
(i) “Collateral” shall have the meaning set forth in Section 2 hereof.
(ii) “Event of Default” means (i) an Event of Default as defined in the Note, (ii) any event of default under any one or more of the Prior Notes, or (iii) the breach of any representation, warranty, agreement or covenant by any Grantor under this Agreement.
(iii) “GAAP” shall have the meaning set forth in Section 4(e) hereof.
(iv) “Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
(v) “Lien” means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security.
(vi) “Obligations” means all advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from Grantor, or any Subsidiary of Grantor, to any of the Secured Parties of any kind or nature, existing or future, whether or not evidenced by any note, letter of credit, reimbursement agreement, or other instrument or document, whether arising under this Agreement, the Note, the Prior Notes, the Purchase Agreement, or any of the other Transaction Documents or otherwise and whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, existing on or after the date hereof and however acquired, and all amendments, renewals, restatements, replacements, consolidations or other modifications of the foregoing from time to time. The term includes all principal, interest, fees, expenses, attorneys’ fees, and any other sums owed to any Secured Party.
(vii) “Permitted Liens” has the meaning set forth in the Notes.
(viii) “Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof.
(ix) “Proceeds” means “proceeds,” as such term is defined in the UCC, including (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Secured Party from time to time with respect to any of the Collateral, (b) all amounts collected on, or distributed on account of the Collateral, and (c) any and all amounts, rights to payment or other property acquired upon sale, lease license, exchange or other disposition of Collateral and all rights arising out of Collateral.
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(x) “UCC” means the Uniform Commercial Code, as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Secured Parties’ security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection of priority and for purposes of definitions related to such provisions.
2. Grant of Security Interest. To secure the complete and timely payment of all of the Obligations of the Company now or hereafter existing from time to time, Grantor hereby grants to the Secured Parties a continuing first priority security interest in all of Grantor’s rights, title and interest in and to each of the following of the Grantor and each of Grantor’s Subsidiaries (collectively, the “Collateral”):
(a) All accounts and accounts receivable, including present and future rights to payment for goods, merchandise or inventory sold or leased or for services rendered, including those which are not evidenced by instruments or chattel paper, and whether or not they have been earned by performance, whether or not the same are listed on any schedules, reports or assignments furnished to the Secured Parties from time to time, whether now existing or created at any time hereafter, accounts, proceeds of any letters of credit on which Grantor is named as beneficiary, contract rights, chattel paper, instruments, documents, insurance proceeds, and all such obligations whatsoever owing to Issuer, together with all instruments and all documents of title representing any of the foregoing, all rights in any goods, merchandise or inventory that any of the same may represent, all rights in any returned or repossessed goods, merchandise and inventory, and all right, title, security and guaranties with respect to each of the foregoing, including any right of stoppage in transit, replevin and reclamation and all other rights and remedies of an unpaid vendor or lienor, and any liens held by Issuer as a mechanic, contractor, subcontractor, processor, materialman, machinist, manufacturer, artisan or otherwise;
(b) All equipment, machinery, tools, fittings, furniture and fixtures, and all parts and accessions relating to any of the foregoing;
(c) All inventory, general intangibles relating to or arising out of inventory, goods manufactured or acquired for sale or lease, and any piece of goods, raw materials, work in process and finished merchandise goods, incidentals, office supplies, packaging materials, and any and all items, including machinery and equipment used or consumed in the operation of the business of Issuer and which contribute to the finished product or to the sale, promotion and shipment thereof, in which Issuer now or at any time hereafter may have an interest whether or not such inventory is listed in any agreement with or reports furnished to Purchaser from time to time;
(d) All general intangibles, contract rights, claims and causes of action (including claims and causes of action arising in tort), tax refunds, insurance proceeds, rights to receive money or property generally, books, records (in whatever form maintained by or on behalf of Issuer), customer and supplier lists, ledgers, invoices, drawings, copyrights, plans, specifications, trade names, trademarks, service marks, goodwill, licenses, franchises, trade secrets, computer programs, object codes, source codes, manuals, know-how, inventions, designs, patents, patent applications, and all other intellectual property of any nature or description whatsoever;
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(e) All investment property, securities (whether certificated or uncertificated), security entitlements, securities accounts, commodity contracts, commodity accounts and all other financial assets;
(f) All instruments, including all promissory notes, guarantees, liens, and all writings that evidence a right to the payment of money;
(g) All chattel paper, including all writings that evidence both a monetary obligation and a security interest in or a lease of specific goods;
(h) All deposit accounts, including any demand, time or like account with a financial institution (whether or not maintained with Purchaser) and the balances thereof, and all certificates of deposit;
(i) All property (other than that described in subsections (a) through (h) above) in which a security interest may now or hereafter attach or otherwise be created under the Uniform Commercial Code or other applicable law; and
(j) All additions and accessions to, replacements and substitutions for, products and proceeds of, and rents, offspring, revenues, and profits from, the property and the use or operation of the property described in subsections (a) through (i) above, whether tangible or intangible, and, to the extent not otherwise included, all payments under any insurance policy (whether or not Purchaser is the loss payee thereof) and under any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral.
To the extent that the UCC does not apply to any item of the Collateral, it is the intention of the parties and this Agreement that Secured Parties have a common law pledge or collateral assignment of such item of Collateral.
3. Security for Obligations. The security interest created hereby in the Collateral constitutes continuing collateral security for all of the Obligations, whether now existing or hereafter incurred, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time or hereafter incurred.
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4. Representations and Warranties. Grantor represents and warrants as follows:
(a) Grantor has rights in and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder free and clear of any and all Liens other than Permitted Liens.
(b) EFactor is a corporation duly incorporated in the State of Nevada.
(c) This Security Agreement is effective to create a valid and continuing Lien on and, upon the filing of the appropriate financing statement with the State of Nevada, a perfected Lien in favor of Secured Parties, on the Collateral with respect to which a Lien may be perfected by filing pursuant to the UCC. Such Lien is prior to all other Liens, except Permitted Liens that would be prior to Liens in favor of Secured Parties as a matter of law, and is enforceable as such as against any and all creditors of and purchasers from any Grantor. All action by any Grantor necessary or desirable to protect and perfect such Lien on each item of the Collateral has been duly taken.
(d) There is no pending or written notice threatening any action, suit, proceeding or claim affecting such Grantor before any governmental authority or any arbitrator, or any order, judgment or award by any governmental authority or arbitrator, that may adversely affect the grant by such Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or the exercise by the Secured Parties of any of its rights or remedies hereunder.
(e) All Federal, state and local tax returns and other reports required by applicable law to be filed by such Grantor have been filed, or extensions have been obtained, and all taxes, assessments and other governmental charges imposed upon such Grantor or any property of such Grantor (including, without limitation, all federal income and social security taxes on employees’ wages) and which have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof in accordance with United States generally accepted accounting principles consistently applied (“GAAP”).
(f) Grantor is and will be at all times the sole and exclusive owner of, or otherwise has and will have adequate rights in, the Collateral free and clear of any Liens, except for Permitted Liens on any Collateral. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office except (i) such as may have been filed in favor of the Collateral Agent relating to this Agreement, and (ii) such as may have been filed to perfect any Permitted Liens.
(g) The exercise by the Secured Parties of any of its rights and remedies hereunder will not contravene any law or any contractual restriction binding on or otherwise affecting such Grantor or any of its properties and will not result in or require the creation of any Lien, upon or with respect to any of its properties.
(h) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body, or any other Person, is required for (i) the grant by such Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or (ii) the exercise by the Secured Parties of any of its rights and remedies hereunder, except for the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of the financing statements, all of which financing statements, have been duly filed and are in full force and effect.
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(i) Each of the Grantor’s Subsidiaries is a wholly-owned Subsidiary of the Grantor and are the only Subsidiaries of the Company, as of the date hereof.
(j) Grantor has not taken, directly or indirectly, any action (or refrained from taking any action), prior to entering into this Agreement and/or any other Transaction Document, that could reasonably be expected to have an adverse consequence or effect on Secured Parties’ rights hereunder or to secure the Obligations of the Grantor to the Secured Parties.
(k) Efactor has the right, power and ability under law and/or otherwise, to execute this Agreement and take any and all actions required hereunder for itself and for each of its Subsidiaries, and the execution of this Agreement by Efactor and any actions taken by Efactor hereunder, shall be binding on Efactor and each Subsidiary as if each such Subsidiary actually signed this Agreement.
5. Covenants as to the Collateral. So long as any of the Obligations shall remain outstanding, unless the Secured Parties shall otherwise consent in writing:
(a) Further Assurances. Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that the Secured Parties may reasonably request in order to: (i) perfect and protect the security interest created hereby; (ii) enable the Secured Parties to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) otherwise effect the purposes of this Agreement, including, without limitation: (A) executing and filing (to the extent, if any, that such Grantor’s signature is required thereon) or authenticating the filing of, such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Secured Parties may request in order to perfect and preserve the security interest created hereby, (B) furnishing to the Secured Parties from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral in each case as the Secured Parties may reasonably request, all in reasonable detail, (C) if any Collateral shall be in the possession of a third party, notifying such Person of the Secured Parties’s security interest created hereby and obtaining a written acknowledgment from such Person that such Person holds possession of the Collateral for the benefit of the Secured Parties, which such written acknowledgement shall be in form and substance satisfactory to the Secured Parties, and (D) taking all actions required by any earlier versions of the UCC or by other law, as applicable, in any relevant UCC jurisdiction, or by other law as applicable in any foreign jurisdiction.
(b) Taxes, Etc. Grantor agrees to pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Inventory, except to the extent the validity thereof is being contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves in accordance with GAAP have been set aside for the payment thereof.
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(c) Insurance.
(i) Grantor will, at its own expense, maintain insurance (including, without limitation, commercial general liability and property insurance) with respect to the Inventory in such amounts, against such risks, in such form and with responsible and reputable insurance companies or associations as is required by any governmental authority having jurisdiction with respect thereto or as is carried by such Grantor as of the date hereof and in any event, in amount, adequacy and scope reasonably satisfactory to the Secured Parties. Unless otherwise agreed to by the Secured Parties, each such policy for liability insurance shall provide for all losses to be paid on behalf of the Secured Parties and such Grantor as their respective interests may appear, and each policy for property damage insurance shall provide for all losses to be adjusted with, and paid directly to, the Secured Parties. Unless otherwise agreed to by the Secured Parties, each such policy shall in addition (A) name the Secured Parties as an additional insured party thereunder (without any representation or warranty by or obligation upon the Secured Parties) as their interests may appear, (B) contain an agreement by the insurer that any loss thereunder shall be payable to the Secured Parties on its own account notwithstanding any action, inaction or breach of representation or warranty by such Grantor, (C) provide that there shall be no recourse against the Secured Parties for payment of premiums or other amounts with respect thereto, and (D) provide that at least thirty (30) days’ prior written notice of cancellation, lapse, expiration or other adverse change shall be given to the Secured Parties by the insurer. Such Grantor will, if so requested by the Secured Parties, deliver to the Secured Parties original or duplicate policies of such insurance and, as often as the Secured Parties may reasonably request, a report of a reputable insurance broker with respect to such insurance. Such Grantor will also, at the request of the Secured Parties, execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment.
(ii) Reimbursement under any liability insurance maintained by a Grantor pursuant to this Section 5(c) may be paid directly to the Person who shall have incurred liability covered by such insurance. In the case of any loss involving damage to Inventory, any proceeds of insurance maintained by a Grantor pursuant to this Section 5(c) shall be paid to the Secured Parties, such Grantor will make or cause to be made the necessary repairs to or replacements of such Inventory, and any proceeds of insurance maintained by such Grantor pursuant to this Section 5(c) shall be paid by the Secured Parties to such Grantor as reimbursement for the costs of such repairs or replacements.
(iii) All insurance payments in respect of such Inventory shall be paid to the Secured Parties and applied as specified in Section 9(b) hereof.
(d) Notice of Changes. Grantor will (A) give the Secured Parties at least thirty (30) days’ prior written notice of any change in such Grantor’s name, identity or organizational structure, (B) maintain its jurisdiction of formation as Nevada and (C) immediately notify the Secured Parties upon obtaining an organizational identification number, if on the date hereof such Grantor did not have such identification number.
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(e) Transfers and Other Liens.
(i) No Grantor will sell, assign (by operation of law or otherwise), lease, license, exchange or otherwise transfer or dispose of any of the Inventory except in the ordinary course of business.
(ii) No Grantor will create, suffer to exist or grant any Lien upon or with respect to any Collateral other than a Permitted Lien.
(f) Inspection and Reporting. Grantor shall permit the Secured Parties, or any agent or representatives thereof or such professionals or other Persons as the Secured Parties may designate, not more than once a month in the absence of an Event of Default, (i) to examine and make copies of and abstracts from such Grantor’s records and books of account, (ii) to visit and inspect its properties, (iii) to verify Inventory and other Collateral of such Grantor from time to time, (iii) to conduct audits, physical counts, appraisals and/or valuations, examinations at the locations of such Grantor. Grantor shall also permit the Secured Parties, or any agent or representatives thereof or such professionals or other Persons as the Secured Parties may designate to discuss such Grantor’s affairs, finances and accounts with any of its officers subject to the execution by the Secured Parties or its designee(s) of a mutually agreeable confidentiality agreement.
6. Additional Grantors. The initial Grantors hereunder shall include the Company and any Subsidiaries of Company as of the date hereof. From time to time subsequent to the date hereof, additional Persons may become parties hereto, as additional Grantors (each, an “Additional Grantor”), by executing a counterpart of this Agreement. Upon delivery of any such counterpart to the Secured Parties, notice of which is hereby waived by the Grantors, each Additional Grantor shall be a Grantor and shall be as fully a party hereto as if such Additional Grantor were an original signatory hereto. Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Grantor hereunder nor by any election of Secured Parties not to cause any Person to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder.
7. Additional Provisions Concerning the Collateral.
(a) Grantor hereby (i) authorizes the Secured Parties to file one or more UCC financing or continuation statements, and amendments thereto, relating to the Collateral (including, without limitation, financing statements describing the Collateral as “all inventory” or words of similar effect) and (ii) ratifies such authorization to the extent that the Secured Parties has filed any such financing or continuation statements, or amendments thereto, prior to the date hereof. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.
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(b) Grantor hereby irrevocably appoints the Secured Parties as its attorney-in-fact and proxy, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Secured Parties’ discretion, so long as an Event of Default shall have occurred and is continuing, to take any action and to execute any instrument which the Secured Parties may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of such Grantor under Section 5 hereof), including, without limitation, (i) to obtain and adjust insurance required to be paid to the Secured Parties pursuant to Section 5(c) hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral, (iii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) or (ii) above, (iv) to file any claims or take any action or institute any proceedings which the Secured Parties may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Secured Parties with respect to any Collateral, and (v) to execute assignments, licenses and other documents to enforce the rights of the Secured Parties with respect to any Collateral. This power is coupled with an interest and is irrevocable until the complete conversion of all of the Company’s obligations under the Note to equity securities of the Company and/or indefeasible payment in full in cash of all obligations under the Note (together with any matured indemnification obligations as of the date of such conversion and/or payment, but excluding any inchoate or unmatured contingent indemnification obligations).
(c) If a Grantor fails to perform any agreement contained herein, the Secured Parties may itself perform, or cause performance of, such agreement or obligation, in the name of such Grantor or the Secured Parties, and the expenses of the Secured Parties incurred in connection therewith shall be payable by such Grantor pursuant to Section 9 hereof and shall be secured by the Collateral.
(d) The powers conferred on the Secured Parties hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Secured Parties shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.
(e) Anything herein to the contrary notwithstanding (i) Grantor shall remain liable with respect to the Collateral to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Secured Parties of any of its rights hereunder shall not release such Grantor from any of its obligations in respect of the Collateral, and (iii) the Secured Parties shall not have any obligation or liability by reason of this Agreement with respect to any of the other Collateral, nor shall the Secured Parties be obligated to perform any of the obligations or duties of such Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.
8. Remedies Upon Event of Default.
(a) If any Event of Default shall have occurred and be continuing, the Secured Parties may jointly exercise in respect of the Collateral, in addition to any other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the Code (whether or not the Code applies to the affected Collateral) thereof, in form suitable for filing, recording or registration in any country.
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(b) Upon the exercise of any rights and remedies by Secured Parties hereunder with respect to the Collateral after an Event of Default shall have occurred and be continuing, any and all Proceeds received by Secured Parties with respect to such Collateral shall be applied and distributed; (1) to interest on the Prior Notes ratably in proportion to the interest accrued thereon; (2) to principal of the Prior Notes ratably in proportion to the outstanding principal amounts thereof; and (3) to all other Obligations of the Grantors to the Secured Parties ratably in proportion to the unpaid amount thereof.
9. Indemnity and Expenses.
(a) Grantor agrees, jointly and severally, to defend, protect, indemnify and hold the Secured Parties, jointly and severally, harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties, fees, costs and expenses (including, without limitation, reasonable legal fees, costs, expenses, and disbursements of such Person’s counsel) to the extent that they arise out of or otherwise result from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from such Person’s gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction.
(b) Grantor agrees, jointly and severally, to, upon demand, pay to the Secured Parties the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Secured Parties and of any experts and agents (including, without limitation, any collateral trustee which may act as agent of the Secured Parties), which the Secured Parties may incur in connection with (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Parties hereunder, or (iv) the failure by any Grantor to perform or observe any of the provisions hereof.
10. Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt requested), telecopied or delivered, if to a Grantor at its address specified below and if to the Secured Parties to it, at its address specified below; or as to any such Person, at such other address as shall be designated by such Person in a written notice to such other Person complying as to delivery with the terms of this Section 9. All such notices and other communications shall be effective (a) if sent by certified mail, return receipt requested, when received or five (5) days after deposited in the mails, whichever occurs first, (b) if telecopied or sent by electronic mail, when transmitted (during normal business hours), or (c) if delivered, upon delivery.
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11. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by Grantor and the Secured Parties, and no waiver of any provision of this Agreement, and no consent to any departure by a Grantor therefrom, shall be effective unless it is in writing and signed by the Secured Parties, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
(b) No failure on the part of the Secured Parties to exercise, and no delay in exercising, any right hereunder or under any of the other Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Secured Parties provided herein and in the other Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Secured Parties under any of the other Documents against any party thereto are not conditional or contingent on any attempt by such Person to exercise any of its rights under any of the other Documents against such party or against any other Person, including but not limited to, any Grantor.
(c) To the extent permitted by applicable law, Grantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any requirement that the Secured Parties exhaust any right or take any action against any other Person or any Collateral. Grantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated herein and that the waiver set forth in this Section 11(c) is knowingly made in contemplation of such benefits. The Grantors hereby waive any right to revoke this Agreement, and acknowledge that this Agreement is continuing in nature and applies to all Obligations, whether existing now or in the future.
(d) No Grantor may exercise any rights that it may now or hereafter acquire against any other Grantor that arise from the existence, payment, performance or enforcement of any Grantor’s obligations under this Agreement, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Secured Parties against any Grantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any Grantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security solely on account of such claim, remedy or right, unless and until the complete conversion of all of the Company’s obligations under the Note to equity securities of the Company and/or indefeasible payment in full in cash of all obligations of the Company and the other Grantors to the Secured Parties under the Note and/or other Documents (together with any matured indemnification obligations as of the date of such conversion and/or payment, but excluding any inchoate or unmatured contingent indemnification obligations). If any amount shall be paid to a Grantor in violation of the immediately preceding sentence at any time prior to the complete conversion of all of the Company’s and other Grantors obligations under the Note to equity securities of the Company and/or indefeasible payment in full in cash of all obligations of the Company and the other Grantors to the Secured Parties under the Note and the other Documents (together with any matured indemnification obligations as of the date of such conversion and/or payment, but excluding any inchoate or unmatured contingent indemnification obligations), such amount shall be held in trust for the benefit of the Secured Parties and shall forthwith be paid to the Secured Parties to be credited and applied to the Obligations and all other amounts payable under the Documents, whether matured or unmatured, in accordance with the terms of the Documents, or to be held as Collateral for any Obligations or other amounts payable under the Documents thereafter arising.
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(e) Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.
(f) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the complete conversion of all of the Company’s obligations under the Note to equity securities of the Company and/or indefeasible payment in full in cash of all obligations under the Note (together with any matured indemnification obligations as of the date of such conversion and/or payment, but excluding any inchoate or unmatured contingent indemnification obligations), and (ii) be binding on Grantor and all other Persons who become bound as debtor to this Agreement in accordance with Section 9-203(d) of the UCC and shall inure, together with all rights and remedies of the Secured Parties hereunder, to the benefit of the Secured Parties and their respective permitted successors, transferees and assigns. Without limiting the generality of clause (ii) of the immediately preceding sentence, without notice to any Grantor, the Secured Parties may assign or otherwise transfer their rights and obligations under this Agreement and any of the other Documents, to any other Person and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Secured Parties herein or otherwise. Upon any such assignment or transfer, all references in this Agreement to the Secured Parties shall mean the assignee of the Secured Parties. None of the rights or obligations of any Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Secured Parties, and any such assignment or transfer without the consent of the Secured Parties shall be null and void.
(g) Upon the complete conversion of all of the Company’s obligations under the Note to equity securities of the Company and/or indefeasible payment in full in cash of all Obligations of the Grantor to the Secured Parties under the Prior Notes, the Notes and other Transaction Documents (together with any matured indemnification obligations as of the date of such conversion and/or payment, but excluding any inchoate or unmatured contingent indemnification obligations), (i) this Agreement and the security interests created hereby shall terminate and all rights to the Collateral shall revert to the respective Grantor that granted such security interests hereunder, and (ii) the Secured Parties will, upon such Grantor’s request and at such Grantor’s expense, (A) return to such Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof, and (B) execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination, all without any representation, warranty or recourse whatsoever.
(h) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
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(i) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED THERETO SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
(j) EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COMPANY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.
(k) Nothing contained herein shall affect the right of the Secured Parties to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against any Grantor or any property of such Grantor in any other jurisdiction.
(l) Grantor irrevocably and unconditionally waives any right it may have to claim or recover in any legal action, suit or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.
(m) Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.
(n) This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together constitute one in the same Agreement.
12. Actions. Notwithstanding anything to the contrary provided herein or elsewhere, no Secured Party can take any action under this Agreement without the express written consent of both Secured Parties to any such action.
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IN WITNESS WHEREOF, Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written.
| EFACTOR GROUP CORP. (signing on behalf of itself and all of its Subsidiaries) |
||
| By: | /s/ Mark Noffke | |
| Name: Mark Noffke | ||
| Title: Chief Financial Officer | ||
| MAGNA EQUITIES II, LLC | ||
| By: | /s/ Joshua Sason | |
| Name: Joshua Sason | ||
| Title: Managing Director | ||
| INCREASIVE VENTURES B.V. | ||
| By: | /s/ Ad Prins | |
|
Name: Ad Prins Title: Managing Director |
||
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EXHIBIT A
PRIOR NOTES PREVIOUSLY ISSUED BY THE GRANTOR TO THE SECURED PARTIES
| Note | Issue Date | Principal Amount | Maturity Date | |||||
| Increasive Ventures BV | 7/31/2015 | 1,250,000.00 | 12/31/2015 | |||||
| Magna Tranche I Convertible Note | 3/2/2015 | 175,000.00 | 3/1/2016 | |||||
| Magna Tranche I Third Party Note Purchase | 3/2/2015 | 200,000.00 | 3/1/2016 | |||||
| Magna Tranche II Convertible Note | 3/15/2015 | 15,000.00 | 3/14/2016 | |||||
| Magna Tranche III Convertible Note | 3/27/2015 | 29,500.00 | 3/26/2016 | |||||
| Magna Tranche IV Third Party Note Purchase | 4/8/2015 | 200,000.00 | 4/7/2016 | |||||
| Magna Tranche V Convertible Note | 5/1/2015 | 53,000.00 | 4/30/2016 | |||||
| Magna Tranche VI Third Party Note Purchase | 5/22/2015 | 200,000.00 | 5/21/2016 | |||||
| Magna Tranche VII Convertible Note | 5/27/2015 | 85,000.00 | 5/26/2016 | |||||
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Exhibit 10.4
STOCK PLEDGE AND SECURITY AGREEMENT
THIS STOCK PLEDGE AND SECURITY AGREEMENT (“Agreement”) is made as of April 1, 2016, by and between EFACTOR GROUP CORP., a Nevada corporation, with headquarters located at 1177 Avenue of the Americas, Suite 5060, New York, New York 10036, (the “Pledgor”), and MAGNA EQUITIES II, LLC, a New York corporation, (“Magna”) and INCREASIVE VENTURES B.V., a Netherlands limited company (“IV” and together with “Magna” collectively, the “Purchasers” and individually, each the “Purchaser”).
Recitals
The following recitals of fact are a material part of this Agreement:
A. Purchasers and Pledgor are parties to that certain Securities Purchase Agreement of even date herewith (as the same may hereafter be modified, amended, restated or supplemented from time to time, the “Securities Purchase Agreement”), pursuant to which, among other things, Pledgor has agreed to issue and sell, and each Purchaser has agreed to purchase from Pledgor, a 12% Senior Secured Convertible Secured Note (the “Note” and collectively the “Notes”) in the principal amount of $112,500 ($225,000 for both Notes). Capitalized terms used in this Agreement without definition have the definitions given to them in the Securities Purchase Agreement.
B. To induce Purchasers to enter into the Securities Purchase Agreement and to purchase the Notes as contemplated in the Securities Purchase Agreement and to enter into that certain Forbearance Agreement of even date herewith (as the same may hereafter be modified, amended, restated or supplemented from time to time, the “Forbearance Agreement”),, each Purchaser has required that Pledgor execute and deliver this Agreement, pledging to the Purchaser the Pledged Stock (as defined below) in order to secure the prompt and complete payment, observance and performance of all of the Obligations (as defined below).
AGREEMENT
NOW, THEREFORE, to induce Purchasers to enter into the Securities Purchase Agreement and to purchase the Notes, and in recognition that Purchasers would not enter into the Securities Purchase Agreement or purchase the Notes or enter into the Forbearance Agreement but for Pledgor’s promises and agreements hereunder, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the parties, Pledgor and Purchasers agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement or the Notes shall have the meanings given such terms in the Purchase Agreement or the Notes. As used in this Agreement, the following terms shall have the following meanings:
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1.1 “Pledged Stock” The term “Pledged Stock” means the shares of capital stock of the Subsidiaries set forth in Schedule 3(a) to the Purchase Agreement and made a part hereof and as set forth on Schedule 1.1 hereto, together with all certificates, options, rights and other distributions issued as an addition to, in substitution or exchange for, or on account of, any such Pledged Stock, options, rights and warrants, all accounts, contract rights and general intangibles arising from any and all of the foregoing or relating thereto, and all proceeds of all the foregoing, whether now or hereafter owned or acquired by Pledgor.
1.2 “Pledged Collateral” means, collectively, the Pledged Stock and all products and proceeds thereof.
1.3 “Obligations” means all obligations (including, but not limited to, all Liabilities) of Pledgor to the Purchasers now or hereafter existing under the Notes, the other Transaction Documents, the notes set forth on Exhibit A hereto (the “Prior Notes”) and/or otherwise all other obligations.
2. Pledged Collateral.
2.1 As partial security for the payment, performance and satisfaction of the Obligations, Pledgor hereby grants, assigns and pledges to the Purchasers a security interest in and to all of such Pledgor’s right, title and interest in and to the Pledged Stock and the Pledge Collateral.
2.2 Contemporaneously herewith, Pledgor shall register all existing Pledged Stock in the name of Purchasers as “Co-Pledgees” shall deliver to the Escrow Agent pursuant to the Security Escrow Agreement dated on or about the date hereof by and among the Pledgor, the Purchasers and the escrow agent named therein (the “Escrow Agent”) stock certificates representing the Pledged Stock (the “Certificates”), and such other instruments, documents and agreements as may be reasonably requested by Purchaser to perfect the security interest granted under this Agreement and to transfer the Pledged Securities to the Purchasers as provided elsewhere herein. Such Certificates shall be delivered by the Pledgor to the Escrow Agent no later than five (5) business days after the date hereof (the “Delivery Date”).
3. Release Upon Termination and Payment of All Indebtedness. Upon payment in full and the satisfaction of all of the Obligations, the Purchaser shall release the security interest in the Pledged Collateral, return the Certificate to the Pledgor and file any necessary termination statements with respect to all financing statements covering the Pledged Collateral, all at Pledgor’s expense.
4. Representations and Warranties. Pledgor represents and warrants that:
4.1 Organization, Existence and Good Standing. Pledgor is a corporation duly organized and validly existing as a corporation in good standing under the laws of the State of Nevada.
4.2 Power and Authority; Authorization. Pledgor has all requisite power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Pledgor of this Agreement and the consummation by Pledgor of the transactions contemplated hereby (a) have been authorized by all necessary corporate action on the part of Pledgor and (b) do not violate Pledgor’s Articles of Incorporation or By-laws. This Agreement has been duly executed and delivered by Pledgor. This Agreement constitutes, the legal, valid and binding obligation of Pledgor, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable laws relating to bankruptcy, insolvency, reorganization, moratorium or other similar legal requirement relating to or affecting creditors’ rights generally and except as such enforceability is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at Law).
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4.3 The Pledged Stock. The Pledged Stock has been duly authorized and validly issued, and is fully-paid and non-assessable, free and clear of any and all Liens.
4.4 Security Interest. The security interest granted by Pledgor to the Purchaser in the Pledged Collateral constitutes a valid first priority lien and security interest in the Pledged Collateral.
5. Covenants. Pledgor covenants that:
5.1 Notice of Actions. Pledgor shall promptly give written notice to the Purchaser of the institution of any action involving any part of the Pledged Collateral, or any of the transactions contemplated by this Agreement.
5.2 No Transfer. Pledgor shall not directly and/or indirectly sell, assign or otherwise transfer its interest in or to the Pledged Collateral under any circumstance.
5.3 No Liens. The Company shall not and shall ensure no other Persons including, but not limited to, any of its Subsidiaries, takes any direct and/or indirect actions resulting in a Lien(s) being placed on any of the Pledged Collateral other than to and for the benefit of the Purchaser.
6. Events of Default; Rights and Remedies on Default.
6.1 Event of Default. The occurrence of any one or more of the following shall constitute an “Event of Default” under the terms of this Agreement:
(a) Pledgor shall fail or neglect to perform or observe any term, covenant, warranty or representation contained in this Agreement, or the Transaction Documents that is required to be performed or observed by Pledgor and the same, if capable of being cured, is not cured within 30 days after the giving of notice by the Purchaser to Pledgor of such failure;
(b) Pledgor shall fail to deliver the Certificates by the Delivery Date;
(c) An “Event of Default” as defined in the Notes shall occur.
6.2 Remedies.
(a) If an Event of Default shall have occurred and be continuing, the Purchasers, by unanimous written consent of both Purchasers, may at their option:
(i) without presentment, demand, notice, protest or legal process of any kind, declare all of the Obligations immediately due and payable;
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(ii) immediately exercise all enforcement and other ownership rights pertaining to any or all of the Pledged Collateral as though Purchasers were the outright owners of such Pledged Collateral;
(iii) subject to restrictions on transfer under applicable State and Federal securities laws, sell, assign and deliver the whole or, from time to time, any part of the Pledged Collateral at any private sale or at public auction, in accordance with the Uniform Commercial Code; and
(iv) exercise any other remedy specifically granted under this Agreement, the Notes, the Prior Notes and/or any other Transaction Document now or hereafter existing in equity, at law, by virtue of statute, whether as a secured party in possession of collateral or otherwise.
(b) The Purchasers shall apply the proceeds of any sale of the whole or any part of the Pledged Collateral and any other monies at the time held by such Purchasers under the provisions of this Agreement (the “Proceeds”), after deducting all reasonable costs and expenses of collection, sale and delivery incurred by such Purchasers in connection with such sale, towards the payment of the Obligations. Such Proceeds shall be applied and distributed; (1) to interest on the Prior Notes ratably in proportion to the interest accrued thereon; (2) to principal of the Prior Notes ratably in proportion to the outstanding principal amounts thereof; and (3) to all other Obligations of the Pledgor to the Purchasers ratably in proportion to the unpaid amount thereof.
(c) After full and final payment to the Purchasers in cash of all such Obligations, the Purchasers shall remit any surplus to Pledgor.
(d) Unless and until there occurs an Event of Default under this Agreement, Purchasers shall have no right to vote any of the Pledged Stock and shall not be entitled to receive any distributions thereon.
6.3 Notice. Any notice required to be given by the Purchaser or Pledgor may be given in any manner provided for delivery of notices in the Purchase Agreement.
6.4 Costs. Pledgor shall pay all out-of-pocket fees and expenses reasonably incurred by the Purchaser in connection with the enforcement of such Purchaser’s rights hereunder.
7. Power of Attorney. Pledgor authorizes Purchasers and does hereby make, constitute and appoint such Purchasers, with full power of substitution, as Pledgor’s true and lawful attorney-in-fact, with power, in its own name upon the occurrence and continuation of an Event of Default: (a) to pay or discharge any taxes or other Liens at any time levied or placed on or threatened against the Pledged Collateral; and (b) generally, to do, at Purchasers’ option and at Pledgor’s expense, all acts and things that Purchasers deems reasonably necessary and with notice to Pledgor to protect, preserve and realize upon the Pledged Collateral and Purchasers’ security interest therein in order to effect the intent of this Agreement and the other Transaction Documents. This power of attorney is coupled with an interest and shall be irrevocable.
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8. Miscellaneous.
8.1 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and will become effective when one or more counterparts have been signed by a party and delivered to the other parties. Copies of executed counterparts transmitted by telecopy or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 8.1, provided that receipt of copies of such counterparts is confirmed.
8.2 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
8.3 Headings. The Section and other headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement.
8.4 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by each party hereto. Any party hereto may, only by an instrument in writing, waive compliance by any other party or parties hereto with any term or provision hereof on the part of such other party or parties hereto to be performed or complied with. No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor will any single or partial exercise of any right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have hereunder.
8.5 Interpretation; Absence of Presumption.
(a) For the purposes hereof: (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires; (ii) the terms “hereof”, “herein”, and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, paragraph, and Schedule references are to the Sections, paragraphs, and Schedule in this Agreement unless otherwise specified; (iii) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation”, unless the context otherwise requires or unless otherwise specified; and (iv) the word “or” shall not be exclusive.
(b) With regard to each and every term and condition of this Agreement and each of the other Transaction Documents, the parties hereto understand and agree that the same have or has been mutually negotiated, prepared and drafted, and if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any other Transaction Document, no consideration will be given to the issue of which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any of the other Transaction Documents.
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8.6 Severability. Any provision hereof that is held to be invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, shall be ineffective only to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof, provided, however, that the parties will attempt in good faith to reform this Agreement in a manner consistent with the intent of any such ineffective provision for the purpose of carrying out such intent.
8.7 Jurisdiction, Etc. This Agreement and the terms and conditions set forth herein, shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Agreement shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereto covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York, New York. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other parties hereto of all of its reasonable counsel fees and disbursements.
8.8 Purchasers’ Actions. Notwithstanding anything to the contrary provided herein or elsewhere, the Purchasers may only act with respect to this Agreement, the Pledged Securities and Pledge Collateral based upon unanimous written consents of both Purchasers.
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IN WITNESS WHEREOF, the parties have executed and delivered this Pledge Agreement as of the date first written above.
| EFACTOR GROUP CORP. | ||
| By: | /s/ Mark Noffke | |
| Name: Mark Noffke | ||
| Title: Chief Financial Officer | ||
| MAGNA EQUITIES II, LLC | ||
| By: | /s/ Joshua Sason | |
| Name: Joshua Sason | ||
| Title: Managing Member | ||
| INCREASIVE VENTURES B.V. | ||
| By: | /s/ Ad Prins | |
| Name: Ad Prins | ||
| Title: Managing Director | ||
Schedule 1.1
Pledged Stock
| Pledgor | Pledged Entity | Jurisdiction | Description of Pledged Shares | Certificate No.’s | % of Outstanding Interests | |||||||
| EFactor Group Corp. | The E-Factor Corporation | Delaware | Shares acquired as part of acquisition | CS- 239 | 100 | % | ||||||
| EFactor Group Corp. | MCC International Limited | United Kingdom | Shares acquired as part of acquisition | 100 | % | |||||||
| EFactor Group Corp. | RocketHub Inc. | New York | Shares acquired as part of acquisition | C-1 | 100 | % | ||||||
| EFactor Group Corp. | ELEQT Ltd | United Kingdom | Shares acquired as part of acquisition | 100 | % | |||||||
| EFactor Group Corp. | HT Skills Ltd | United Kingdom | Shares acquired as part of acquisition | 100 | % | |||||||
| EFactor Group Corp. | GroupCard BV | The Netherlands | Shares acquired as part of acquisition | 100 | % | |||||||
| EFactor Group Corp. | Member Digital Ltd | United Kingdom | Shares acquired as part of acquisition | 100 | % | |||||||
| EFactor Group Corp. | Sub Hub LLC | Florida | Shares acquired as part of acquisition | 100 | % | |||||||
| EFactor Group Corp. | Robson Dowry Associates Ltd. | United Kingdom | Shares acquired as part of acquisition | 100 | % | |||||||
EXHIBIT A
| Note | Issue Date | Principal Amount | Maturity Date | |||||
| Increasive Ventures BV | 7/31/2015 | 1,250,000.00 | 12/31/2015 | |||||
| Magna Tranche I Convertible Note | 3/2/2015 | 175,000.00 | 3/1/2016 | |||||
| Magna Tranche I Third Party Note Purchase | 3/2/2015 | 200,000.00 | 3/1/2016 | |||||
| Magna Tranche II Convertible Note | 3/15/2015 | 15,000.00 | 3/14/2016 | |||||
| Magna Tranche III Convertible Note | 3/27/2015 | 29,500.00 | 3/26/2016 | |||||
| Magna Tranche IV Third Party Note Purchase | 4/8/2015 | 200,000.00 | 4/7/2016 | |||||
| Magna Tranche V Convertible Note | 5/1/2015 | 53,000.00 | 4/30/2016 | |||||
| Magna Tranche VI Third Party Note Purchase | 5/22/2015 | 200,000.00 | 5/21/2016 | |||||
| Magna Tranche VII Convertible Note | 5/27/2015 | 85,000.00 | 5/26/2016 | |||||