0001004878-14-000042.txt : 20140127
0001004878-14-000042.hdr.sgml : 20140127
20140124192123
ACCESSION NUMBER: 0001004878-14-000042
CONFORMED SUBMISSION TYPE: 8-K/A
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20140124
ITEM INFORMATION: Entry into a Material Definitive Agreement
ITEM INFORMATION: Unregistered Sales of Equity Securities
ITEM INFORMATION: Financial Statements and Exhibits
FILED AS OF DATE: 20140127
DATE AS OF CHANGE: 20140124
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Advanced Cannabis Solutions, Inc.
CENTRAL INDEX KEY: 0001477009
STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389]
IRS NUMBER: 208096131
STATE OF INCORPORATION: CO
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 8-K/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-54457
FILM NUMBER: 14547184
BUSINESS ADDRESS:
STREET 1: 7750 N. UNION BLVD.
STREET 2: SUITE 201
CITY: COLORADO SPRINGS
STATE: CO
ZIP: 80920
BUSINESS PHONE: (719) 590-1414
MAIL ADDRESS:
STREET 1: 7750 N. UNION BLVD.
STREET 2: SUITE 201
CITY: COLORADO SPRINGS
STATE: CO
ZIP: 80920
FORMER COMPANY:
FORMER CONFORMED NAME: Promap Corp
DATE OF NAME CHANGE: 20091117
8-K/A
1
form8kamdfullcirjan-14.txt
8-K AMEND RE FULL CIRCLE AGREE
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): January 21, 2014
ADVANCED CANNABIS SOLUTIONS, INC.
---------------------------------------------------
(Name of Small Business Issuer in its charter)
Colorado 000-54457 20-8096131
---------------------- -------------------- --------------------
(State of incorporation) (Commission File No.) (IRS Employer
Identification No.)
7750 N. Union Blvd., Suite 201
Colorado Springs, Co 80920
------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (719) 590-1414
Promap Corporation
---------------------------------------------
(Former name or former address if changed since last report)
Check appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below)
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-14(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement
On January 21, 2014 the Company signed a definitive agreement with Full
Circle Capital Corporation, a closed-end investment company. The agreement
provides that the investment fund will initially provide $7.5 million to the
Company in the form of Senior Secured Convertible Notes, subject to certain
conditions. An additional $22.5 million can be borrowed by Company with the
mutual agreement of the Company and the investment company.
At least 95% of the loan proceeds will be used to acquire properties which
the Company, consistent with its business plan, will lease to licensed cannabis
growers.
The six-year loan will be secured by real estate acquired with the loan
proceeds and will require interest-only payments at a rate of 12% per year.
The initial loan can, at any time, be converted into shares of the
Company's common stock at a conversion price of $5.00 per share. It is
contemplated that further advances will be convertible at 110% of the market
price of the Company's stock on the day of advance, or the ten-day
volume-weighted average price prior to the day of advance, whichever is lower.
The investment fund also purchased warrants which allow the investment fund to
purchase up to 1,000,000 shares of the Company's common stock at any time on or
prior to January 21, 2017 at a price of $5.50 per share.
The funding of the loan is subject to the execution of additional documents
between the parties.
Item 3.02. Unregistered Sales of Equity Securities
The warrants described in Item 1.01 of this report were not registered
under the Securities Act of 1933 and are restricted securities. The Company
relied upon the exemption provided by Rule 506 of the Securities and Exchange
Commission in connection with the sale of the warrants. The person which
acquired these warrants was a sophisticated investor and was provided full
information regarding the Company's business and operations. There was no
general solicitation in connection with the offer or sale of the warrants. The
person who acquired the warrants acquired them for its own account. The warrants
cannot be sold except pursuant to an effective registration statement or an
exemption from registration. No commission was paid to any person in connection
with the sale of the warrants.
Item 9.01. Financial Statements and Exhibits
Exhibit Number Description
10.1 Securities Purchase Agreement
10.2 Warrant
10.3 Registration Rights Agreement
10.4 Form of Convertible Note
10.5 Form of Guaranty
10.6 Form of Security Agreement
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.
Date: January 24, 2014 ADVANCED CANNABIS SOLUTIONS, INC.
By:/s/ Robert Frichtel
---------------------------------
Robert Frichtel, Chief Executive Officer
EX-10
2
spajan-14.txt
EXH. 10.1 - SPA (SEC. PURCH AGREE)
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of January 21,
2014, by and among Advanced Cannabis Solutions, Inc., a Colorado corporation,
with headquarters located at 7750 N. Union Blvd., Suite 201, Colorado Springs,
CO 80920 (the "Company"), and the investors listed on the Schedule of Buyers
attached hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured convertible
notes of the Company, in substantially the form attached hereto as Exhibit A
(the "Notes"), which Notes shall be convertible into the Company's common stock,
no par value (the "Common Stock") (the shares of Common Stock issuable pursuant
to the terms of the Notes, including, without limitation, upon conversion or
otherwise, collectively, the "Conversion Shares"), in accordance with the terms
of the Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement Warrants, in the form attached
hereto as Exhibit B (the "Warrants"), representing the right to acquire that
number of shares of Common Stock set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers (as exercised, collectively, the "Warrant
Shares").
D. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement at the Closing (as defined below)
that aggregate principal amount of Notes set forth opposite such Buyer's name in
column (3) on the Schedule of Buyers attached hereto (which aggregate principal
amount of Notes for all Buyers shall be $7,500,000 at the Closing).
E. Subject to the terms and conditions set forth in Section 1(e) below, the
Buyers and/or other investors acceptable to the Buyers may purchase, and the
Company may sell, up to an additional $22,500,000 aggregate principal amount of
senior secured convertible notes of the Company at one or more additional
closings.
F. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
1
G. The Notes will rank senior to all outstanding and future indebtedness of
the Company (other than Permitted Senior Indebtedness (as defined in the Notes),
will be guaranteed by all direct and indirect Subsidiaries (as defined in
Section 3(a)) of the Company, currently formed or formed in the future, as
evidenced by a guaranty agreement, in substantially the form attached hereto as
Exhibit D-1 (the "Guaranty Agreement"), and will be secured by a first priority
perfected security interest in all or substantially all of the current and
future assets of the Company and all direct and indirect Subsidiaries of the
Company, currently formed or formed in the future, as evidenced by a pledge and
security agreement, in substantially the form attached hereto as Exhibit D-2,
(as amended or modified from time to time in accordance with its terms, the
"Security Agreement" and together with the Guaranty Agreement and any ancillary
documents related to the Security Agreement and the Guaranty Agreement
(including, without limitation, Deed of Trust, Security Agreement and Fixture
Filing, Assignment of Leases and Rents, Environmental Indemnity Agreement, and
other documentation relating to perfecting a security interest in real estate
owned by the Company each in a form and substance acceptable to Buyer in its
sole discretion, the "Security Documents").
H. The Notes, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "Securities".
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell
to each Buyer, and each Buyer severally, but not jointly, agrees to purchase
from the Company on the Closing Date (as defined below), a principal amount of
Notes as is set forth opposite such Buyer's name in column (3) on the Schedule
of Buyers (the "Closing").
(b) Closing. The date and time of the Closing (the "Closing Date") shall be
10:00 a.m., New York City time, on the date hereof (or such other date and time
as is mutually agreed to by the Company and each Buyer), or such subsequent
date, after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below, at the offices of counsel for Full
Circle Capital Corporation ("Full Circle").
(c) Purchase Price. The aggregate purchase price for the Notes to be
purchased by each Buyer at the Closing (the "Purchase Price") shall be the
amount set forth opposite each Buyer's name in column (5) of the Schedule of
Buyers. Each Buyer shall pay $980 for each $1,000 of principal amount of Notes
and related Warrants to be purchased by such Buyer at the Closing.
(d) Form of Payment. On the Closing Date, (i) each Buyer shall pay its
Purchase Price to the Company for the Notes to be issued and sold to such Buyer
at the Closing (less, in the case of Full Circle, the amounts withheld pursuant
to Section 4(g)), by wire transfer of immediately available funds in accordance
with the Company's written wire instructions and (ii) the Company shall deliver
to each Buyer the Notes (allocated in the principal amounts as such Buyer shall
2
request) which such Buyer is then purchasing hereunder, duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.
(e) Purchase of Warrants. Effective upon the execution of this Agreement,
the Company shall issue and sell to each Buyer, and each Buyer severally, but
not jointly, shall purchase from the Company, Warrants to acquire up to that
number of Warrant Shares as is set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers. The purchase price per Warrant shall be $0.50 per
Warrant. The aggregate purchase price for the Warrants by all Buyers shall be
referred to herein as the "Warrant Purchase Price". On the date hereof, (i) each
Buyer shall pay its portion of the Warrant Purchase Price to the Company for the
Warrants to be issued and sold to such Buyer (less, in the case of Full Circle,
$100,000 to be withheld for legal and other expenses), by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions and (ii) the Company shall deliver to each Buyer the Warrants
(allocated in the amounts as such Buyer shall request) which such Buyer is
purchasing hereunder, duly executed on behalf of the Company and registered in
the name of such Buyer or its designee.
(f) Additional Closings. Subject to the prior written consent of the
Required Holders in their sole discretion, and the approval of the investment
committees of the Buyers comprising the Required Holders, during the eighteen
(18) month period following the Closing Date, the Company may request that the
Buyers purchase from the Company up to an additional $22,500,000 aggregate
principal amount of senior secured convertible notes of the Company in one or
more additional closings. It is contemplated that the terms and conditions of
the purchase of such notes will be on similar terms to those contained in the
Transaction Documents (but without the issuance of additional Warrants), but,
notwithstanding the foregoing, any such purchase of notes shall be required to
be on terms and conditions satisfactory to the Required Holders, as determined
acceptable to the Required Holders at the time of each request by the Company,
at the sole and absolute discretion of Buyers constituting the Required Holders,
and the documentation with respect to such purchase shall be required to be
similarly satisfactory to the Required Holders.
2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and not
jointly, represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes
and the Warrants and (ii) upon conversion of the Notes and exercise of the
Warrants (other than pursuant to a Cashless Exercise (as defined in the
Warrants)) will acquire the Conversion Shares issuable pursuant to the Notes and
the Warrant Shares issuable upon exercise of the Warrants, for its own account
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein, such
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. Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person (as defined below) to
distribute any of the Securities. For purposes of this Agreement, "Person" means
an individual, a limited liability company, a partnership, a joint venture, a
3
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(b) Accredited Investor Status. Such Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities that have
been requested by such Buyer. Such Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, "Rule 144");
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person) through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Securities under the 1933 Act or any state securities
4
laws or to comply with the terms and conditions of any exemption thereunder.
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 and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares and the Warrant Shares,
except as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, 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 the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at The Depository Trust Company ("DTC"), if, (i) such Securities are
registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion
of counsel, in a generally acceptable form, to the effect that such sale,
assignment or transfer of the Securities may be made without registration under
the applicable requirements of the 1933 Act, or (iii) the Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A. The Company
5
shall be responsible for the fees of its transfer agent and all DTC fees
associated with such issuance.
(h) Validity; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
Notwithstanding the foregoing, Buyer does not make any warranty or
representation as to the enforceability of this Agreement, the Registration
Rights Agreement, or any related agreements to the extent any such agreement is
deemed illegal and therefore unenforceable by applicable federal law.
(i) No Conflicts. The execution, delivery and performance by such Buyer of
this Agreement and the Registration Rights Agreement and the consummation by
such Buyer of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such Buyer or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which such Buyer is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to such Buyer, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder. Notwithstanding the foregoing, such Buyer
does not make any representation or warranty with respect to any laws, rules or
regulations relating to marijuana.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. Each of the Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds an
equity or similar interest) are entities duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are formed, and
have the requisite power and authorization to own, lease and operate their
properties and assets and to carry on their business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified as a foreign entity
to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, individually or taken as a whole,
or on the transactions contemplated hereby or in the other Transaction Documents
or by the agreements and instruments to be entered into in connection herewith
or therewith, or on the authority or ability of the Company to perform its
6
obligations under the Transaction Documents. The Company has no Subsidiaries
except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement, the Notes, the Warrants, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Security Documents and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "Transaction Documents") and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Notes and the Warrants, the reservation for issuance and the
issuance of the Conversion Shares and the reservation for issuance and issuance
of Warrant Shares issuable upon exercise of the Warrants have been duly
authorized by the Company's Board of Directors and (other than the filing with
the SEC of one or more Registration Statements (as defined in the Registration
Rights Agreement) in accordance with the requirements of the Registration Rights
Agreement and other filings as may be required by state securities agencies) no
further filing, consent, or authorization is required by the Company, its Board
of Directors or its stockholders. This Agreement and the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of applicable creditors' rights and
remedies. Each of the Subsidiaries party to any of the Transaction Documents (as
defined below) has the requisite power and authority to enter into and perform
its obligations under such Transaction Documents. The execution and delivery by
the Subsidiaries party to any of the Transaction Documents of such Transaction
Documents and the consummation by such Subsidiaries of the transactions
contemplated thereby have been duly authorized by such Subsidiaries' respective
boards of directors (or other applicable governing body) and (other than filings
as may be required by state securities agencies) no further filing, consent, or
authorization is required by such Subsidiaries, their respective boards of
directors (or other applicable governing body) or stockholders (or other
applicable owners of equity of such Subsidiaries). The Transaction Documents to
which any of the Subsidiaries are parties have been duly executed and delivered
by such Subsidiaries, and constitute the legal, valid and binding obligations of
such Subsidiaries, enforceable against them in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of applicable creditors' rights and remedies.
(c) Issuance of Securities. The issuance of the Notes and the Warrants are
duly authorized and, upon issuance, shall be validly issued and free from all
taxes, liens and charges with respect to the issue thereof. As of the Closing, a
number of shares of Common Stock shall have been duly authorized and reserved
for issuance which equals or exceeds 130% of the maximum number of (the
"Required Reserved Amount") (i) Conversion Shares issuable pursuant to the terms
7
of the Notes (without taking into account any limitations on the issuance
thereof pursuant to the terms of the Notes), and (ii) Warrant Shares issuable
upon exercise of the Warrants (without taking into account any limitations on
the exercise of the Warrants set forth in the Warrants). As of the date hereof,
Schedule 3(c) sets forth (x) the number of shares of the Company's Common Stock
that are authorized and unissued and (y) the number of shares of the Company's
issued and outstanding Common Stock are owned by Persons who are "affiliates"
(as defined in Rule 405 of the 1933 Act and calculated based on the assumption
that only officers, directors and holders of at least 10% of the Company's
issued and outstanding Common Stock are "affiliates" without conceding that any
such Persons are "affiliates" for purposes of federal securities laws) of the
Company or any of its Subsidiaries, in each case as of the Closing Date. Upon
conversion of the Notes in accordance with the Notes or exercise of the Warrants
in accordance with the Warrants, as the case may be, the Conversion Shares and
the Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. Assuming the accuracy of each
of the representations and warranties set forth in Section 2 of this Agreement,
the offer and issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and any of its Subsidiaries parties to any
of the Transaction Documents and the consummation by the Company and any of its
Subsidiaries of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Notes and the Warrants and reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not (i) result in a violation of any memorandum of association, articles of
incorporation, certificate of formation, any certificate of designations or
other constituent documents of the Company or any of its Subsidiaries, any
capital stock of the Company or any of its Subsidiaries or the articles of
association or bylaws of the Company or any of its Subsidiaries or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) in any respect under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board (the "Principal Market") and applicable laws of the State of
Colorado and any other state laws) 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.
(e) Consents. Neither the Company nor any of its Subsidiaries is required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company or
any of its Subsidiaries is required to obtain pursuant to the preceding sentence
have been obtained or effected on or prior to the Closing Date, and the Company
and its Subsidiaries are unaware of any facts or circumstances that might
prevent the Company or any of its Subsidiaries from obtaining or effecting any
of the registration, application or filings pursuant to the preceding sentence.
The Company is not in violation of the listing requirements of the Principal
8
Market and has no knowledge of any facts that would reasonably lead to delisting
or suspension of the Common Stock in the foreseeable future. The issuance by the
Company of the Securities shall not have the effect of delisting or suspending
the Common Stock from the Principal Market.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an "affiliate" of
the Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to the
knowledge of the Company, a "beneficial owner" of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the "1934 Act")). The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the Company,
nor any of its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim. Neither the Company nor any of its Subsidiaries has engaged
any placement agent or other agent in connection with the sale of the
Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of
their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act, whether through integration with prior
offerings or otherwise, or cause this offering of the Securities to require
approval of stockholders of the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings for
purposes of any such applicable stockholder approval provisions.
9
(i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable pursuant to terms of the Notes and the
number of Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares pursuant to the terms of the Notes in accordance with
this Agreement and the Notes and its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Warrants is,
in each case, absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
(j) Application of Takeover Protections; Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation (as defined in
Section 3(r)) or the laws of the jurisdiction of its formation which is or could
become applicable to any Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
(k) SEC Documents; Financial Statements. Except as disclosed in Schedule
3(k), during the two (2) years prior to the date hereof, 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 1934
Act (all of the foregoing filed prior to the date hereof, and all exhibits
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of the SEC Documents not
available on the EDGAR system. As of their respective filing 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 the light of the circumstances under which they
were made, not misleading. As of their respective filing 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 generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement or in the
disclosure schedules to this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
10
statements therein, in the light of the circumstance under which they are or
were made, not misleading.
(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l), since
September 30, 2012, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Except as disclosed in Schedule 3(l), since September 30,
2012, neither the Company nor any of its Subsidiaries has (i) declared or paid
any dividends, (ii) sold any assets, individually or in the aggregate, in excess
of $75,000 outside of the ordinary course of business or (iii) had capital
expenditures, individually or in the aggregate, in excess of $75,000. Neither
the Company nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact that would reasonably lead a
creditor to do so. The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below). For purposes of this Section 3(l), "Insolvent"
means, with respect to any Person, (i) the present fair saleable value of such
Person's assets is less than the amount required to pay such Person's total
Indebtedness (as defined in Section 3(s)), (ii) such Person is unable to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor any of
its Subsidiaries is in violation of any term of or in default under any
certificate of designations of any outstanding series of preferred stock of the
Company (if any), its Articles of Incorporation or Bylaws (as defined in Section
3(r)) or their organizational charter or memorandum of association or articles
of incorporation or articles of association or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
will conduct its business in violation of any of the foregoing, except for
possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of the Principal Market and has no knowledge
11
of any facts or circumstances that would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future. Except as set forth in Schedule 3(n), during the two (2) years prior to
the date hereof, the Common Stock has been designated for quotation on the
Principal Market. Except as set forth in Schedule 3(n), during the two (2) years
prior to the date hereof, (i) trading in the Common Stock has not been suspended
by the SEC or the Principal Market and (ii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding
the suspension or delisting of the Common Stock from the Principal Market. The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(o) Certain 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 of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(p) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
(q) Transactions With Affiliates. Except as set forth on Schedule 3(q),
none of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
or 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
such officer, director or employee or, to the knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other entity in which
any such officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 100,000,000 shares of Common Stock and (ii)
5,000,000 shares of preferred stock, no par value, of which as of the date
hereof, no shares are issued and outstanding. Schedule 3(r) sets forth the
number of shares of Common Stock that are issued and outstanding, the number of
shares of Common Stock that are reserved for issuance pursuant to the Company's
stock option and purchase plans and the number of shares of Common Stock that
are reserved for issuance pursuant to securities (other than the aforementioned
options, the Notes and the Warrants) exercisable or exchangeable for, or
convertible into, Common Stock, in each case as of the Closing Date. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 3(r): (i) none of
the Company's capital stock is subject to preemptive rights or any other similar
12
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings 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 or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities
or other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except pursuant to the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
any of its Subsidiaries respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has
furnished or made available to the Buyers true, correct and complete copies of
the Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "Articles of Incorporation"), and the Company's Bylaws, as amended
and as in effect on the date hereof (the "Bylaws"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.
(s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
13
expected to have a Material Adverse Effect. Schedule 3(s) provides a detailed
description of the material terms of any such outstanding Indebtedness. For
purposes of this Agreement: (x) "Indebtedness" of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services,
including, without limitation, "capital leases" in accordance with United States
generally accepted accounting principles (other than trade payables entered into
in the ordinary course of business consistent with past practice), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with United States generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; and (y) "Contingent Obligation" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any Indebtedness, 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.
(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or any
of the Company's or its Subsidiaries' officers or directors, whether of a civil
or criminal nature or otherwise, in their capacities as such, except as set
forth in Schedule 3(t). The matters set forth in Schedule 3(t) would not
reasonably be expected to have a Material Adverse Effect.
(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, and as hereafter more specifically described and mandated in the
Security Documents, which upon execution by the Company or its applicable
Subsidiary shall be incorporated herein by this reference. Neither the Company
nor any such Subsidiary has been refused any insurance coverage sought or
applied for and 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
14
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(v) Employee Relations.
(i) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their
employees are good. No executive officer of the Company or any of its
Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the
Company or any such Subsidiary that such officer intends to leave the
Company or any such Subsidiary or otherwise terminate such officer's
employment with the Company or any such Subsidiary. No executive officer of
the Company or any of its Subsidiaries, to the knowledge of the Company or
any of its Subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or
any of its Subsidiaries to any liability with respect to any of the
foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.
(w) Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held under
lease by the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, original works of authorship,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor ("Intellectual Property
Rights") necessary to conduct their respective businesses as now conducted.
Except as set forth in Schedule 3(x), none of the Company's Intellectual
Property Rights have expired or terminated or have been abandoned or are
expected to expire or terminate or are expected to be abandoned, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of its Subsidiaries, being threatened,
against the Company or any of its Subsidiaries regarding its Intellectual
15
Property Rights. Neither the Company nor any of its Subsidiaries is aware of any
facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. 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.
(z) Subsidiary Rights. The Company or one of its Subsidiaries 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 such Subsidiary.
(aa) Investment Company Status. The Company is not, and upon consummation
of the sale of the Securities, and for so long any Buyer holds any Securities,
will not be, an "investment company," a company controlled by an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended.
(bb) Tax Status. The Company and each of its Subsidiaries (i) has made or
filed all U.S. federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision 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.
(cc) Internal Accounting and Disclosure Controls. The Company and each of
its 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
16
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-15 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company's management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure. During the twelve months prior to the date hereof neither the
Company nor any of its Subsidiaries has received any notice or correspondence
from any accountant relating to any material weakness in any part of the system
of internal accounting controls of the Company or any of its Subsidiaries.
(dd) Off Balance Sheet Arrangements. There is no transaction, arrangement,
or other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its 1934
Act filings and is not so disclosed or that otherwise would be reasonably likely
to have a Material Adverse Effect.
(ee) Ranking of Notes. No Indebtedness of the Company or any of its
Subsidiaries is senior to or ranks pari passu with the Notes in right of
payment, whether with respect of payment of redemptions, interest, damages or
upon liquidation or dissolution or otherwise.
(ff) Compliance with State Marijuana Laws. Neither the Company nor any of
its Subsidiaries grows, harvests, distributes or sells marijuana or any
substances that violate United States law or the Controlled Substances Act, 21
U.S.C. ss. 801 et seq., or any laws, rules or regulations of the State of
Colorado. The existing and anticipated future activities of the Company and each
of its Subsidiaries are, and will be, in clear and unambiguous compliance with
the laws of the states in which such Company and Subsidiaries conduct, and
intend to conduct, business, including, but not limited to, any state or local
laws, regulations or ordinances permitting, restricting or otherwise relating to
the cultivation, sale, distribution and/or use of marijuana ("State Marijuana
Laws"). Neither the Company nor any of its Subsidiaries is required to apply
for, or obtain, any license under any State Marijuana Law.
(gg) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and all
laws imposing such taxes will be or will have been complied with.
17
(hh) Manipulation of Price. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result, or that could reasonably be expected to cause or
result, in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company.
(ii) Acknowledgement Regarding Buyers' Trading Activity. The Company
acknowledges and agrees that (i) none of the Buyers has been asked to agree, nor
has any Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) any Buyer,
and counter-parties in "derivative" transactions to which any such Buyer is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation
with or control over any arm's length counter-party in any "derivative"
transaction. The Company further understands and acknowledges that one or more
Buyers may engage in hedging and/or trading activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Conversion Shares and/or the Warrant
Shares are being determined and (b) such hedging and/or trading activities, if
any, can reduce the value of the existing stockholders' equity interest in the
Company both at and after the time the hedging and/or trading activities are
being conducted. The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement, the
Notes, the Warrants or any of the documents executed in connection herewith.
(jj) U.S. Real Property Holding Corporation. The Company is not, has never
been, and so long as any Securities remain outstanding, shall not become, a U.S.
real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company shall so certify upon
any Buyer's request.
(kk) Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the "BHCA") and to regulation by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). Neither the Company nor any of
its Subsidiaries or affiliates owns or controls, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of voting securities
or twenty-five percent (25%) or more of the total equity of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.
(ll) No Additional Agreements. Neither the Company nor any of its
Subsidiaries has any agreement or understanding with any Buyer with respect to
the transactions contemplated by the Transaction Documents other than as
specified in the Transaction Documents.
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(mm) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information. The Company understands and confirms
that each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the Buyers
regarding the Company, or any of its Subsidiaries, their business and the
transactions contemplated hereby, including the disclosure schedules to this
Agreement, furnished by or on behalf of the Company is true and correct and does
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each
press release issued by the Company or any of its Subsidiaries during the twelve
(12) months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.
(nn) Shell Company Status. The Company is not, and has never been, an
issuer identified in Rule 144(i)(1) of the 1933 Act.
(oo) Stock Option Plans. Each stock option granted by the Company was
granted (i) in accordance with the terms of the applicable stock option plan of
the Company and (ii) with an exercise price at least equal to the fair market
value of the Common Stock on the date such stock option would be considered
granted under GAAP and applicable law. No stock option granted under the
Company's stock option plan has been backdated. The Company has not knowingly
granted, and there is no and has been no policy or practice of the Company to
knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.
(pp) No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect to
any fees owed to its accountants and lawyers which could affect the Company's
ability to perform any of its obligations under any of the Transaction
Documents. In addition, on or prior to the date hereof, the Company had
discussions with its accountants about its financial statements previously filed
with the SEC. Based on those discussions, the Company has no reason to believe
that it will need to restate any such financial statements or any part thereof.
(qq) No Disqualification Events. With respect to Securities to be offered
and sold hereunder in reliance on Rule 506 under the 1933 Act ("Regulation D
19
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 hereunder, any beneficial owner of 20% or more of
the Company's outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
1933 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 1933 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.
(rr) Other Covered Persons. The Company is not aware of any Person (other
than any Issuer Covered Person) that has been or will be paid (directly or
indirectly) remuneration for solicitation of Buyers or potential purchasers in
connection with the sale of any Regulation D Securities.
(ss) Representations and Warranties Relating to Leases, Rents and Other
Matters. Except as set forth in Schedule 3(ss), (a) Company or its Subsidiary
is, and shall remain, the absolute owner of the landlord's interest in the
leasehold estates, ground leases, leases, subleases, licenses, or other
agreements affecting the use, enjoyment or occupancy of the Company Property
(defined below) now or later existing (including any use or occupancy
arrangements created pursuant to the Bankruptcy Code and all extensions and
amendments thereto (collectively, the "Leases"); (b) Company and/or its
Subsidiary has and shall maintain the right, power and authority to assign,
transfer, and set over all of its right, title and interest in, to and under the
Leases and all cash, security deposits, advance rentals, or similar payments
relating thereto (collectively, the "Rents") and no other person has any right,
title or interest therein; (c) all Leases are valid and in full force and effect
and have not been modified, amended or terminated, nor have any of the terms and
conditions of the Leases been waived, except as expressly stated in the Leases;
(d) other than that which may have been previously granted to Buyers, there are
no outstanding assignments or pledges of the Leases or Rents; (e) there are no
outstanding leasing commissions due under the Leases for the initial term or for
any extensions, renewals or expansions; (f) there are no existing defaults or
any state of facts which, with the giving of notice and/or passage of time,
would constitute a default under the Leases by any party thereto; (g) no tenant
has any defense, set-off or counterclaim against Company; (h) each tenant is in
possession of its leased premises and paying Rent and other charges as provided
in its Lease; (i) no Rents have been or will later be anticipated, discounted,
released, waived, compromised or otherwise discharged, except as may be
expressly permitted by the applicable Lease; (j) except as specified in the
Leases and shown on the rent roll delivered to Buyers in connection with the
funding of any Notes (the "Rent Roll"), there are no (i) unextinguished rent
concessions, abatements or other inducements relating to the Leases, or (ii)
options or other rights to acquire any interest in any Company Property in favor
of any tenant; (k) the Rent Roll shall disclose all currently existing Leases
and is true, complete and accurate in all respects; and (l) all warranties and
representations made herein, in the any deed of trust, mortgage, deed to secure
debt or other similar instrument, executed and delivered by Borrower, as
"Trustor," "Mortgagor," or "Grantor", for the benefit of Buyers as
"Beneficiary," "Mortgagee" or "Grantee" ("Instrument(s)"), for an or in any
20
other document are true and do not omit to state any facts necessary to prevent
the same from being misleading as of the date hereof.
(tt) OFAC Lists. That (a) neither Company or any Subsidiary, nor any
persons or entities holding any legal or beneficial interest whatsoever in
Company or Subsidiary (whether directly or indirectly), are named on any list of
persons, entities, and governments issued by the Office of Foreign Assets
Control of the United States Department of the Treasury ("OFAC") pursuant to
Executive Order 13224 - Blocking Property and Prohibiting Transactions with
Persons Who Commit, Threaten to Commit, or Support Terrorism ("Executive Order
13224"), as in effect on the date hereof, or any similar list issued by OFAC or
any other department or agency of the United States of America (collectively,
the "OFAC Lists") or will knowingly conduct business with or engage in any
transaction with any person or entity named on any of the OFAC Lists or any
person or entity included in, owned by, controlled by, acting for or on behalf
of, providing assistance, support, sponsorship, or services of any kind to, or
otherwise associated with any of the persons or entities referred to or
described in the OFAC Lists; provided, however, that (i) with respect to
individual beneficiaries of any governmental plans (collectively, the
"Individual Beneficiaries"), the foregoing representations and warranties are
limited to Company's actual knowledge, and (ii) with respect to individual
shareholders of any publicly traded company holding an interest in Company
(collectively, the "Individual Shareholders"), the foregoing representations and
warranties are limited to Company's actual knowledge; (b) neither Company, nor
any persons or entities holding any legal or beneficial interest whatsoever in
Company (whether directly or indirectly), are included in, owned by, controlled
by, acting for or on behalf of, providing assistance, support, sponsorship, or
services of any kind to, or otherwise associated with any of the persons or
entities referred to or described in the OFAC Lists; provided, however, that (i)
with respect to any Individual Beneficiaries holding interests in Company, the
foregoing representations and warranties are limited to Company's actual
knowledge, and (ii) with respect to any Individual Shareholders holding
interests in Company, the foregoing representations and warranties are limited
to Company's actual knowledge; and (c) Company has not knowingly conducted
business with or engaged in any transaction with any person or entity named on
any of the OFAC Lists or any person or entity included in, owned by, controlled
by, acting for or on behalf of, providing assistance, support, sponsorship, or
services of any kind to, or otherwise associated with any of the persons or
entities referred to or described in the OFAC Lists.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy
each of the covenants and the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect
to the Securities as 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 in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the 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
21
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as defined in
the Registration Rights Agreement) shall have sold all of the Conversion Shares
and Warrant Shares and none of the Notes or Warrants are outstanding (the
"Reporting Period"), the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would no longer require or
otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale and
exercise of the Warrants solely for the Company's corporate expenses, and not
for any (i) expenses of any of the Company's Subsidiaries, or (ii) real
property-related expenditures, acquisitions or improvements. The Company will
use the proceeds from the sale of the Notes solely as set forth on Schedule
4(d).
(e) Financial Information. The Company agrees to send the following to each
Investor during the Reporting Period (i) unless the following are filed with the
SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-K, any Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K (or any analogous reports under the 1934 Act) and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
copies of all press releases issued by the Company or any of its Subsidiaries,
and (iii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders. As used herein, "Business Day"
means any day other than Saturday, Sunday or other day on which commercial banks
in The City of New York are authorized or required by law to remain closed.
(f) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the authorization for quotation of the Common Stock on the Principal
Market or any other Eligible Market (as defined in the Warrants). Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall reimburse Full Circle (a Buyer) or its
designee(s) for all costs and expenses incurred in connection with the
transactions contemplated by the Transaction Documents (including all legal fees
22
and disbursements in connection therewith, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence in
connection therewith), which amount may be withheld by such Buyer from its
Purchase Price at the Closing to the extent not previously reimbursed by the
Company. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or broker's commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment. Except as otherwise set forth in
the Transaction Documents, each party to this Agreement shall bear its own
expenses in connection with the sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor.
(i) Disclosure of Transactions and Other Material Information. On or before
8:30a.m., New York City time, on the date hereof, the Company shall issue a
press release describing the terms of the transaction contemplated by the
Transaction Documents. On or before 8:30 a.m., New York City time, on January
27, 2014, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules and exhibits
to this Agreement), the form of the Notes, the form of the Registration Rights
Agreement and the Security Documents as exhibits to such filing (including all
attachments), the "8-K Filing"). Effective upon the filing of the 8-K Filing,
the Company acknowledges and agrees that any and all confidentiality and similar
obligations under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers, directors,
affiliates, employees or agents, on the one hand, and each Buyer or any of its
affiliates, on the other hand, shall terminate. From and after the filing of the
8-K Filing with the SEC, no Buyer shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of their respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the 8-K Filing with the SEC without the express prior written consent of such
Buyer. If a Buyer has, or believes it has, received any such material, nonpublic
information regarding the Company or any of its Subsidiaries from the Company,
any of its Subsidiaries or any of their respective officers, directors,
affiliates or agents, it may provide the Company with written notice thereof.
The Company shall, within two (2) Trading Days of receipt of such notice, make
public disclosure of such material, nonpublic information. In the event of a
breach of the foregoing covenant by the Company, any of its Subsidiaries, or any
of its or their respective officers, directors, employees and agents, in
23
addition to any other remedy provided herein or in the Transaction Documents, a
Buyer shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or agents. No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for any
such disclosure. To the extent that the Company delivers any material,
non-public information to a Buyer without such Buyer's consent, the Company
hereby covenants and agrees that such Buyer shall not have any duty of
confidentiality with respect to, or a duty not to trade on the basis of, such
material, non-public information. Subject to the foregoing, neither the Company,
its Subsidiaries nor any Buyer shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Except for the Registration Statement
required to be filed pursuant to the Registration Rights Agreement, without the
prior written consent of any applicable Buyer, neither the Company nor any of
its Subsidiaries or affiliates shall disclose the name of such Buyer in any
filing, announcement, release or otherwise.
(j) Additional Notes; Variable Securities; Dilutive Issuances. So long as
any Buyer beneficially owns any Notes, the Company will not issue any Notes
other than to the Buyers as contemplated hereby and the Company shall not issue
any other securities that would cause a breach or default under the Notes. For
so long as any Notes remain outstanding, the Company shall not, in any manner,
issue or sell any rights, warrants or options to subscribe for or purchase
Common Stock or directly or indirectly convertible into or exchangeable or
exercisable for Common Stock at a price which varies or may vary with the market
price of the Common Stock, including by way of one or more reset(s) to any fixed
price unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Notes) with respect to the Common Stock into which any Note is convertible or
the then applicable Exercise Price (as defined in the Warrants) with respect to
the Common Stock into which any Warrant is exercisable.
(k) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall (i) maintain its corporate existence and (ii) not
be party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes and the Warrants.
(l) Reservation of Shares. So long as any Buyer owns any Securities, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than the 130% of the maximum
24
number of (i) Conversion Shares (without taking into account any limitations on
the issuance thereof pursuant to the terms of the Notes), and (ii) shares of
Common Stock issuable upon exercise of the Warrants then outstanding (without
taking into account any limitations on the exercise of the Warrants set forth in
the Warrants). If at any time the number of shares of Common Stock authorized
and reserved for issuance is not sufficient to meet the Required Reserved
Amount, 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 stockholders to authorize additional
shares to meet the Company's obligations under Section 3(c), in the case of an
insufficient number of authorized shares, obtain stockholder approval of an
increase in such authorized number of shares, and voting the management shares
of 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
Required Reserved Amount.
(m) Conduct of Business. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect. Without limiting
the generality of the foregoing, neither the Company nor its Subsidiaries shall
grow, harvest, distribute or sell marijuana or any substances that violate
United States law or the Controlled Substances Act, 21 U.S.C. ss. 801, et seq.,
any laws, rules or regulations of the State of Colorado, nor engage in
activities that would require such Company or any such Subsidiary to obtain a
license under any State Marijuana Law. The business of the Company and its
Subsidiaries shall be conducted in clear and unambiguous compliance with State
Marijuana Laws and in accordance with the principles set forth in the relevant
guidance issued by the U.S. Department of Justice and any other federal
government agency, including, but not limited to, the memorandum issued by the
Deputy Attorney General dated August 29, 2013. The exception in the first
sentence of this Section 3(m), with respect to violations not resulting in a
Material Adverse Effect, shall not apply to the two preceding sentences.
(n) Additional Issuances of Securities.
(i) For purposes of this Section 4(n), the following definitions shall
apply.
(1) "Common Stock Equivalents" means, collectively, Options and
Convertible Securities.
(2) "Convertible Securities" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for shares of
Common Stock.
(3) "Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(4) "Subsequent Placement" means any direct or indirect, offer, sale,
grant of any option to purchase, or other disposition of (or announcement
of any offer, sale, grant or any option to purchase or other disposition
of) any of the Company's or the Company's Subsidiaries' debt, equity or
25
equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time during
its life and under any circumstances, convertible into or exchangeable or
exercisable for Common Stock or Common Stock Equivalents.
(ii) Except as may be otherwise expressly provided in the Notes, from
the date hereof until the earlier of (A) the eighteen (18) month
anniversary of the Closing Date and (B) the date that the Company has sold
at least $30 million aggregate principal amount of senior secured notes of
the Company to the Buyers (including the Notes to be sold to the Buyers on
the Closing Date), the Company shall not, except for sales of senior
secured convertible notes to the Buyers and except with the prior written
consent of the Required Holders, (i) directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition of) any
of its or its Subsidiaries' debt, whether or not such debt is, at any time
during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents or
(ii) be party to any solicitations, negotiations or discussions with regard
to the foregoing.
(iii) From the date hereof until the three (3) year anniversary of the
Closing Date, the Company shall not, (i) directly or indirectly, effect any
Subsequent Placement or (ii) be party to any solicitations, negotiations or
discussions with regard to the foregoing unless the Company shall have
first complied with this Section 4(n)(iii).
(1) The Company shall deliver to each Buyer an irrevocable written
notice (the "Offer Notice") of any proposed or intended issuance or sale or
exchange (the "Offer") of the securities being offered (the "Offered
Securities") in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and
other terms upon which they are to be issued, sold or exchanged, and the
number or amount of the Offered Securities to be issued, sold or exchanged,
(y) identify the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z)
offer to issue and sell to or exchange with such Buyers all of the Offered
Securities, allocated among such Buyers (a) based on such Buyer's pro rata
portion of the aggregate principal amount of Notes purchased hereunder (the
"Basic Amount"), and (b) with respect to each Buyer that elects to purchase
its Basic Amount, any additional portion of the Offered Securities
attributable to the Basic Amounts of other Buyers as such Buyer shall
indicate it will purchase or acquire should the other Buyers subscribe for
less than their Basic Amounts (the "Undersubscription Amount"), which
process shall be repeated until the Buyers shall have an opportunity to
subscribe for any remaining Undersubscription Amount.
(2) To accept an Offer, in whole or in part, such Buyer must deliver a
written notice to the Company prior to the end of the tenth (10th) Business
Day after such Buyer's receipt of the Offer Notice (the "Offer Period"),
setting forth the portion of such Buyer's Basic Amount that such Buyer
elects to purchase and, if such Buyer shall elect to purchase all of its
Basic Amount, the Undersubscription Amount, if any, that such Buyer elects
to purchase (in either case, the "Notice of Acceptance"). If the Basic
Amounts subscribed for by all Buyers are less than the total of all of the
Basic Amounts, then each Buyer who has set forth an Undersubscription
26
Amount in its Notice of Acceptance shall be entitled to purchase, in
addition to the Basic Amounts subscribed for, the Undersubscription Amount
it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the "Available
Undersubscription Amount"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of
the Available Undersubscription Amount as the Basic Amount of such Buyer
bears to the total Basic Amounts of all Buyers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the extent
its deems reasonably necessary. Notwithstanding anything to the contrary
contained herein, if the Company desires to modify or amend the terms and
conditions of the Offer prior to the expiration of the Offer Period, the
Company may deliver to the Buyers a new Offer Notice and the Offer Period
shall expire on the tenth (10th) Business Day after such Buyer's receipt of
such new Offer Notice.
(3) The Company shall have five (5) Business Days from the expiration
of the Offer Period above to offer, issue, sell or exchange all or any part
of such Offered Securities as to which a Notice of Acceptance has not been
given by the Buyers (the "Refused Securities") pursuant to a definitive
agreement (the "Subsequent Placement Agreement") but only to the offerees
described in the Offer Notice (if so described therein) and only upon terms
and conditions (including, without limitation, unit prices and interest
rates) that are not more favorable to the acquiring Person or Persons or
less favorable to the Company than those set forth in the Offer Notice and
(ii) to publicly announce (a) the execution of such Subsequent Placement
Agreement, and (b) either (x) the consummation of the transactions
contemplated by such Subsequent Placement Agreement or (y) the termination
of such Subsequent Placement Agreement, which shall be filed with the SEC
on a Current Report on Form 8-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits thereto.
(4) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms
specified in Section 4(n)(iii)(3) above), then each Buyer may, at its sole
option and in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to an amount that
shall be not less than the number or amount of the Offered Securities that
such Buyer elected to purchase pursuant to Section 4(n)(iii)(2) above
multiplied by a fraction, (i) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue, sell
or exchange (including Offered Securities to be issued or sold to Buyers
pursuant to Section 4(n)(iii)(3) above prior to such reduction) and (ii)
the denominator of which shall be the original amount of the Offered
Securities. In the event that any Buyer so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have
again been offered to the Buyers in accordance with Section 4(n)(iii)(1)
above.
(5) Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Buyers shall acquire from the
Company, and the Company shall issue to the Buyers, the number or amount of
27
Offered Securities specified in the Notices of Acceptance, as reduced
pursuant to Section 4(n)(iii)(3) above if the Buyers have so elected, upon
the terms and conditions specified in the Offer. The purchase by the Buyers
of any Offered Securities is subject in all cases to the preparation,
execution and delivery by the Company and the Buyers of a purchase
agreement relating to such Offered Securities reasonably satisfactory in
form and substance to the Buyers and their respective counsel.
(6) Any Offered Securities not acquired by the Buyers or other persons
in accordance with Section 4(n)(iii)(3) above may not be issued, sold or
exchanged until they are again offered to the Buyers under the procedures
specified in this Agreement.
(7) The Company and the Buyers agree that if any Buyer elects to
participate in the Offer, (x) neither the Subsequent Placement Agreement
with respect to such Offer nor any other transaction documents related
thereto (collectively, the "Subsequent Placement Documents") shall include
any term or provisions whereby any Buyer shall be required to agree to any
restrictions in trading as to any securities of the Company owned by such
Buyer prior to such Subsequent Placement, and (y) any registration rights
set forth in such Subsequent Placement Documents shall be similar in all
material respects to the registration rights contained in the Registration
Rights Agreement.
(8) Notwithstanding anything to the contrary in this Section 4(n) and
unless otherwise agreed to by the Buyers, the Company shall either confirm
in writing to the Buyers that the transaction with respect to the
Subsequent Placement has been abandoned or shall publicly disclose its
intention to issue the Offered Securities, in either case in such a manner
such that the Buyers will not be in possession of material non-public
information, by the fifteenth (15th) Business Day following delivery of the
Offer Notice. If by the fifteenth (15th) Business Day following delivery of
the Offer Notice no public disclosure regarding a transaction with respect
to the Offered Securities has been made, and no notice regarding the
abandonment of such transaction has been received by the Buyers, such
transaction shall be deemed to have been abandoned and the Buyers shall not
be deemed to be in possession of any material, non-public information with
respect to the Company. Should the Company decide to pursue such
transaction with respect to the Offered Securities, the Company shall
provide each Buyer with another Offer Notice and each Buyer will again have
the right of participation set forth in this Section 4(n)(iii). The Company
shall not be permitted to deliver more than one such Offer Notice to the
Buyers in any 60 day period.
(iv) If any Investor's exercise of its rights contained in subsection
(iii) of this Section 4(n) will cause the Company to be out of compliance
with the listing rules of the Principal Market, such Investor will waive
such rights to the extent of such non-compliance. The restrictions
contained in subsection (iii) of this Section 4(n) shall not apply in
connection with the issuance of any Excluded Securities (as defined in the
Notes).
(o) Notice of Disqualification Events. The Company shall notify each Buyer
in writing, prior to the Closing Date of (i) any Disqualification Event relating
28
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.
(p) Collateral Agent.
(i) Each Buyer hereby (a) appoints Full Circle as the collateral agent
hereunder and under the Security Documents (in such capacity, the
"Collateral Agent"), and (b) authorizes the Collateral Agent (and its
officers, directors, employees and agents) to take such action on such
Buyer's behalf in accordance with the terms hereof and thereof. The
Collateral Agent shall not have, by reason hereof or pursuant to any
Security Documents, a fiduciary relationship in respect of any Buyer.
Neither the Collateral Agent nor any of its officers, directors, employees
and agents shall have any liability to any Buyer for any action taken or
omitted to be taken in connection hereof or the Security Documents except
to the extent caused by its own gross negligence or willful misconduct, and
each Buyer agrees to defend, protect, indemnify and hold harmless the
Collateral Agent and all of its officers, directors, employees and agents
(collectively, the "Collateral Agent Indemnitees") from and against any
losses, damages, liabilities, obligations, penalties, actions, judgments,
suits, fees, costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Collateral Agent
Indemnitee, whether direct, indirect or consequential, arising from or in
connection with the performance by such Collateral Agent Indemnitee of the
duties and obligations of Collateral Agent pursuant hereto or any of the
Security Documents.
(ii) The Collateral Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct
and to have been signed, sent or made by the proper Person, and with
respect to all matters pertaining to this Agreement or any of the other
Transaction Documents and its duties hereunder or thereunder, upon advice
of counsel selected by it.
(iii) The Collateral Agent may resign from the performance of all its
functions and duties hereunder and under the Notes and the Security
Documents at any time by giving at least ten (10) Business Days prior
written notice to the Company and each holder of the Notes. Such
resignation shall take effect upon the acceptance by a successor Collateral
Agent of appointment as provided below. Upon any such notice of
resignation, the holders of a majority of the outstanding principal amount
of Notes shall appoint a successor Collateral Agent. Upon the acceptance of
the appointment as Collateral Agent, such successor Collateral Agent shall
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Collateral Agent, and the retiring Collateral Agent
shall be discharged from its duties and obligations under this Agreement,
the Notes and the Security Agreement. After any Collateral Agent's
resignation hereunder, the provisions of this Section 4(p) shall inure to
its benefit. If a successor Collateral Agent shall not have been so
appointed within said ten (10) Business Day period, the retiring Collateral
Agent shall then appoint a successor Collateral Agent who shall serve until
such time, if any, as the holders of a majority of the outstanding
principal amount of Notes appoints a successor Collateral Agent as provided
above.
29
(iv) The Company hereby covenants and agrees to take all actions as
promptly as practicable reasonably requested by either the holders of a
majority of the outstanding principal amount of Notes or the Collateral
Agent (or its successor), from time to time pursuant to the terms of this
Section 4(p), to secure a successor Collateral Agent satisfactory to such
requesting part(y)(ies), in their sole discretion, including, without
limitation, by paying all fees of such successor Collateral Agent, by
having the Company agree to indemnify any successor Collateral Agent and by
each of the Company executing a collateral agency agreement or similar
agreement and/or any amendment to the Security Documents reasonably
requested or required by the successor Collateral Agent.
(q) Compliance Procedures. On or prior to the Closing Date, the Company and
its Subsidiaries shall adopt and implement a compliance program designed to
ensure that the Company and each Subsidiary and their tenants' respective
operations, including, but not limited to the cultivation, production, sale,
distribution and use of any marijuana grown, sold or distributed at any
property, location or facility leased by the Company or its Subsidiaries, are in
clear and unambiguous compliance with all applicable laws, rules and
regulations, including, but not limited to State Marijuana Laws and in
accordance with the principles set forth in the relevant guidance issued by the
U.S. Department of Justice and any other federal government agency, including,
but not limited to, the memorandum issued by the Deputy Attorney General dated
August 29, 2013 (the "Compliance Program"). The Compliance Program shall be in
form and substance satisfactory to the Required Holders (as such Required
Holders shall determine in their sole discretion) and shall include, at a
minimum, written policies and procedures; training of employees; screening of
employees; due diligence on lessees of the properties owned by the Company or
its Subsidiaries; the obtaining of appropriate representations, warranties and
other contractual provisions from such lessees; the appointment of a compliance
officer; monitoring; periodic compliance certifications by employees and
lessees; acceptable zoning and land use rights and compliance; and periodic
testing or evaluation of the effectiveness of such Compliance Program.
(r) After Acquired Real Property. Upon the acquisition by the Company or
any of its Subsidiaries after the date hereof of any interest (whether fee or
leasehold) in any real property (wherever located) (each such interest being a
"New Facility") (i) with a Current Value (as defined below) in excess of
$100,000 in the case of a fee interest, or (ii) requiring the payment of annual
rent exceeding in the aggregate $5,000 in the case of leasehold interest,
immediately so notify the Collateral Agent, setting forth with specificity a
description of the interest acquired, the location of the real property, any
structures or improvements thereon and either an appraisal or the Company's
good-faith estimate of the current value of such real property (for purposes of
this Section, the "Current Value"). The Collateral Agent shall notify the
Company whether it intends to require a Deed of Trust (and/or any other Real
Property Deliverables) or landlord's waiver with respect to such New Facility.
Upon receipt of such notice requesting a Mortgage (and/or any other Real
Property Deliverables) or landlord's waiver, the Person that has acquired such
New Facility shall promptly furnish the same to the Collateral Agent. The
Company shall pay all fees and expenses, including reasonable attorneys' fees
and expenses, and all title insurance charges and premiums, in connection with
the Company's obligations under this Section 4(s). As used herein, "Real
Property Deliverables" means a lien or other collateral interest right in a New
Facility.
30
(s) Notice of Litigation. The Company shall promptly disclose to the Buyers
any action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or its Subsidiaries'
officers or directors, whether of a civil or criminal nature or otherwise, in
their capacities as such.
(t) INTENTIONALLY OMITTED.
(u) Closing Documents. On or prior to fourteen (14) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer a complete closing set of the executed Transaction Documents, Securities
and any other documents required to be delivered to any party pursuant to
Section 7 hereof or otherwise.
(v) Continuation of Existence. Neither the Company nor its Subsidiaries
shall (a) dissolve, terminate, or otherwise dispose of, directly, indirectly or
by operation of law, all or substantially all of its assets; (b) reorganize or
change its legal structure without the Buyer's prior written consent; (c) change
its name, address, or the name under which Company nor its Subsidiaries conducts
its business without promptly notifying Buyers; or (d) do anything to cause any
representations or warranties to become untrue. Company and its Subsidiaries
shall (i) maintain its existence as a limited liability company duly organized,
validly existing, and in good standing and qualified to transact business under
the laws of its State of organization and the State of Colorado and (ii) shall
maintain all necessary approvals, governmental and otherwise, and full power and
authority to own its properties (including its Property(ies)) and carry on its
business.
(w) Leasing Restrictions. Company or its Subsidiary shall lease the Company
Properties at market rents and on market terms (based on the type, quality and
location of such Property) using the standard lease form that has been approved
by the Required Holders, and Company or its Subsidiary shall not lease any
portion of the Company Properties for any use not reasonably approved by Buyers.
All Leases shall be bona fide, binding contracts, duly authorized and executed
with third-party tenants unrelated to Company.
(x) Covenants Relating to Leases and Rents. Company or its Subsidiary shall
not, except with the prior written consent of the Required Holders in each
instance, (a) sell, assign, pledge, mortgage or otherwise transfer or encumber
(except hereby) any of the Leases, Rents or any right, title or interest of
Company or its Subsidiary therein; (b) accept prepayments of any Rents for a
period of more than one (1) month in advance of the due dates thereof (provided,
however, that Company or its Subsidiary may accept prepayments of Rents for
periods of more than one (1) month with respect to no more than fifteen percent
(15%) of the leasable area in any Property); (c) in any manner intentionally or
materially impair the value of its Property or the benefit to Buyers; (d) waive,
excuse, condone, discount, set off, compromise, or in any manner release or
discharge any tenant from any of its obligations under the Leases; (e) except as
otherwise permitted hereby, enter into any settlement of any action or
proceeding arising under, or in any manner connected with, the Leases or with
the obligations of the landlord or the tenants thereunder; or (f) modify, cancel
31
or terminate any guaranties under any Lease. Company shall or cause, at its sole
cost and expense, duly and timely keep, observe, perform, comply with and
discharge all of the material obligations of the landlord under the Leases, or
cause the foregoing to be done, and Company shall not take any actions that
would, either presently or with the passage of time, cause a default by Company
or its Subsidiary under any of the Leases. Company shall give Buyers prompt
notice of any Lease with a tenant it enters into subsequent to the date hereof,
together with a certified copy of such Lease. At Company's expense, Company
shall (i) deliver to the Buyers, within ten (10) days after sending such notice,
copies of all notices of default Company has sent to any tenant, (ii) enforce
the Leases and all remedies available to Company or its Subsidiary upon any
tenant's default, (iii) upon the Buyers's request, deliver to Buyers copies of
all papers served in connection with any such enforcement proceedings, and (iv)
upon Buyers' request, consult with Buyers, their agents and attorneys with
respect to the conduct thereof. Company or its Subsidiaries shall not enter into
any settlement of any such proceeding without the Required Holders's prior
written consent.
(y) Subject to the terms and conditions of the Compliance Program described
in Section 4(q) of this Agreement, to be adopted by the Company and its
Subsidiaries, and approved by the Related Buyers, Company and its Subsidiaries
shall permit representatives of Buyers to enter upon the Company Properties, to
inspect the improvements, and business operations within the improvements.
Company and its Subsidiaries shall at all times cooperate with the
representatives of Buyers in connection with or in aid of the performance of
Buyers' functions under this Agreement. Notwithstanding anything to the contrary
in this Agreement or in the Transactional Documents, the Buyers shall have no
duty or obligation confirm observance or satisfaction of the Compliance
Procedures, or to enter any of the Company Properties for purposes of
inspection, or otherwise, to confirm observance and satisfaction of the
Compliance Procedures, or otherwise be responsible or accountable for the
Company's, its Subsidiaries' and their tenants' respective operations,
including, but not limited compliance with State Marijuana Laws and in
accordance with the principles set forth in the relevant guidance issued by the
U.S. Department of Justice and any other federal government agency, including,
but not limited to, the memorandum issued by the Deputy Attorney General dated
August 29, 2013.
(z) OFAC Covenants.
(i) Company hereby covenants and agrees that it and its Subsidiaries
will comply at all times with the requirements of Executive Order 13224;
the International Emergency Economic Powers Act, 50 U.S.C. Sections
1701-06; the United and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L.
107-56; the Iraqi Sanctions Act, Pub. L. 101-513, 104 Stat. 2047-55; the
United Nations Participation Act, 22 U.S.C. Section 287c; the Antiterrorism
and Effective Death Penalty Act, (enacting 8 U.S.C. Section 219, 18 U.S.C.
Section 2332d, and 18 U.S.C. Section 2339b); the International Security and
Development Cooperation Act, 22 U.S.C. Section 2349 aa-9; the Terrorism
Sanctions Regulations, 31 C.F.R. Part 595; the Terrorism List Governments
Sanctions Regulations, 31 C.F.R. Part 596; and the Foreign Terrorist
Organizations Sanctions Regulations, 31 C.F.R. Part 597 and any similar
laws or regulations currently in force or hereafter enacted (collectively,
the "Anti-Terrorism Regulations").
(ii) Company hereby covenants and agrees that if it becomes aware or
receives any notice that Company, any Subsidiary, or any person or entity
32
holding any legal or beneficial interest whatsoever (whether directly or
indirectly) in Company, is named on any of the OFAC Lists (such occurrence,
an "OFAC Violation"), then Company will immediately (i) give notice to
Buyers of such OFAC Violation, and (ii) comply with all Laws applicable to
such OFAC Violation (regardless of whether the party included on any of the
OFAC Lists is located within the jurisdiction of the United States of
America), including, without limitation, the Anti-Terrorism Regulations,
and Company hereby authorizes and consents to Buyers' taking any and all
steps Buyers deems necessary to comply with all applicable laws applicable
to any such OFAC Violation, including, without limitation, the requirements
of the Anti-Terrorism Regulations (including the "freezing" and/or
"blocking" of assets).
(iii) Upon Buyers' request from time to time during the term of the
Notes, Company agrees to deliver a certification confirming that the
representations and warranties set forth herein remain true and correct as
of the date of such certificate and confirming Borrower's and any
guarantor's compliance with this Section.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Notes and the Warrants in which
the Company shall record the name and address of the Person in whose name the
Notes and the Warrants have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number of
Conversion Shares issuable pursuant to the terms of the Notes and the number of
Warrant Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during business
hours for inspection of any Buyer or its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, in form
and substance acceptable to the Required Holders in their sole discretion (the
"Irrevocable Transfer Agent Instructions") to issue certificates or credit
shares to the applicable balance accounts at DTC, registered in the name of each
Buyer or its respective nominee(s), for the Conversion Shares and the Warrant
Shares issued at the Closing or upon conversion of the Notes or exercise of the
Warrants in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Notes or exercise of the Warrants. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(f) hereof, 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 other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves the Conversion Shares or the Warrant Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to Rule
144, the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
33
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Notes
and the related Warrants to each Buyer 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 Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(ii) Such Buyer shall have delivered to the Company the Purchase Price
(less, in the case of Full Circle, the amounts withheld pursuant to Section
4(g)) for the Notes and the related Warrants being purchased by such Buyer
at the Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be true
and correct 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 which shall be true and correct as of such specified
date), and such 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 such Buyer at
or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Notes and the
related Warrants 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 each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The Company shall have duly executed and delivered to such Buyer
(A) each of the Transaction Documents, (B) the Notes (allocated in such
principal amounts as such Buyer shall request), being purchased by such
Buyer at the Closing pursuant to this Agreement and (C) the related
Warrants (allocated in such amounts as such Buyer shall request) being
purchased by such Buyer at the Closing pursuant to this Agreement.
(ii) Company or its Subsidiary shall have granted Buyers, through the
Transaction Documents, a first priority security interest and lien against
34
each of the Company Properties (defined below) and fixtures relating
thereto, and all other Company furniture, fixtures and equipment contained
within or relating to the Company Properties;
(iii) Such Buyer shall have received the opinion of (A) Hart & Hart,
LLC, the Company's outside counsel, dated as of the Closing Date and (B)
Vincente Sederberg, the Company's outside real estate counsel, dated as of
the Closing Date, in each case in form and substance acceptable to such
Buyer in its sole discretion.
(iv) The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, which instructions shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(v) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in such entity's jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a
date within ten (10) days of the Closing Date.
(vi) The Company shall have delivered to such Buyer a certificate
evidencing the Company's qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business, as of a date within
ten (10) days of the Closing Date.
(vii) The Company shall have delivered to such Buyer a certified copy
of the Articles of Incorporation as certified by the Secretary of State (or
comparable office) of the State of Colorado within ten (10) days of the
Closing Date.
(viii) The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date,
as to (i) the resolutions consistent with Section 3(b) as adopted by the
Company's Board of Directors in a form reasonably acceptable to such Buyer,
(ii) the Articles of Incorporation and (iii) the Bylaws, each as in effect
at the Closing, in form and substance acceptable to the Required Holders in
their sole discretion.
(ix) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the respective Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date which shall be true and correct as of such
specified date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. Such Buyer
shall have received a certificate, executed by the Chief Executive 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 such Buyer in
form and substance acceptable to the Required Holders in their sole
discretion.
(x) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.
35
(xi) The Common Stock (I) shall be designated for quotation or listed
on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the
Principal Market nor shall suspension by the SEC or the Principal Market
have been threatened, as of the Closing Date, either (A) in writing by the
SEC or the Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market.
(xii) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities.
(xiii) Each Subsidiary shall have executed and delivered to such Buyer
the Guaranty Agreement.
(xiv) The Security Documents shall have been executed and delivered to
each Buyer, and the Company, in accordance with the terms of the Security
Agreement, shall have delivered to the Collateral Agent, with a copy to
each Buyer, along with such other documents, and taken such other actions,
as in each case, shall be necessary or, in the opinion of the Collateral
Agent, desirable, to perfect the security interests purported to be created
by the Security Agreement.
(xv) Contemporaneously with the Closing, the Company shall have formed
one or more Subsidiaries to purchase certain real estate at locations to be
mutually approved by the Company and the Required Holders (the "Acquired
Properties") and such Subsidiaries shall have purchased such Acquired
Properties.
(xvi) The Company shall have obtained and delivered to each Buyer an
appraisal by a real estate appraiser reasonably acceptable to the Required
Holders for each of the Acquired Properties that shows an appraised value
equal to or greater than 75% of the purchase price to be paid by the
applicable Subsidiary of the Company for each such Acquired Property.
(xvii) In accordance with the terms of the Security Documents, the
Company shall have delivered to the Collateral Agent (i) certificates
representing the Pledged Shares (as defined in the Security Agreement),
along with duly executed blank stock powers and (ii) appropriate financing
statements on Form UCC-1 to be duly filed in such office or offices as may
be necessary or, in the opinion of the Collateral Agent, desirable to
perfect the security interests purported to be created by each Security
Document.
(xviii) Buyer shall have been provided the following for its review
and approval, and such approval shall be granted or withheld at Buyers sole
discretion:
(1) A lender's title insurance policy, to be issued at the
Company's or its Subsidiary's sole cost and expense, made in favor of
the Buyers, committing to issue to Buyers, as lender, extended
coverage title insurance policy ("Title Policy") for each of the
respective Acquired Properties and any then owned real estate
(collectively, the "Company Properties"), in an amount equal to the
greater of Note(s) being secured by the respective Company Property or
36
the purchase price of said Company Property, subject only to those
certain exceptions to title acceptable to Buyers, in their sole and
absolute discretion;
(2) A Phase I environmental inspection prepared by an
environmental engineering company acceptable to Buyers ("Phase I"),
acquired at Company's sole cost and expense, of each of the Company
Properties and certified to Buyers, acceptable to Buyers in their sole
and absolute discretion. In the event the Phase I recommends a Phase
II environmental inspection, the Company shall promptly order such
Phase II environmental inspection at its sole cost and expense,
certified to the Buyers, which shall be acceptable to Buyers at their
sole and absolute discretion;
(3) Insurance policies insuring the Company Properties against
fire and casualty, and insuring the Company or its Subsidiary against
general liability, each naming the Buyers as "additional insured", in
a form and substance acceptable to Buyers, as more particularly
described in the Security Documents;
(4) Company shall have furnished to Buyers, at Company's sole
cost and expense, a current ALTA improvement survey plat ("Survey") of
each Company Property acceptable to Buyers and the title company
issuing the Title Policy indicating, without limitation, that all
foundations or other improvements currently constructed are located
within the lot lines, without infringement on established easements or
rights-of-way and not in violation of any ordinance including zoning
ordinances which impose lot line setback requirements and parking
requirements. The survey shall show the legal description of each
Company Property as it will be insured by the title company, the
courses and distances of each Company Property lot lines, all
appurtenant and servient easements, setbacks, building lines and width
of abutting streets, distance to nearest intersecting streets
affording ingress and egress to and from each Company Property, and
the location and dimensions of all encroachments, improvements, above
or below ground easements and utilities, and designated parking
spaces. The surveyor shall also certify whether or not any portion of
the improvements is located within a Federal Emergency Management
Agency identified flood-prone area of a community and if located
thereon, state the map number and whether or not the Property appears
in the "Flood Hazard Area." The survey must be certified as accurate
by a licensed surveyor in the State of Colorado and contain a
certificate imprinted thereon in the form approved by the ALTA stating
that the survey is made for the benefit of the Buyers and the title
company issuing the Title Policy;
(5) Company and/or its Subsidiaries have all necessary (i)
certificates, licenses, and other approvals, governmental and
otherwise, for the operation of the Company Properties and the conduct
of its business and (ii) zoning, building code, land use,
environmental and other similar permits or approvals, all of which are
currently in full force and effect and not subject to revocation,
suspension, forfeiture, or modification, acceptable to Buyers at their
sole and absolute discretion. Company Properties and their use and
occupancy are in full compliance with all applicable laws, and Company
and/or its Subsidiaries have received no notice of any violation or
potential violation of the applicable laws which have not been
37
remedied or satisfied, and the zoning classification of Company
Properties permits the use of such Company Properties as intended;
(6) Company's and/or its Subsidiaries' Company Properties are
free from damage caused by fire or other casualty;
(7) Evidence that all costs and expenses for labor, materials,
supplies, and equipment used in the construction of the improvements
for Company's and/or its Subsidiaries' Company Properties have been
paid in full;
(8) Rent Roll relating to any Company Properties;
(9) Evidence that all taxes, fees and other charges relating to
the Company Properties, and in connection with the execution, delivery
and recording of the Security Documents shall have been paid, and all
delinquent taxes, assessments or other governmental charges or liens
affecting the Company Property, if any, shall have been paid. Company
shall provide a treasurer's tax certificates disclosing that no
general and special taxes or assessments encumbering the Company
Properties are delinquent and that the Company Properties do not lie
within any special or general assessment district except as approved
by the Buyers; and
(10) Evidence that any and all other requirements which may be
set forth in the Security Documents, as determined necessary by
Buyers, in their sole and absolute discretion.
(xix) Within two (2) Business Days prior to the Closing, the Company
shall have delivered or caused to be delivered to each Buyer (A) certified
copies of UCC search results, listing all effective financing statements
which name as debtor the Company or any of its Subsidiaries filed in the
prior five years to perfect an interest in any assets thereof, together
with copies of such financing statements, none of which, except as
otherwise agreed in writing by the Buyers, shall cover any of the
Collateral (as defined in the Security Documents) and the results of
searches for any tax lien and judgment lien filed against such Person or
its property, which results, except as otherwise agreed to in writing by
the Buyers shall not show any such Liens (as defined in the Security
Documents); and (B) a perfection certificate, duly completed and executed
by the Company and each of its Subsidiaries, in form and substance
satisfactory to the Buyers.
(xx) The Collateral Agent and such Buyer shall be satisfied that the
Collateral Agent has been granted, and holds, for the benefit of the
Collateral Agent and such Buyer, a perfected, first priority Lien on, and
security interest in, all of the Collateral, subject only to Permitted
Liens.
(xxi) Contemporaneously with the Closing, the applicable Subsidiaries
that own the Company Properties shall have entered into a lease (each, a
"Tenant Lease") with a tenant for each of the Company Properties on terms
and by lease form satisfactory to the Required Holders and with a
termination date not earlier than two years following the Maturity Date (as
defined in the Notes).
38
(xxii) The Company shall have instituted the Policies and Procedures,
all on terms satisfactory to the Required Holders in their sole discretion.
(xxiii) The Company shall have delivered to such Buyer disclosure
schedules to this Agreement in form and substance acceptable to such Buyer
in its sole discretion.
(xxiv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before ninety (90) calendar days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date by delivering a written notice to that effect to each
other party to this Agreement and without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 8, the Company shall remain obligated to reimburse Full Circle or its
designee(s), as applicable, for the expenses described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
39
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement is prohibited by law
or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein 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 any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. Provisions of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of at least a majority of the
aggregate number of Registrable Securities issued or issuable hereunder and
under the Notes and Warrants (the "Required Holders"); provided, further, that
the provisions of Section 4(p) cannot be amended without the additional prior
written approval of the Collateral Agent or its successor. Any amendment or
waiver effected in accordance with this Section 9(e) shall be binding upon each
Buyer and holder of Securitas and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the Buyers or
holders of Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration (other than the
reimbursement of legal fees) also is offered to all of the parties to the
Transaction Documents, holders of Notes or holders of the Warrants, as the case
may be. The Company has not, directly or indirectly, made any agreements with
any Buyers relating to the terms or conditions of the transactions contemplated
by the Transaction Documents except as set forth in the Transaction Documents.
Without limiting the foregoing, the Company confirms that, except as set forth
40
in this Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party) or by electronic mail; or (iii) one Business
Day after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses, facsimile numbers and
e-mail addresses for such communications shall be:
If to the Company:
Advanced Cannabis Solutions, Inc.
7750 N. Union Blvd., Suite 201
Colorado Springs, CO 80920
Telephone: (719) 434-1991
Facsimile: (719) 590-4888
Attention: Robert Fricthel
E-mail: Robert@advcannabis.com
With a copy to:
Hart & Hart, LLC
1624 Washington Street
Denver, CO 80203
Telephone: 303-839-0061
Facsimile: 303-839-5414
Attention: William Hart, Esq.
E-mail: harttrinen@aol.com
If to the Transfer Agent:
Corporate Stock Transfer
3200 Cherry Creek Drive South
Suite 430
Denver, CO 80209
Telephone: (303) 282-4800
Facsimile: (303) 777-3094
Attention: Carylyn Bell
E-mail: cbell@corporatestock.com
If to a Buyer, to its address, facsimile number and e-mail address set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
41
on the Schedule of Buyers, or to such other address, facsimile number and/or
e-mail address and/or to the attention of such other Person as the recipient
party has specified by written notice given to each other party five (5) days
prior to the effectiveness of such change. Written confirmation of receipt (A)
given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender's facsimile machine
or e-mail containing the time, date, recipient facsimile number and an image of
the first page of such transmission or (C) provided by an overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from an overnight courier service in accordance with clause (i), (ii)
or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Required Holders, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the Warrants). A
Buyer may assign some or all of its rights hereunder without the consent of the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights.
(h) No 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, except that each Indemnitee shall have the right to
enforce the obligations of the Company with respect to Section 9(k).
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the consummation of the transactions contemplated hereby.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
(j) 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
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer, each other holder of the Securities, the Collateral Agent and all of
their stockholders, partners, members, officers, directors, employees and direct
or indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
42
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities that is permissible under applicable law.
Notwithstanding anything to the contrary contained herein, the Company's
obligation to indemnify a Buyer pursuant to this Section 9(k) shall not apply to
Indemnified Liabilities arising solely by virtue of a breach by such Buyer of
such Buyer's representation and warranty set forth in Section 2(i). Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.
(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. Each Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any 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
43
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
(o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(p) Independent Nature of Buyers' Obligations and Rights. The obligations
of each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not so
constitute, a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert
or as a group, and the Company shall not assert any such claim with respect to
such obligations or the transactions contemplated by the Transaction Documents
and the Company acknowledges that the Buyers are not acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges and each Buyer confirms that it
has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.
(q) Usury Savings Clause. It is the intent of the Buyers and the Company in
the making of the Notes to contract in strict compliance with applicable usury
law. In the furtherance thereof, Company and Buyers stipulate and agree that
none of the terms and provisions contained herein, or in any of the applicable
Transaction Documents, or in any other instrument executed in connection
herewith, shall ever be construed to create a contract to pay for the use,
forbearance, or detention of money, interest at a rate in excess of the maximum
interest rate permitted to be charged by applicable law; that neither any
Company nor any guarantor, endorser, or other party now or hereafter becoming
liable for payment of the Notes or obligations associated therewith shall ever
be required to pay interest on the amounts evidenced by the Notes or required by
the Transaction Documents at a rate in excess of the maximum interest that may
be lawfully charged under applicable law, and the provisions of this Section
shall control over all other provisions of this Agreement, the Notes, the
Instruments, any Transaction Documents, and any other instruments now or
hereafter executed in connection herewith which may be in apparent conflict
herewith. Buyers expressly disavow any intention to charge or collect excessive
or unearned interest or finance charges in the event that maturity of the
obligations evidenced by the Notes are accelerated. If the maturity of the Notes
shall be accelerated for any reason or if the principal of the obligations
44
evidenced by the Notes are paid prior to the end of the term described in the
Notes, and as a result thereof the interest received for the actual period of
existence of the obligations described in the Notes exceeds the applicable
maximum lawful rate, Buyers shall, at its option, either refund to Company the
amount of such excess or credit the amount of such excess against the principal
balance of the obligations evideneced by the Notes then outstanding (without
prepayment premium or similar charge) and thereby shall render inapplicable any
and all penalties of any kind provided by applicable law as a result of such
excess interest. In the event that Buyers or any other holder of the Notes shall
contract for, charge, or receive any amount or amounts which are deemed to
constitute interest which would increase the effective interest rate on the
obligations evidenced by the Notes to a rate in excess of that permitted to be
charged by applicable law, all such amounts deemed to constitute interest in
excess of the lawful rate shall, upon such determination, at the option of
Buyers (or other holder of the Notes), be either immediately returned to Company
or credited against the principal balance of the amounts then outstanding
(without prepayment premium or similar charge), in which event any and all
penalties of any kind under applicable law as a result of such excess interest
shall be inapplicable. By execution of this Agreement, Company acknowledge that
they believe the obligations evidenced by the Notes to be non-usurious, and
agrees that if, at any time, Company should have reason to believe that the
obligations evidenced by the Notes is in fact usurious, they will give Buyers
(or other holder of the Notes) notice of such condition, and Company agree that
Buyers (or other holder of the Notes) shall have ninety (90) days in which to
make appropriate refund or other adjustment in order to correct such condition
if in fact such exists. The term "applicable law" as used in this Section shall
mean the laws of the State of New York or the laws of the United States,
whichever laws allow the greater rate of interest, as such laws now exist or may
be changed or amended or come into effect in the future.
[Signature Page Follows]
45
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
ADVANCED CANNABIS SOLUTIONS, INC.
By:/s/ Robert L. Frichtel
-------------------------------
Name: Robert L. Fricthel
Title: President
46
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
FULL CIRCLE CAPITAL CORPORATION
By:/s/ Greg J. Felton
------------------------------
Name: Greg J. Felton
Title: President
47
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5)
Address and Aggregate
Principal Amount of Number of Purchase
Buyer Facsimile Number Notes Warrant Shares Price
------- ------------------ --------- -------------- --------
Full Circle 800 Westchester Avenue, $7,500,000 1,000,000 $7,350,000
Capital Suite S-620
Corporation Rye Brook, NY 10573
Attention: Gregg Felton
Facsimile: (914) 220-6301
Telephone: (914) 220-6300
E-mail: gfelton@fccapital.com
48
EXHIBITS
Exhibit A Form of Notes
Exhibit B Form of Warrants
Exhibit C Form of Registration Rights Agreement
Exhibit D-1 Form of Guaranty Agreement
Exhibit D-2 Form of Security Agreement
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(c) Issuance of Securities
Schedule 3(k) SEC Documents
Schedule 3(l) Absence of Certain Changes
Schedule 3(n) Regulatory Permits
Schedule 3(q) Transactions with Affiliates
Schedule 3(r) Equity Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Absence of Litigation
Schedule 3(x) Intellectual Property Rights
Schedule 4(d) Use of Proceeds
Schedule 3(ss)
49
EX-10
3
warrantjan-14.txt
EXH. 10.2 - WARRANT TO PURCH. COMMON STK
EXHIBIT 10.2
WARRANT
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 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.
ADVANCED CANNABIS SOLUTIONS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: W-1
Number of Shares of Common Stock: 1,000,000
Date of Issuance: January 21, 2014 ("Issuance Date")
Advanced Cannabis Solutions, Inc., a Colorado corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Full Circle Capital Corporation,
the registered holder hereof or its permitted assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company, at
the Exercise Price (as defined below) then in effect, at any time or times on or
after the Issuance Date, but not after 11:59 p.m., New York time, on the
Expiration Date, (as defined below), one million (1,000,000) fully paid
nonassessable shares of Common Stock, subject to adjustment as provided herein
(the "Warrant Shares"). Except as otherwise defined herein, capitalized terms in
this Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, this "Warrant"), shall
have the meanings set forth in Section 17. This Warrant is one of the Warrants
to purchase Common Stock (the "SPA Warrants") issued pursuant to Section 1 of
that certain Securities Purchase Agreement, dated as of January 21, 2014 (the
"Subscription Date"), by and among the Company and the investors (the "Buyers")
referred to therein (the "Securities Purchase Agreement"). Capitalized terms
used herein and not otherwise defined shall have the definitions ascribed to
such terms in the Securities Purchase Agreement.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder at any time or times on or after the
Issuance Date, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the "Exercise Notice"), of the Holder's
election to exercise this Warrant and (ii) (A) payment to the Company of an
amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the "Aggregate
Exercise Price") in cash or by wire transfer of immediately available funds or
(B) if the provisions of Section 1(d) are applicable, by notifying the Company
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in Section 1(d)). The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant Shares.
On or before the first (1st) Trading Day following the date on which the Company
has received the Exercise Notice, the Company shall transmit by facsimile or
electronic mail an acknowledgment of confirmation of receipt of the Exercise
Notice to the Holder and the Company's transfer agent (the "Transfer Agent"). On
or before the third (3rd) Trading Day following the date on which the Company
has received the Exercise Notice, so long as the Holder delivers the Aggregate
Exercise Price (or notice of a Cashless Exercise) on or prior to the second
(2nd) Trading Day following the date on which the Company has received the
Exercise Notice (the "Share Delivery Date") (provided that if the Aggregate
Exercise Price has not been delivered by such date, the Share Delivery Date
shall be one (1) Trading Day after the Aggregate Exercise Price (or notice of a
Cashless Exercise) is delivered), the Company shall (X) provided that the
Transfer Agent is participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, the Holder's broker has delivered a DWAC
instruction to the Company's transfer agent and either (A) the Warrant Shares
are subject to an effective resale registration statement in favor of the Holder
or (B) if this Warrant is exercised via Cashless Exercise, at a time when Rule
144 would be available for immediate resale of the Warrant Shares by the Holder,
credit such aggregate number of Warrant Shares to which the Holder is entitled
pursuant to such exercise to the Holder's or its designee's balance account with
DTC through its Deposit / Withdrawal At Custodian ("DWAC") system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program or (A) the Warrant Shares are not subject to an effective
resale registration statement in favor of the Holder and (B) if this Warrant is
exercised via Cashless Exercise, at a time when Rule 144 would not be available
for immediate resale of the Warrant Shares by the Holder, issue and dispatch by
overnight courier to the address as specified in the Exercise Notice, a
certificate, registered in the Company's share register in the name of the
Holder or its designee, for the number of Warrant Shares to which the Holder is
entitled pursuant to such exercise, which certificate shall bear a restrictive
legend similar to that set forth on the first page of this Warrant. The Company
shall be responsible for all fees and expenses of the Transfer Agent and all
fees and expenses with respect to the issuance of Warrant Shares via DTC, if
any. Upon delivery of the Exercise Notice, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder's DTC account or the date of
delivery of the certificates evidencing such Warrant Shares, as the case may be.
If this Warrant is submitted in connection with any exercise pursuant to this
Section 1(a) and the number of Warrant Shares represented by this Warrant
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submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than three (3) Trading Days after any exercise and at its own
expense, issue a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the number of Warrant Shares issuable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised. No fractional Warrant Shares are to be
issued upon the exercise of this Warrant, but rather the number of Warrant
Shares to be issued shall be rounded up to the nearest whole number. The Company
shall pay any and all taxes which may be payable with respect to the issuance
and delivery of Warrant Shares upon exercise of this Warrant.
(b) Exercise Price. For purposes of this Warrant, "Exercise Price" means
$5.50, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to the Holder on or prior to the
Share Delivery Date either (I) if the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program or the Warrant Shares are not
subject to an effective resale registration statement in favor of the Holder or,
if exercised via Cashless Exercise, at a time when Rule 144 would not be
available for immediate resale of the Warrant Shares by the Holder, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company's share
register or if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program and the Warrant Shares are subject to an effective
resale registration statement in favor of the Holder or, if exercised via
Cashless Exercise, at a time when Rule 144 would be available for immediate
resale of the Warrant Shares by the Holder, to credit the Holder's balance
account with DTC, as applicable, for such number of shares of Common Stock to
which the Holder is entitled upon the Holder's exercise of this Warrant or (II)
if the Registration Statement (as defined in the Registration Rights Agreement)
covering the resale of the Warrant Shares that are the subject of the Exercise
Notice (the "Unavailable Warrant Shares") is not available for the resale of
such Unavailable Warrant Shares (a "Registration Failure") and the Company fails
to promptly, but in no event later than as required pursuant to the Registration
Rights Agreement (x) so notify the Holder and (y) deliver the Warrant Shares
electronically without any restrictive legend by crediting such aggregate number
of Warrant Shares to which the Holder is entitled pursuant to such exercise to
the Holder's or its designee's balance account with DTC through its DWAC system
(the event described in the immediately foregoing clause (II) is hereinafter
referred as a "Notice Failure" and together with the event described in clause
(I) above, an "Exercise Failure"), then, in addition to all other remedies
available to the Holder, (X) the Company shall pay in cash to the Holder on each
day after the Share Delivery Date and during such Exercise Failure an amount
equal to 1.0% of the product of (A) the sum of the number of shares of Common
Stock not issued to the Holder on or prior to the Share Delivery Date and to
which the Holder is entitled, and (B) the Closing Sale Price of the Common Stock
on the Trading Day immediately preceding the last possible date which the
Company could have issued such shares of Common Stock to the Holder without
violating Section 1(a) (the "Liquidated Damages"), and (Y) the Holder, upon
written notice to the Company, may void its Exercise Notice with respect to, and
retain or have returned, as the case may be, any portion of this Warrant that
has not been exercised pursuant to such Exercise Notice; provided that the
voiding of an Exercise Notice shall not affect the Company's obligations to make
any payments which have accrued prior to the date of such notice pursuant to
this Section 1(c) or otherwise. In addition to the foregoing, if on or prior to
the Share Delivery Date at a time when the Warrant Shares are subject to an
effective resale registration statement in favor of the Holder or, if this
Warrant is exercised via Cashless Exercise, at a time when Rule 144 would be
available for immediate resale of the Warrant Shares by the Holder either (I) if
3
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, the Company shall fail to issue and deliver a certificate to
the Holder and register such shares of Common Stock on the Company's share
register or, if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, credit the Holder's balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon the
Holder's exercise hereunder or pursuant to the Company's obligation pursuant to
clause (ii) below or (II) a Notice Failure occurs, and if on or after such
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such exercise that the Holder anticipated
receiving from the Company (a "Buy-In"), then the Company shall, within three
(3) Trading Days after the Holder's request and in the Holder's discretion,
either (i) pay cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions and other out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (the "Buy-In
Price"), at which point (i) the Company's obligation to deliver such certificate
(and to issue such shares of Common Stock) or credit such Holder's balance
account with DTC, as applicable, for such shares of Common Stock shall terminate
and (ii) the Liquidated Damages shall cease to accrue, or (ii) promptly honor
its obligation to deliver to the Holder a certificate or certificates
representing such shares of Common Stock or credit such Holder's balance account
with DTC and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the date of exercise. Nothing shall limit the
Holder's right to pursue any other remedies available to it hereunder, at law or
in equity, including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock (or to electronically deliver
such shares of Common Stock) upon the exercise of this Warrant as required
pursuant to the terms hereof.
(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if there is a Registration Failure, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
D
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is
then being exercised.
B= the arithmetic average of the Closing Sale Prices of the Common
Stock for the five (5) consecutive Trading Days ending on the
date immediately preceding the date of the Exercise Notice.
4
C= the Exercise Price then in effect for the applicable Warrant
Shares at the time of such exercise.
D= the Closing Sale Price of the Common Stock on the date of the
Exercise Notice.
For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on
the date hereof, it is intended that the Warrant Shares issued in a Cashless
Exercise shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally issued pursuant to the Securities Purchase
Agreement.
(e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.
(f) Limitation on Beneficial Ownership. Notwithstanding anything to the
contrary contained herein, the Company shall not effect the exercise of any
portion of this Warrant, and the Holder shall not have the right to exercise any
portion of this Warrant, pursuant to the terms and conditions of this Warrant
and any such exercise shall be null and void and treated as if never made, to
the extent that after giving effect to such exercise, the Holder together with
the other Attribution Parties collectively would beneficially own in excess of
4.99% (the "Maximum Percentage") of the number of shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned by the Holder and the other Attribution Parties shall include
the number of shares of Common Stock held by the Holder and all other
Attribution Parties plus the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) exercise of the remaining, unexercised portion
of this Warrant beneficially owned by the Holder or any of the other Attribution
Parties and (B) exercise or conversion of the unexercised or unconverted portion
of any other securities of the Company (including, without limitation, any
convertible notes or convertible preferred stock or warrants, including the
other SPA Warrants) beneficially owned by the Holder or any other Attribution
Party subject to a limitation on conversion or exercise analogous to the
limitation contained in this Section 1(f). For purposes of this Section 1(f),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). For purposes of
this Warrant, in determining the number of outstanding shares of Common Stock
the Holder may acquire upon the exercise of this Warrant without exceeding the
Maximum Percentage, the Holder may rely on the number of outstanding shares of
5
Common Stock as reflected in (x) the Company's most recent Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public
filing with the Securities and Exchange Commission (the "SEC"), as the case may
be, (y) a more recent public announcement by the Company or (3) any other
written notice by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding (the "Reported Outstanding Share Number"). If
the Company receives an Exercise Notice from the Holder at a time when the
actual number of outstanding shares of Common Stock is less than the Reported
Outstanding Share Number, the Company shall (i) notify the Holder in writing of
the number of shares of Common Stock then outstanding and, to the extent that
such Exercise Notice would otherwise cause the Holder's beneficial ownership, as
determined pursuant to this Section 1(f), to exceed the Maximum Percentage, the
Holder must notify the Company of a reduced number of Warrant Shares to be
purchased pursuant to such Exercise Notice (the number of shares by which such
purchase is reduced, the "Reduction Shares") and (ii) as soon as reasonably
practicable, the Company shall return to the Holder any exercise price paid by
the Holder for the Reduction Shares. For any reason at any time, upon the
written or oral request of the Holder, the Company shall within one (1) Business
Day confirm orally and in writing or by electronic mail to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder and any other Attribution Party since the date as of which the
Reported Outstanding Share Number was reported. In the event that the issuance
of shares of Common Stock to the Holder upon exercise of this Warrant results in
the Holder and the other Attribution Parties being deemed to beneficially own,
in the aggregate, more than the Maximum Percentage of the number of outstanding
shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the
number of shares so issued by which the Holder's and the other Attribution
Parties' aggregate beneficial ownership exceeds the Maximum Percentage (the
"Excess Shares") shall be deemed null and void and shall be cancelled ab initio,
and the Holder shall not have the power to vote or to transfer the Excess
Shares. As soon as reasonably practicable after the issuance of the Excess
Shares has been deemed null and void, the Company shall return to the Holder the
exercise price paid by the Holder for the Excess Shares. Upon delivery of a
written notice to the Company, the Holder may from time to time increase (with
such increase not effective until the sixty-first (61st) day after delivery of
such notice) or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% as specified in such notice; provided that (i) any such increase
in the Maximum Percentage will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company and (ii) any such increase or
decrease will apply only to the Holder and the other Attribution Parties and not
to any other holder of SPA Warrants that is not an Attribution Party of the
Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to
the terms of this Warrant in excess of the Maximum Percentage shall not be
deemed to be beneficially owned by the Holder for any purpose including for
purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior
inability to exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. The provisions of this paragraph
shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 1(f) to the extent necessary to
correct this paragraph or any portion of this paragraph which may be defective
or inconsistent with the intended beneficial ownership limitation contained in
this Section 1(f) or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitation contained in this
paragraph may not be waived and shall apply to a successor holder of this
Warrant.
(g) Insufficient Authorized Shares. If at any time while this Warrant
remains outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of this Warrant at least a number of shares of Common
Stock equal to 130% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of this Warrant then
outstanding (the "Required Reserve Amount" and the failure to have such
6
sufficient number of authorized and unreserved shares of Common Stock, an
"Authorized Share Failure"), then the Company shall immediately take all action
necessary to increase the Company's authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for this Warrant then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its shareholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each shareholder with a proxy statement and shall use its best
efforts to solicit its shareholders' approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
shareholders that they approve such proposal. Notwithstanding the foregoing, if
any such time of an Authorized Share Failure, the Company is able to obtain the
written consent of a majority of the shares of its issued and outstanding Common
Stock to approve the increase in the number of authorized shares of Common
Stock, the Company may satisfy this obligation by obtaining such consent and
submitting for filing with the SEC an Information Statement on Schedule 14C.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and the number of Warrant Shares shall be adjusted from time to time as
follows:
(a) Adjustment Upon Issuance of Shares of Common Stock. If and whenever on
or after the Subscription Date, the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock deemed to
have been issued or sold by the Company in connection with any Excluded
Securities for a consideration per share less than a price (the "Applicable
Price") equal to the Exercise Price in effect immediately prior to such issue or
sale or deemed issuance or sale (the foregoing a "Dilutive Issuance"), then
immediately after such Dilutive Issuance, the Exercise Price then in effect
shall be reduced to an amount equal to the product of (A) the Applicable Price
and (B) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Exercise Price in effect immediately prior to such
Dilutive Issuance and the number of shares of Common Stock Deemed Outstanding
immediately prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived
by multiplying (I) the Applicable Price by (II) the number of shares of Common
Stock Deemed Outstanding immediately after such Dilutive Issuance. Upon each
such adjustment of the Exercise Price hereunder, the number of Warrant Shares
issuable immediately prior to such Dilutive Issuance shall be adjusted to the
number of share of Common Stock determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment. For purposes of determining the adjusted Exercise Price under this
Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants or sells any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or
upon conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the
7
granting or sale of such Option for such price per share. For purposes of
this Section 2(a)(i), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting or sale of
the Option, upon exercise of the Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option
less any consideration paid or payable by the Company with respect to such
one share of Common Stock upon the granting or sale of such Option, upon
exercise of such Option and upon conversion exercise or exchange of any
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price shall be made upon the actual issuance of
such shares of Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per share.
For the purposes of this Section 2(a)(ii), the "lowest price per share for
which one share of Common Stock is issuable upon the conversion, exercise
or exchange thereof" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to any one share of Common Stock (i) upon the issuance or sale of the
Convertible Security and (ii) upon conversion, exercise or exchange of
such Convertible Security less any consideration paid or payable by the
Company with respect to such one share of Common Stock upon the issuance
or sale of such Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. No further adjustment of the
Exercise Price shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities
is made upon exercise of any Options for which adjustment of this Warrant
has been or is to be made pursuant to other provisions of this Section
2(a), no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise or
exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or exchangeable
for shares of Common Stock increases or decreases at any time, the
Exercise Price in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 2(a)(iii),
if the terms of any Option or Convertible Security that was outstanding as
8
of the Subscription Date are increased or decreased in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such increase or decrease. No adjustment pursuant
to this Section 2(a) shall be made if such adjustment would result in an
increase of the Exercise Price then in effect or a decrease in the number
of Warrant Shares.
(iv) Calculation of Consideration Received. In case any
Option is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction, (x) the
Options will be deemed to have been issued for the Option Value of such
Options and (y) the other securities issued or sold in such integrated
transaction shall be deemed to have been issued or sold for the difference
of (I) the aggregate consideration received by the Company less any
consideration paid or payable by the Company pursuant to the terms of such
other securities of the Company, less (II) the Option Value. If any shares
of Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration other than
cash received therefor will be deemed to be the net amount received by the
Company therefor. If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the
amount of such consideration received by the Company will be the fair
value of such consideration, except where such consideration consists of
publicly traded securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such publicly
traded securities on the date of receipt. If any shares of Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed
to be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such shares of Common Stock,
Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or publicly traded securities will be
determined jointly by the Company and the Required Holders. If such
parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the "Valuation Event"), the
fair value of such consideration will be determined within five (5)
Business Days after the tenth (10th) day following the Valuation Event by
an independent, reputable appraiser jointly selected by the Company and
the Required Holders. The determination of such appraiser shall be final
and binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the
holders of shares of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of Common
Stock, Options or in Convertible Securities or (B) to subscribe for or
purchase shares of Common Stock, Options or Convertible Securities, then
such record date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the
case may be.
9
(b) Voluntary Adjustment By Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company. Upon each such reduction of the Exercise Price hereunder, the number of
Warrant Shares issuable immediately prior to such reduction shall be adjusted to
the number of shares of Common Stock determined by multiplying the Exercise
Price then in effect immediately prior to such reduction by the number of
Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such reduction and dividing the product thereof by the Exercise Price after
giving effect to such reduction.
(c) Adjustment Upon Subdivision or Combination of Shares of Common Stock.
If the Company at any time on or after the Subscription Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be proportionately
increased. If the Company at any time on or after the Subscription Date combines
(by combination, reverse stock split, or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(c) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(d) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares, as mutually determined by the Company's Board of
Directors and the Required Holders, so as to protect the rights of the Holder;
provided that no such adjustment pursuant to this Section 2(d) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property, options, evidence of indebtedness or any other
assets by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case, the Holder shall be entitled to participate in such Distribution to
the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise
of this Warrant (without regard to any limitations or restrictions on exercise
of this Warrant, including without limitation, the Maximum Percentage)
immediately before the date of which a record is taken for such Distribution,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the participation in such
Distribution (provided, however, that to the extent that the Holder's right to
participate in any such Distribution would result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result of
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such Distribution (and beneficial ownership) to such extent) and the portion of
such Distribution shall be held in abeyance for the benefit of the Holder until
such time or times as its right thereto would not result in the Holder and the
other Attribution Parties exceeding the Maximum Percentage, at which time or
times the Holder shall be granted such Distribution (and any Distributions
declared or made on such initial Distribution or on any subsequent Distribution
held similarly in abeyance) to the same extent as if there had been no such
limitation).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations or restrictions on exercise of this Warrant, including without
limitation, the Maximum Percentage) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of shares of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, that to the extent that the Holder's right to
participate in any such Purchase Right would result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Purchase Right to such extent (and shall not
be entitled to beneficial ownership of such shares of Common Stock as a result
of such Purchase Right (and beneficial ownership) to such extent) and such
Purchase Right to such extent shall be held in abeyance for the benefit of the
Holder until such time or times as its right thereto would not result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage, at
which time or times the Holder shall be granted such right (and any Purchase
Right granted, issued or sold on such initial Purchase Right or on any
subsequent Purchase Right held similarly in abeyance) to the same extent as if
there had been no such limitation).
(b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section 4(b)
pursuant to written agreements in form and substance reasonably satisfactory to
the Required Holders prior to such Fundamental Transaction, including agreements
, if so requested by the Holder, to deliver to each holder of the SPA Warrants
in exchange for such SPA Warrants a security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to this
Warrant, including, without limitation, an adjusted exercise price equal to the
value for the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and reasonably satisfactory
to the Required Holders, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the
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relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such adjustments to
the number of shares of capital stock and such exercise price being for the
purpose of protecting the economic value of this Warrant immediately prior to
the occurrence or consummation of such Fundamental Transaction), and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market. Any
security issuable or potentially issuable to the Holder pursuant to the terms of
this Warrant on the consummation of a Fundamental Transaction shall be
registered and freely tradable by the Holder without any restriction or
limitation or the requirement to be subject to any holding period pursuant to
any applicable securities laws. Upon the occurrence or consummation of any
Fundamental Transaction, and it shall be a required condition to the occurrence
or consummation of any Fundamental Transaction that, the Company and the
Successor Entity or Successor Entities, jointly and severally, shall succeed to,
and the Company shall cause any Successor Entity or Successor Entities to
jointly and severally succeed to, and be added to the term "Company" under this
Warrant (so that from and after the date of such Fundamental Transaction, each
and every provision of this Warrant referring to the "Company" shall refer
instead to each of the Company and the Successor Entity or Successor Entities,
jointly and severally), and the Company and the Successor Entity or Successor
Entities, jointly and severally, may exercise every right and power of the
Company prior thereto and shall assume all of the obligations of the Company
prior thereto under this Warrant with the same effect as if the Company and such
Successor Entity or Successor Entities, jointly and severally, had been named as
the Company in this Warrant, and, solely at the request of the Holder, if the
Successor Entity and/or Successor Entities is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market,
shall deliver (in addition to and without limiting any right under this Warrant)
to the Holder in exchange for this Warrant a security of the Successor Entity
and/or Successor Entities evidenced by a written instrument substantially
similar in form and substance to this Warrant and exercisable for a
corresponding number of shares of capital stock of the Successor Entity and/or
Successor Entities (the "Successor Capital Stock") equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction (such corresponding number of shares of Successor
Capital Stock to be delivered to the Holder shall be equal to the quotient of
(i) the aggregate dollar value of all consideration (including cash
consideration and any consideration other than cash ("Non-Cash Consideration"),
in such Fundamental Transaction, as such values are set forth in any definitive
agreement for the Fundamental Transaction that has been executed at the time of
the first public announcement of the Fundamental Transaction or, if no such
value is determinable from such definitive agreement, as determined in
accordance with Section 12 with the term "Non-Cash Consideration" being
substituted for the term "Exercise Price") that the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction or the
record, eligibility or other determination date for the event resulting in such
Fundamental Transaction, had this Warrant been exercised immediately prior to
such Fundamental Transaction or the record, eligibility or other determination
date for the event resulting in such Fundamental Transaction (without regard to
any limitations on the exercise of this Warrant) divided by (ii) the per share
Closing Sale Price of such corresponding capital stock on the Trading Day
immediately prior to the consummation or occurrence of the Fundamental
Transaction), and such security shall be satisfactory to the Holder, and with an
identical exercise price to the Exercise Price hereunder (such adjustments to
the number of shares of capital stock and such exercise price being for the
purpose of protecting after the consummation or occurrence of such Fundamental
Transaction the economic value of this Warrant that was in effect immediately
prior to the consummation or occurrence of such Fundamental Transaction, as
elected by the Holder solely at its option). Upon occurrence or consummation of
the Fundamental Transaction, and it shall be a required condition to the
occurrence or consummation of such Fundamental Transaction that, the Company and
the Successor Entity or Successor Entities shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any
time after the occurrence or consummation of the Fundamental Transaction, as
elected by the Holder solely at its option, shares of Common Stock, Successor
Capital Stock or, in lieu of the shares of Common Stock or Successor Capital
Stock (or other securities, cash, assets or other property purchasable upon the
exercise of this Warrant prior to such Fundamental Transaction), such shares of
stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights), which for purposes of
clarification may continue to be shares of Common Stock, if any, that the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction or the record, eligibility or other determination date for the event
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resulting in such Fundamental Transaction, had this Warrant been exercised
immediately prior to such Fundamental Transaction or the record, eligibility or
other determination date for the event resulting in such Fundamental Transaction
(without regard to any limitations on the exercise of this Warrant), as adjusted
in accordance with the provisions of this Warrant. In addition to and not in
substitution for any other rights hereunder, prior to the occurrence or
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities, cash, assets or other
property with respect to or in exchange for shares of Common Stock (a "Corporate
Event"), the Company shall make appropriate provision to insure that, and any
applicable Successor Entity or Successor Entities shall ensure that, and it
shall be a required condition to the occurrence or consummation of such
Corporate Event that, the Holder will thereafter have the right to receive upon
exercise of this Warrant at any time after the occurrence or consummation of the
Corporate Event, shares of Common Stock or Successor Capital Stock or, if so
elected by the Holder, in lieu of the shares of Common Stock (or other
securities, cash, assets or other property) purchasable upon the exercise of
this Warrant prior to such Corporate Event (but not in lieu of such items still
issuable under Sections 3 and 4(a), which shall continue to be receivable on the
Common Stock or on the such shares of stock, securities, cash, assets or any
other property otherwise receivable with respect to or in exchange for shares of
Common Stock), such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription rights
and any shares of Common Stock) which the Holder would have been entitled to
receive upon the occurrence or consummation of such Corporate Event or the
record, eligibility or other determination date for the event resulting in such
Corporate Event, had this Warrant been exercised immediately prior to such
Corporate Event or the record, eligibility or other determination date for the
event resulting in such Corporate Event (without regard to any limitations on
exercise of this Warrant). Provision made pursuant to the preceding sentence
shall be in a form and substance reasonably satisfactory to the Holder. The
provisions of this Section 4(b) shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events.
(c) Notwithstanding the foregoing, if a Fundamental
Transaction is announced or is scheduled to occur on or prior to the thirtieth
month following the Issuance Date, at the request of the Holder delivered before
the ninetieth (90th) day after the occurrence or consummation of such
Fundamental Transaction, the Company (or the Successor Entity) shall purchase
this Warrant from the Holder by paying to the Holder, within five (5) Business
13
Days after such request (or, if later, on the effective date of the Fundamental
Transaction), cash in an amount equal to (if positive) 200% of the product of
(A) the difference between (1) the arithmetic average of the Closing Sale Prices
of the Common Stock for the last five (5) Trading Days ending on the date of the
request of the Holder, and (2) the then existing Exercise Price, and (B) the
maximum number of Warrant Shares then issuable upon exercise on this Warrant
(without regard to any limitations on exercise of this Warrant.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or Bylaws, or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all of the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, the number of shares of Common Stock as shall from time to time be
necessary to effect the exercise of the SPA Warrants then outstanding (without
regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
14
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no SPA Warrants for fractional
Warrant Shares shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect
to any grants, issuances or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
shares of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation; provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder. It is expressly understood and
agreed that the time of exercise specified by the Holder in each Exercise Notice
shall be definitive and may not be disputed or challenged by the Company.
15
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended or waived and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Holder.
10. GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed
by and construed and enforced in accordance with, and all questions concerning
the construction, validity, interpretation and performance of this Warrant shall
be governed by, the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Subject to
the provisions of Section 12, the Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to the Company at the address set forth in Section 9(f)
of the Securities Purchase Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company's
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against any
Person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.
12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of
the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile or electronic mail within two (2) Business Days of receipt of the
Exercise Notice giving rise to such dispute, as the case may be, to the Holder.
If the Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three (3)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within two (2) Business Days
submit via facsimile or electronic mail (a) the disputed determination of the
Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company's independent, outside accountant. The Company
16
shall cause at its expense the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten (10) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER. This Warrant and the Warrant Shares may be offered for sale,
sold, transferred, pledged or assigned with prior written notice to the Company
but without the consent of the Company, except as may otherwise be required by
Section 2(f) of the Securities Purchase Agreement. Notwithstanding anything to
the contrary contained herein, without the prior written consent of the Company
(such consent not to be unreasonably withheld, delayed or conditioned), the
Holder shall not transfer a portion of this Warrant representing less than the
right to purchase 100,000 Warrant Shares unless such lesser amount represents
all of the remaining portion of this Warrant.
15. SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
16. DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Warrant, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries (as defined in
the Securities Purchase Agreement), the Company shall within one (1) Business
Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or otherwise. In the event
17
that the Company believes that a notice contains material, nonpublic information
relating to the Company or its Subsidiaries, the Company so shall indicate to
such Holder contemporaneously with delivery of such notice, and in the absence
of any such indication, the Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries.
17. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms
shall have the following meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
"control" of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
(c) "Attribution Parties" means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company's Common
Stock would or could be aggregated with the Holder's and the other Attribution
Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all other Attribution
Parties to the Maximum Percentage.
(d) "Bloomberg" means Bloomberg Financial Markets.
(e) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(f) "Closing Bid Price" and "Closing Sale Price" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or the last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
18
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the OTC Link
or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 12. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination, reclassification or other similar
transaction during the applicable calculation period.
(g) "Common Stock" means (i) the Company's shares of Common Stock, no par
value, and (ii) any share capital into which such Common Stock shall have been
changed or any share capital resulting from a reclassification of such Common
Stock.
(h) "Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 2(a)(i) and 2(a)(ii)
hereof regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock owned or held
by or for the account of the Company or issuable upon exercise of the SPA
Warrants.
(i) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.
(j) "Eligible Market" means the Principal Market, the NYSE MKT LLC, The
NASDAQ Global Market, The NASDAQ Capital Market, The NASDAQ Global Select Market
or The New York Stock Exchange, Inc.
(k) "Excluded Securities" means any Common Stock issued or issuable: (i)
upon conversion of the Notes issued on the Issuance Date; provided, that upon
the terms of such Notes are not amended, modified or changed on or after the
Subscription Date, (ii) upon exercise of the SPA Warrants; provided, that the
terms of the SPA Warrants are not amended, modified or changed on or after the
Subscription Date and (iii) upon exercise of any Options or Convertible
Securities which are outstanding on the day immediately preceding the
Subscription Date; provided, that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date.
(l) "Expiration Date" means the date thirty six (36) months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "Holiday"), the
next day that is not a Holiday.
(m) "Fundamental Transaction" means (A) that the Company shall, directly or
indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
19
properties or assets of the Company or any of its "significant subsidiaries" (as
defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or
(iii) make, or allow one or more Subject Entities to make, or allow the Company
to be subject to or have its Common Stock be subject to or party to one or more
Subject Entities making, a purchase, tender or exchange offer that is accepted
by the holders of at least either (x) 50% of the outstanding shares of Common
Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all Subject Entities making or party to, or
Affiliated with any Subject Entities making or party to, such purchase, tender
or exchange offer were not outstanding; or (z) such number of shares of Common
Stock such that all Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such purchase, tender or exchange offer,
become collectively the beneficial owners (as defined in Rule 13d-3 under the
1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more Subject Entities whereby all such Subject
Entities, individually or in the aggregate, acquire, either (x) at least 50% of
the outstanding shares of Common Stock, (y) at least 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all
the Subject Entities making or party to, or Affiliated with any Subject Entity
making or party to, such stock purchase agreement or other business combination
were not outstanding; or (z) such number of shares of Common Stock such that the
Subject Entities become collectively the beneficial owners (as defined in Rule
13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common
Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that
the Company shall, directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, allow any Subject
Entity individually or the Subject Entities in the aggregate to be or become the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, whether through acquisition, purchase, assignment, conveyance,
tender, tender offer, exchange, reduction in outstanding shares of Common Stock,
merger, consolidation, business combination, reorganization, recapitalization,
spin-off, scheme of arrangement, reorganization, recapitalization or
reclassification or otherwise in any manner whatsoever, of either (x) at least
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock, (y) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock not held by all such Subject
Entities as of the date of this Warrant calculated as if any shares of Common
Stock held by all such Subject Entities were not outstanding, or (z) a
percentage of the aggregate ordinary voting power represented by issued and
outstanding shares of Common Stock or other equity securities of the Company
sufficient to allow such Subject Entities to effect a statutory short form
merger or other transaction requiring other stockholders of the Company to
surrender their shares of Common Stock without approval of the stockholders of
the Company or (C) directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, the issuance of or
the entering into any other instrument or transaction structured in a manner to
circumvent, or that circumvents, the intent of this definition in which case
this definition shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this definition to the extent necessary to
correct this definition or any portion of this definition which may be defective
or inconsistent with the intended treatment of such instrument or transaction.
(n) "Group" means a "group" as that term is used in Section 13(d) of the
1934 Act and as defined in Rule 13d-5 thereunder.
20
(o) "Option Value" means the value of an Option based on the Black and
Scholes Option Pricing model obtained from the "OV" function on Bloomberg
determined as of (A) the Trading Day prior to the public announcement of the
issuance of the applicable Option, if the issuance of such Option is publicly
announced or (B) the Trading Day immediately following the issuance of the
applicable Option if the issuance of such Option is not publicly announced, for
pricing purposes and reflecting (i) a risk-free interest rate corresponding to
the U.S. Treasury rate for a period equal to the remaining term of the
applicable Option as of the applicable date of determination, (ii) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg as of (A) the Trading Day immediately following
the public announcement of the applicable Option if the issuance of such Option
is publicly announced or (B) the Trading Day immediately following the issuance
of the applicable Option if the issuance of such Option is not publicly
announced, (iii) the underlying price per share used in such calculation shall
be the highest Weighted Average Price of the Common Stock during the period
beginning on the Trading Day prior to the execution of definitive documentation
relating to the issuance of the applicable Option and ending on (A) the Trading
Day immediately following the public announcement of such issuance, if the
issuance of such Option is publicly announced or (B) the Trading Day immediately
following the issuance of the applicable Option if the issuance of such Option
is not publicly announced, (iv) a zero cost of borrow and (v) a 360 day
annualization factor.
(p) "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(q) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person, including such entity whose common
stock or equivalent equity security is quoted or listed on an Eligible Market
(or, if so elected by the Required Holders, any other market, exchange or
quotation system), or, if there is more than one such Person or such entity, the
Person or Parent Entity designated by the Required Holders or in the absence of
such designation, such Person or entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.
(r) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(s) "Principal Market" means the OTC Bulletin Board.
(t) "Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Subscription Date by and among the Company and the
Buyers.
(u) "Required Holders" means the holders of the SPA Warrants representing
at least a majority of the shares of Common Stock underlying the SPA Warrants
then outstanding.
(v) "Subject Entity" means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.
21
(w) "Successor Entity" means one or more Person or Persons (or, if so
elected by the Holder, the Parent Entity) which may be the entity formed by,
resulting from or surviving any Fundamental Transaction or one or more Person or
Persons (or, if so elected by the Holder, the Company or the Parent Entity) with
which such Fundamental Transaction shall have been entered into.
(x) "Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).
(y) "Weighted Average Price" means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York time (or such other time as the Principal
Market publicly announces is the official close of trading), as reported by
Bloomberg through its "Volume at Price" function or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York time (or such other time as such market publicly
announces is the official close of trading), as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC
Markets Inc.). If the Weighted Average Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Weighted Average Price
of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to Section 12 with the term "Weighted Average Price"
being substituted for the term "Exercise Price." All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or other similar transaction during the applicable
calculation period.
[Signature Page Follows]
22
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
ADVANCED CANNABIS SOLUTIONS, INC.
By: /s/ Robert L. Frichtel
-----------------------------------
Name: Robert L. Frichtel
Title: President
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
ADVANCED CANNABIS SOLUTIONS, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Advanced
Cannabis Solutions, Inc., a Colorado corporation (the "Company"), evidenced by
the attached Warrant to Purchase Common Stock (the "Warrant"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:
____________ a "Cash Exercise" with respect to
_________________ Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to
_______________ Warrant Shares.
2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
[NAME OF TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated _________ __,
2014 from the Company and acknowledged and agreed to by [NAME OF TRANSFER
AGENT].
ADVANCED CANNABIS SOLUTIONS, INC.
By:________________________________
Name:
Title:
EX-10
4
rrajan-14.txt
EXH. 10.3 - RRA (REG. RIGHTS AGREE)
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
January 21, 2014, by and among Advanced Cannabis Solutions, Inc., a Colorado
corporation, with headquarters located at 7750 N. Union Blvd., Suite 201,
Colorado Springs, Colorado 80920, (the "Company"), and the investors listed on
the Schedule of Buyers attached hereto (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to each Buyer senior secured
convertible notes of the Company (the "Notes"), which will, among other things,
be convertible (upon conversion, redemption, payment of interest or otherwise)
into a certain number of shares of the Company's common stock, no par value (the
"Common Stock") (the Common Stock issuable pursuant to the terms of the Notes,
the "Conversion Shares") in accordance with the terms of the Notes and (ii)
warrants (the "Warrants") which will be exercisable to purchase shares of Common
Stock (as exercised, the "Warrant Shares") in accordance with the terms of the
Warrants.
B. In accordance with the terms of the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
1. Definitions.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:
(a) "Additional Effective Date" means the date the Additional Registration
Statement is declared effective by the SEC.
(b) "Additional Effectiveness Deadline" means the date which is forty-five
(45) calendar days after the earlier of the Additional Filing Date and the
Additional Filing Deadline.
(c) "Additional Filing Date" means the date on which the Additional
Registration Statement is filed with the SEC.
(d) "Additional Filing Deadline" means if Cutback Shares are required to be
included in any Additional Registration Statement, the later of (i) the date
sixty (60) days after the date substantially all of the Registrable Securities
registered under the immediately preceding Registration Statement are sold and
(ii) the date six (6) months from the Initial Effective Date or the most recent
Additional Effective Date, as applicable.
(e) "Additional Registrable Securities" means, (i) any Cutback Shares not
previously included on a Registration Statement and (ii) any capital stock of
the Company issued or issuable with respect to the Notes, the Conversion Shares,
the Warrants, the Warrant Shares, or the Cutback Shares, as applicable, as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitations on the issuance of Common
Stock pursuant to the terms of the Notes or exercise of the Warrants.
(f) "Additional Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering any
Additional Registrable Securities.
(g) "Additional Required Registration Amount" means any Cutback Shares not
previously included on a Registration Statement, all subject to adjustment as
provided in Section 2(f) without regard to any limitations on issuance of Common
Stock pursuant to the Notes or exercise of the Warrants.
(h) "Business Day" means any day other than Saturday, Sunday or any other
day on which commercial banks in the City of New York are authorized or required
by law to remain closed.
(i) "Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
(j) "Cutback Shares" means any of the Initial Required Registration Amount
or the Additional Required Registration Amount, as applicable, of Registrable
Securities not included in all Registration Statements previously declared
effective hereunder as a result of a limitation on the maximum number of shares
of Common Stock permitted to be registered by the staff of the SEC pursuant to
Rule 415. The number of Cutback Shares shall be allocated pro rata among the
Investors with each Investor entitled to elect the portion of its Conversion
Shares and/or Warrant Shares that are to be considered Cutback Shares. For the
purpose of determining the Cutback Shares, in order to determine any applicable
Required Registration Amount, unless an Investor gives written notice to the
Company to the contrary with respect to the allocation of its Cutback Shares,
first the Conversion Shares shall be excluded on a pro rata basis among the
Investors until all of the Conversion Shares have been excluded, and second the
Warrant Shares shall be excluded on a pro rata basis until all of the Warrant
Shares have been excluded.
(k) "effective" and "effectiveness" refer to a Registration Statement that
has been declared effective by the SEC and is available for the resale of the
Registrable Securities required to be covered thereby.
(l) "Effective Date" means the Initial Effective Date and the Additional
Effective Date, as applicable.
2
(m) "Effectiveness Deadline" means the Initial Effectiveness Deadline and
the Additional Effectiveness Deadline, as applicable.
(n) "Eligible Market" means the Principal Market, The New York Stock
Exchange, Inc., The NYSE MKT LLC, The NASDAQ Capital Market, The NASDAQ Global
Market or The NASDAQ Global Select Market.
(o) "Initial Effective Date" means the date that the Initial Registration
Statement has been declared effective by the SEC.
(p) "Initial Effectiveness Deadline " means the date which is thirty (30)
calendar days after the earlier of (i) the Initial Filing Date and (ii) the
Initial Filing Deadline.
(q) "Initial Filing Deadline" means the date which is sixty (60) calendar
days after the earlier of (i) the Closing Date and (ii) the date of the
termination of the obligation of the Buyers to purchase Notes from the Company
under the Securities Purchase Agreement.
(r) "Initial Registrable Securities" means (i) the Conversion Shares issued
or issuable pursuant to the terms of the Notes, (ii) the Warrant Shares issued
or issuable upon exercise of the Warrants and (iii) any capital stock of the
Company issued or issuable with respect to the Notes, the Conversion Shares, the
Warrant Shares or the Warrants as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, in each case without
regard to any limitations on the issuance of shares of Common Stock pursuant to
the terms of the Notes or exercise of the Warrants.
(s) "Initial Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Initial Registrable Securities.
(t) "Initial Required Registration Amount" means 130% of the sum of (i) the
maximum number of Conversion Shares issued and issuable pursuant to the Notes
and (ii) the maximum number of Warrant Shares issued and issuable pursuant to
the Warrants as of the Trading Day immediately preceding the applicable date of
determination, subject to adjustment as provided in Section 2(f), without regard
to any limitations on the issuance of Common Stock pursuant to the terms of the
Notes or exercise of the Warrants.
(u) "Investor" means a Buyer or any transferee or assignee thereof to whom
a Buyer assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
(v) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(w) "Principal Market" means the OTC Bulletin Board.
3
(x) "register," "registered," and "registration" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415, and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.
(y) "Registrable Securities" means the Initial Registrable Securities and
the Additional Registrable Securities.
(z) "Registration Statement" means the Initial Registration Statement and
the Additional Registration Statement, as applicable.
(aa) "Required Holders" means the holders of at least a majority of the
Registrable Securities.
(bb) "Required Registration Amount" means the Initial Required Registration
Amount or the Additional Required Registration Amount, as applicable.
(cc) "Rule 415" means Rule 415 promulgated under the 1933 Act or any
successor rule providing for offering securities on a continuous or delayed
basis.
(dd) "SEC" means the United States Securities and Exchange Commission.
(ee) "Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).
2. Registration.
(a) Initial Mandatory Registration. Unless the Required Holders indicate in
writing otherwise, the Company shall prepare, and, as soon as practicable but in
no event later than the Initial Filing Deadline, file with the SEC the Initial
Registration Statement on Form S-3 covering the resale of the Initial Required
Registration Amount of Initial Registrable Securities. In the event that Form
S-3 is unavailable for such a registration, the Company shall use Form S-1 or
such other form as is available for such a registration on another appropriate
form reasonably acceptable to the Required Holders, subject to the provisions of
Section 2(f). The Initial Registration Statement prepared pursuant hereto shall
register for resale at least the number of shares of Common Stock equal to the
Initial Required Registration Amount determined as of the date the Initial
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 2(f). The Initial Registration Statement shall contain
(except if otherwise directed by the Required Holders) the "Plan of
Distribution" and "Selling Stockholders" sections in substantially the form
attached hereto as Exhibit B. The Company shall use its best efforts to have the
Initial Registration Statement declared effective by the SEC as soon as
4
practicable, but in no event later than the Initial Effectiveness Deadline. By
9:30 a.m. New York time on the Business Day following the Initial Effective
Date, the Company shall file with the SEC in accordance with Rule 424 under the
1933 Act the final prospectus to be used in connection with sales pursuant to
such Initial Registration Statement.
(b) Additional Mandatory Registrations. The Company shall prepare, and, as
soon as practicable but in no event later than the Additional Filing Deadline,
file with the SEC an Additional Registration Statement on Form S-3 covering the
resale of all of the Additional Registrable Securities not previously registered
on an Additional Registration Statement hereunder. To the extent the staff of
the SEC does not permit the Additional Required Registration Amount to be
registered on an Additional Registration Statement, the Company shall file
Additional Registration Statements successively trying to register on each such
Additional Registration Statement the maximum number of remaining Additional
Registrable Securities until the Additional Required Registration Amount has
been registered with the SEC. In the event that Form S-3 is unavailable for such
a registration, the Company shall use such Form S-1 or other form as is
available for such a registration on another appropriate form reasonably
acceptable to the Required Holders, subject to the provisions of Section 2(e).
Each Additional Registration Statement prepared pursuant hereto shall register
for resale at least that number of shares of Common Stock equal to the
Additional Required Registration Amount determined as of the date such
Additional Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 2(f). Each Additional Registration Statement
shall contain (except if otherwise directed by the Required Holders) the
"Selling Stockholders" and "Plan of Distribution " sections in substantially the
form attached hereto as Exhibit B. The Company shall use its best efforts to
have each Additional Registration Statement declared effective by the SEC as
soon as practicable, but in no event later than the Additional Effectiveness
Deadline. By 9:30 a.m. New York time on the Business Day following the
Additional Effective Date, the Company shall file with the SEC in accordance
with Rule 424 under the 1933 Act the final prospectus to be used in connection
with sales pursuant to such Additional Registration Statement.
(c) Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase or decrease
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase or decrease thereof is declared
effective by the SEC. In the event that an Investor sells or otherwise transfers
any of such Investor's Registrable Securities, each transferee shall be
allocated a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor. Any
shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities covered
by such Registration Statement shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors which are covered by such Registration Statement. In no event shall
the Company include any securities other than Registrable Securities on any
Registration Statement without the prior written consent of the Required
Holders.
(d) Legal Counsel. Subject to Section 5 hereof, the Required Holders shall
have the right to select one legal counsel to review and oversee any
5
registration pursuant to this Section 2 ("Legal Counsel"), which shall be such
counsel as thereafter designated by the Required Holders. The Company and Legal
Counsel shall reasonably cooperate with each other in performing the Company's
obligations under this Agreement.
(e) Ineligibility for Form S-3. In the event that Form S-3 is not available
for the registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on Form S-1
or another appropriate form reasonably acceptable to the Required Holders and
(ii) undertake to register the Registrable Securities on Form S-3 as soon as
such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
(f) Sufficient Number of Shares Registered. In the event the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
or Section 2(b) is insufficient to cover the Required Registration Amount of
Registrable Securities required to be covered by such Registration Statement or
an Investor's allocated portion of the Registrable Securities pursuant to
Section 2(c), the Company shall amend the applicable Registration Statement, or
file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least the Required Registration Amount
as of the Trading Day immediately preceding the date of the filing of such
amendment or new Registration Statement, in each case, as soon as practicable,
but in any event not later than fifteen (15) days after the necessity therefor
arises. The Company shall use its best efforts to cause such amendment and/or
new Registration Statement to become effective as soon as practicable following
the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed "insufficient to
cover all of the Registrable Securities" if at any time the number of shares of
Common Stock available for resale under the Registration Statement is less than
the product determined by multiplying (i) the Required Registration Amount as of
such time by (ii) 0.90. The calculation set forth in the foregoing sentence
shall be made without regard to any limitations on the issuance of shares of
Common Stock pursuant to the terms of the Notes or exercise of the Warrants and
such calculation shall assume (i) that the Notes are then convertible in full
into shares of Common Stock at the then prevailing Conversion Rate (as defined
in the Notes) (ii) the initial outstanding principal amount of the Notes remains
outstanding through the scheduled Maturity Date (as defined in the Notes) and no
redemptions of the Notes occur prior to the scheduled Maturity Date and (iii)
the Warrants are then exercisable in full into Common Stock at the then
prevailing Exercise Price (as defined in the Warrants).
3. Related Obligations.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), 2(b), 2(e), or 2(f), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
(a) The Company shall promptly prepare and file with the SEC a Registration
Statement with respect to the Registrable Securities and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
6
become effective as soon as practicable after such filing (but in no event later
than the Effectiveness Deadline). The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
covered by such Registration Statement without restriction or limitation
pursuant to Rule 144 and without the requirement to be in compliance with Rule
144(c)(1) (or any successor thereto) promulgated under the 1933 Act or (ii) the
date on which the Investors shall have sold all of the Registrable Securities
covered by such Registration Statement (the "Registration Period"). The Company
shall ensure that each Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not
misleading. The term "best efforts" shall mean, among other things, that the
Company shall submit to the SEC, within two (2) Business Days after the later of
the date that (i) the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on a particular Registration Statement, as the case may be, and (ii)
the approval of Legal Counsel pursuant to Section 3(c) (which approval is
immediately sought), a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than two (2) Business Days
after the submission of such request. The Company shall respond in writing to
comments made by the SEC in respect of a Registration Statement as soon as
practicable, and shall use its reasonably best efforts to respond within fifteen
(15) days after the receipt of comments by or notice from the SEC that an
amendment is required in order for a Registration Statement to be declared
effective.
(b) Unless otherwise waived by the Required Holders, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with such Registration Statement, which prospectus is to be filed
pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep
such Registration Statement effective at all times during the Registration
Period, and, during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 3(b)) by reason of the Company filing a
report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company shall
have incorporated such report by reference into such Registration Statement, if
permitted by the SEC, or shall file such amendments or supplements with the SEC
on the same day on which the 1934 Act report is filed which created the
requirement for the Company to amend or supplement such Registration Statement.
(c) The Company shall (A) permit Legal Counsel to review and comment upon
(i) a Registration Statement at least five (5) Business Days prior to its filing
with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, and any similar or successor reports) within
a reasonable number of days prior to their filing with the SEC, and (B) not file
7
any Registration Statement or amendment or supplement thereto in a form to which
Legal Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations pursuant to this Section 3.
(d) The Company shall furnish to each Investor whose Registrable Securities
are included in any Registration Statement, without charge, (i) promptly after
the same is prepared and filed with the SEC, at least one copy of such
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, all exhibits and each preliminary prospectus, (ii)
upon the effectiveness of any Registration Statement, as many copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto as such Persons may reasonably request and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
(e) The Company shall use its best efforts to (i) register and qualify,
unless an exemption from registration and qualification applies, the resale by
Investors of the Registrable Securities covered by a Registration Statement
under such other securities or "blue sky" laws of the State of New York and such
other states as are reasonably requested by the Required Holders, (ii) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
(f) The Company shall notify Legal Counsel and each Investor in writing of
the happening of any event, as promptly as practicable after becoming aware of
such event but in any event on the same Trading Day as such event, as a result
of which the prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein,
8
in the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver as many copies of such supplement or amendment to Legal
Counsel and each Investor as such Persons may reasonably request. The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile or electronic mail on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate. By
9:30 a.m. New York City time on the date following the date any post-effective
amendment has become effective, the Company shall file with the SEC in
accordance with Rule 424 under the 1933 Act the final prospectus to be used in
connection with sales pursuant to such Registration Statement.
(g) The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
(h) If any Investor is required under applicable securities laws to be
described in the Registration Statement as an underwriter or an Investor
believes that it could reasonably be deemed to be an underwriter of Registrable
Securities, at the reasonable request of such Investor, the Company shall
furnish to such Investor on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the Investors, and (ii) an opinion, dated as of
such date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the Investors.
(i) If any Investor is required under applicable securities laws to be
described in the Registration Statement as an underwriter or an Investor
believes that it could reasonably be deemed to be an underwriter of Registrable
Securities, the Company shall make available for inspection by (i) such
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "Inspectors"), all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
9
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor) or use of any Record
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
Agreement. Each Investor agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
(j) The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
(k) The Company shall use its best efforts either to (i) cause all of the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) secure the
inclusion for quotation of all of the Registrable Securities on the Principal
Market or (iii) if, despite the Company's best efforts, the Company is
unsuccessful in satisfying the preceding clauses (i) and (ii), to secure the
inclusion for quotation on an Eligible Market for such Registrable Securities
and, without limiting the generality of the foregoing, to use its best efforts
to arrange for at least two market makers to register with the Financial
Industry Regulatory Authority, Inc. ("FINRA") as such with respect to such
Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(k).
(l) The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.
10
(m) If requested by an Investor, the Company shall as soon as practicable
(i) incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by an Investor
holding any Registrable Securities.
(n) The Company shall use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.
(o) The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with, and in
the manner provided by, the provisions of Rule 158 under the 1933 Act) covering
a twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the applicable Effective Date of a Registration
Statement.
(p) The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.
(q) Within two (2) Business Days after a Registration Statement which
covers Registrable Securities is declared effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.
(r) Notwithstanding anything to the contrary herein, at any time after the
Effective Date, the Company may delay the disclosure of material, non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company and its
counsel, in the best interest of the Company and, in the opinion of counsel to
the Company, otherwise required (a "Grace Period"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed five (5)
consecutive days and during any three hundred sixty five (365) day period such
Grace Periods shall not exceed an aggregate of twenty (20) days and the first
day of any Grace Period must be at least five (5) Trading Days after the last
day of any prior Grace Period (each, an "Allowable Grace Period"); provided,
further, that no such suspension shall be permitted arising out of the same set
of facts, circumstances or transactions. For purposes of determining the length
of a Grace Period above, the Grace Period shall begin on and include the date
11
the Investors receive the notice referred to in clause (i) above and shall end
on and include the later of the date the Investors receive the notice referred
to in clause (ii) above and the date referred to in such notice. The provisions
of Section 3(g) hereof shall not be applicable during the period of any
Allowable Grace Period. Upon expiration of the Grace Period, the Company shall
again be bound by the first sentence of Section 3(f) with respect to the
information giving rise thereto unless such material, non-public information is
no longer applicable. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale, prior to the
Investor's receipt of the notice of a Grace Period and for which the Investor
has not yet settled.
(s) Neither the Company nor any Subsidiary or affiliate thereof shall
identify any Investor as an underwriter in any public disclosure or filing with
the SEC, the Principal Market or any Eligible Market and any Investor being
deemed an underwriter by the SEC shall not relieve the Company of any
obligations it has under this Agreement or any other Transaction Document (as
defined in the Securities Purchase Agreement); provided, however, that the
foregoing shall not prohibit the Company from including the disclosure found in
the "Plan of Distribution" section attached hereto as Exhibit B in the
Registration Statement; provided, further, that if a Buyer is required to be
identified as an underwriter under any law or rule, then after such Buyer has
had a reasonable opportunity to discuss the matter with the applicable agency so
requiring its identification as an underwriter, such Buyer shall either consent
to be so identified or promptly withdraw whatever portion of the Registrable
Securities from the applicable Registration Statement is necessary so that it
would not be required to be so identified. Upon any such withdrawal, the
Company's obligations with respect to such withdrawn Registrable Securities
under Section 2 shall be suspended until such time as such withdrawn Registrable
Securities may be included in a Registration Statement without requiring such
Buyer to be identified as an underwriter.
(t) The Company shall not file any other registration statements until, or
grant registration rights to any Person that can be exercised prior to the time
that, all Registrable Securities are registered pursuant to a Registration
Statement that is declared effective by the SEC, provided that this Section 3(t)
shall not prohibit the Company from filing amendments (pre-effective and
post-effective) to registration statements filed prior to the date of this
Agreement; provided that no such amendment shall increase the number of
securities registered on a registration statement. Notwithstanding the
foregoing, the Company shall be permitted to include in the Registration
Statement (i) shares of Common Stock issuable upon conversion of those certain
convertible promissory notes issued by the Company on December 27, 2013 as
described in the Company's Current Report on Form 8-K filed on January 6, 2014
(such shares, the "Spencer Edwards Shares") (ii) up to 12,500,000 shares of
Common Stock issued on or around June 30, 2013 (the "June 2013 Shares"), (iii)
up to 973,000 shares of Common Stock issued during August and September 2013,
and 973,000 shares issuable upon exercise of the warrants issued during August
and September 2013 (collectively, the "August/September Shares") and together
with the Spencer Edward Shares, the June 2013 Shares and the Registrable
Securities, the "Registrable Shares"), provided that if any Registration
Statement is not permitted to include all the Registrable Shares as a result of
12
a limitation on the maximum number of shares of Common Stock permitted to be
registered by the staff of the SEC pursuant to Rule 415 or otherwise, first the
Spencer Edwards Shares, the June 2013 Shares and the August/September Shares
shall be excluded until all of such shares have been excluded, and second the
Registrable Securities shall be excluded pursuant to the terms of this
Agreement. Neither the Company nor any of its Subsidiaries has entered, as of
the date hereof, nor shall the Company or any of its Subsidiaries, on or after
the date of this Agreement, enter into any agreement with respect to its
securities, that would have the effect of impairing the rights granted to the
Buyers in this Agreement or otherwise conflicts with the provisions hereof.
4. Obligations of the Investors.
(a) At least five (5) Business Days prior to the first anticipated Filing
Date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete any registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(g) or the first
sentence of Section 3(f), such Investor will immediately discontinue disposition
of Registrable Securities pursuant to any Registration Statement(s) covering
such Registrable Securities until such Investor's receipt of copies of the
supplemented or amended prospectus as contemplated by Section 3(g) or the first
sentence of Section 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of Section 3(f) and for which the Investor
has not yet settled.
(d) Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it or an
exemption therefrom in connection with sales of Registrable Securities pursuant
to the Registration Statement.
13
5. Expenses of Registration.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the fees and disbursements of
Legal Counsel in connection with registration, filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $15,000
for each such registration, and $1,000 for each state filing or qualification.
6. Indemnification.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, members, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several
(collectively, "Claims"), incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "Violations"). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
14
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (ii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
"Indemnified Party"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(c), such Investor shall
reimburse the Indemnified Party for any legal or other expenses reasonably
incurred by an Indemnified Party in connection with investigating or defending
any such Claim; provided, however, that the indemnity agreement contained in
this Section 6(b) and the agreement with respect to contribution contained in
Section 7 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld or delayed; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(c) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for all such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the Indemnified Person or
Indemnified Party, as the case may be, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
15
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In the case of an Indemnified Person, legal counsel
referred to in the immediately preceding sentence shall be selected by the
Investors holding at least a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The
Indemnified Party or Indemnified Person shall reasonably cooperate with the
indemnifying party in connection with any negotiation or defense of any such
action or Claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or Claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent ,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such Claim or litigation and such settlement shall not include any
admission as to fault on the part of the Indemnified Party. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
(d) The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
(e) The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. Contribution.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the amount of net proceeds
16
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.
8. Reports Under the 1934 Act.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements and the filing of such reports and
other documents is required for the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company
(unless such reports are available on the SEC's EDGAR system), and (iii) such
other information as may be reasonably requested to permit the Investors to sell
such securities pursuant to Rule 144 without registration, provided that Rule
144 is available for any such sale or would be available for any such sale
assuming the Company's full compliance with the provisions of this Section 8.
The Company also agrees, while any Notes, Warrants or Registrable Securities
remain outstanding, to remain subject to the reporting obligations under the
1934 Act, regardless of whether or not the Company is required to do so, and to
file with the SEC in a timely manner, but in no event later than the deadlines
required by the SEC, all reports and other documents required of a reporting
company under the 1934 Act.
9. Assignment of Registration Rights.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of such Investor's
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act or applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
17
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. Amendment of Registration Rights.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Required Holders. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of this Agreement unless the same consideration (other than the
reimbursement of legal fees) also is offered to all of the parties to this
Agreement.
11. Miscellaneous.
(a) A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from such record
owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party) or by electronic mail; or (iii) one Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses, facsimile numbers and
e-mail addresses for such communications shall be: If to the Company:
Advanced Cannabis Solutions, Inc.
7750 N. Union Blvd., Suite 201
Colorado Springs, CO 80920
Telephone: (719) 434-1991
Facsimile: (719) 590-4888
Attention: Robert Frichtel
E-mail: Robert@advcannabis.com
18
With a copy to:
Hart & Hart, LLC
1624 Washington Street
Denver, CO 80203
Telephone: 303-839-0061
Facsimile: 303-839-5414
Attention: William Hart, Esq.
E-mail: harttrinen@aol.com
If to the Transfer Agent:
Corporate Stock Transfer
3200 Cherry Creek Drive South
Suite 430
Denver, CO 80209
Telephone: (303) 282-4800
Facsimile: (303) 777-3094
Attention: Carylyn Bell
E-mail: cbell@corporatestock.com
If to a Buyer, to its address, facsimile number or e-mail address set forth on
the Schedule of Buyers attached hereto, with copies to such Buyer's
representatives as set forth on the Schedule of Buyers, or to such other
address, facsimile number and/or e-mail address to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine or electronic mail server containing the time,
date, recipient facsimile number or e-mail address and an image of the first
page of such transmission in the case of a facsimile or a copy of such notice,
consent, waiver or other communication in the case of an electronic mail message
or (C) provided by a courier or overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
19
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
(e) If any provision of this Agreement is prohibited by law or otherwise
determined to be invalid or unenforceable by a court of competent jurisdiction,
the provision that would otherwise be prohibited, invalid or unenforceable shall
be deemed amended to apply to the broadest extent that it would be valid and
enforceable, and the invalidity or unenforceability of such provision shall not
affect the validity of the remaining provisions of this Agreement so long as
this Agreement as so modified continues to express, without material change, the
original intentions of the parties as to the subject matter hereof and the
prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s).
(f) This Agreement, the other Transaction Documents (as defined in the
Securities Purchase Agreement) and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
(g) Subject to the requirements of Section 9, this Agreement shall inure to
the benefit of and be binding upon the permitted successors and assigns of each
of the parties hereto.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
(i) This Agreement may be executed in identical counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission or electronic transmission via pdf
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
20
(j) 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 any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
(k) All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders, determined as if all of the
outstanding Notes and Warrants held by Investors have been converted or
exercised for Registrable Securities without regard to any limitations on the
issuance of Common Stock pursuant to the terms of the Notes or exercise of the
Warrants.
(l) 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) 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.
(n) The obligations of each Investor hereunder are several and not joint
with the obligations of any other Investor, and no provision of this Agreement
is intended to confer any obligations on any Investor vis-a-vis any other
Investor. Nothing contained herein, and no action taken by any Investor pursuant
hereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated herein.
* * * * * *
[Signature Page Follows]
21
IN WITNESS WHEREOF, each Buyer and the Company have caused its respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.
COMPANY:
ADVANCED CANNABIS SOLUTIONS, INC.
By:/s/ Robert L. Frichtel
-------------------------------------
Name: Robert L. Frichtel
Title: President
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.
BUYERS:
FULL CIRCLE CAPITAL CORPORATION
By:/s/ Gregg J. Felton
----------------------------------
Name: Gregg J. Felton
Title: President
SCHEDULE OF BUYERS
Buyer Address, Facsimile Number and
Buyer Email Address
----- -----------------------------------
Full Circle Capital Corporation 800 Westchester Ave., Suite S-620
Rye Brook, NY 10573
Attention: Gregg Felton
Facsimile: (914) 220-6301
Telephone: (914) 220-6300
Email: gfelton@fccapital.com
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[_______________]
[_______________]
[_______________]
Telephone:[____]
Facsimile:[____]
Email: [____]
Attention:[____]
Re: Advanced Cannabis Solutions, Inc.
Ladies and Gentlemen:
[We are][I am] counsel to Advanced Cannabis Solutions, Inc., a Colorado
corporation (the "Company"), and have represented the Company in connection with
that certain Securities Purchase Agreement, dated as of January 21, 2014 (the
"Securities Purchase Agreement"), entered into by and among the Company and the
buyers named therein (collectively, the "Holders") pursuant to which the Company
issued to the Holders senior secured convertible notes (the "Notes") pursuant to
which the Company's common stock, no par value (the "Common Stock") and warrants
exercisable for shares of Common Stock (the "Warrants"). Pursuant to the
Securities Purchase Agreement, the Company also has entered into a Registration
Rights Agreement with the Holders (the "Registration Rights Agreement") pursuant
to which the Company agreed, among other things, to register the resale of the
Registrable Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable pursuant to the terms of the Notes
and the shares of Common Stock issuable upon exercise of the Warrants under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________
___, 2014, the Company filed a Registration Statement on Form S-1 (File No.
333-_____________) (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, [we][I] advise you that a member of the
SEC's staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
A-1
This letter shall serve as our standing instruction to you that the shares
of Common Stock are freely transferable by the Holders pursuant to the
Registration Statement. You need not require further letters from us to effect
any future legend-free issuance or reissuance of shares of Common Stock to the
Holders as contemplated by the Company's Irrevocable Transfer Agent Instructions
dated January __, 2014.
Very truly yours,
[ISSUER'S COUNSEL]
By:_____________________
CC: [LIST NAMES OF HOLDERS]
A-2
EXHIBIT B
SELLING STOCKHOLDERS
The shares of common stock being offered by the selling stockholders are
those issuable to the selling stockholders pursuant to the terms of the senior
secured convertible notes and upon exercise of the warrants. For additional
information regarding the issuance of those senior secured convertible notes and
warrants, see "Private Placement of Senior Secured Convertible Notes and
Warrants" above. We are registering the shares of common stock in order to
permit the selling stockholders to offer the shares for resale from time to
time. Except for the ownership of the senior secured convertible notes and the
warrants issued pursuant to the Securities Purchase Agreement, the selling
stockholders have not had any material relationship with us within the past
three years.
The table below lists the selling stockholders and other information
regarding the beneficial ownership of the shares of common stock by each of the
selling stockholders. The second column lists the number of shares of common
stock beneficially owned by each selling stockholder, based on its ownership of
the shares of the senior secured convertible notes and warrants, as of ________,
2014, assuming conversion of all senior secured convertible notes and exercise
of the warrants held by the selling stockholders on that date, without regard to
any limitations on conversions and/or redemptions of the senior secured
convertible notes or exercises of the warrants.
The third column lists the shares of common stock being offered by
this prospectus by the selling stockholders.
In accordance with the terms of a registration rights agreement with the
selling stockholders, this prospectus generally covers the resale of at least
130% of the sum of (i) the maximum number of shares of common stock issuable
pursuant to the senior secured convertible notes as of the Trading Day
immediately preceding the date the registration statement is initially filed
with the SEC, and (ii) the maximum number of shares of common stock issuable
upon exercise of the related warrants as of the Trading Day immediately
preceding the date the registration statement is initially filed with the SEC,
all subject to adjustment as provided in the registration rights agreement and
in each case without regard to any limitations on the issuance of shares of
common stock pursuant to the terms of the Notes or exercise of the Warrants.
Because the conversion price of the convertible notes and the exercise price of
the warrants may be adjusted, the number of shares that will actually be issued
may be more or less than the number of shares being offered by this prospectus.
The fourth column assumes the sale of all of the shares offered by the selling
stockholders pursuant to this prospectus.
Under the terms of the senior secured convertible notes and the warrants, a
selling stockholder may not convert the senior secured convertible notes or
exercise the warrants to the extent such conversion or exercise would cause such
selling stockholder, together with its affiliates, to beneficially own a number
of shares of common stock which would exceed 4.99% of our then outstanding
shares of common stock following such conversion or exercise, excluding for
purposes of such determination shares of common stock issuable upon conversion
of the senior secured convertible notes which have not been converted and upon
Exh. B-1
exercise of the warrants which have not been exercised. The number of shares in
the second column does not reflect this limitation. The selling stockholders may
sell all, some or none of their shares in this offering. See "Plan of
Distribution."
Exh. B-2
Maximum Number of Number of
Number of Shares Shares of Common Shares of
of Common Stock Stock to be Sold Common Stock
Owned Prior to Pursuant to this Owned After
Name of Selling stockholder Offering Prospectus Offering
--------------------------- -------- ---------- --------
Full Circle Capital 0
Corporation (1)
(1)
Annex I-1
PLAN OF DISTRIBUTION
We are registering the shares of common stock issuable upon conversion of
the senior secured convertible notes and upon exercise of the warrants to permit
the resale of these shares of common stock by the holders of such senior secured
convertible notes and warrants from time to time after the date of this
prospectus. We will not receive any of the proceeds from the sale by the selling
stockholders of the shares of common stock. We will bear all fees and expenses
incident to our obligation to register the shares of common stock.
The selling stockholders may sell all or a portion of the shares of common
stock beneficially owned by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,
o on any national securities exchange or quotation service on which
the securities may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems or
in the over-the-counter market;
o through the writing of options, whether such options are listed
on an options exchange or otherwise;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o sales pursuant to Rule 144;
Annex II-1
o broker-dealers may agree with the selling securityholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
If the selling stockholders effect such transactions by selling shares of
common stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the shares of common stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares of common
stock short and deliver shares of common stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling stockholders may also loan or pledge shares of common
stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in some or
all of the senior secured convertible notes, warrants or shares of common stock
owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares of
common stock from time to time pursuant to this prospectus or any amendment to
this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933, as amended, amending, if necessary, the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer and donate the shares of common stock in other circumstances in which
case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealer participating in the
distribution of the shares of common stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission paid, or any
discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of common stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
Annex II-2
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or all
of the shares of common stock registered pursuant to the registration statement,
of which this prospectus forms a part.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common stock
pursuant to the registration rights agreement, estimated to be $[ ] in total,
including, without limitation, Securities and Exchange Commission filing fees
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that a selling stockholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration rights agreements, or the selling stockholders will be
entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act, that
may arise from any written information furnished to us by the selling
stockholder, specifically for use in this prospectus, in accordance with the
related registration rights agreement, or we may be entitled to contribution.
Once sold under the registration statement, of which this prospectus forms
a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
Annex II-3
EX-10
5
securedconvnotejan-14.txt
EXH. 10.4 - SENION SECURED CONV. NOTE
EXHIBIT 10.4
[FORM OF SENIOR SECURED CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND 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, 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. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS
OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL
AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
ADVANCED CANNABIS SOLUTIONS, INC.
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: January [ ], 2014 Original Principal Amount:
U.S. $[ ]
FOR VALUE RECEIVED, Advanced Cannabis Solutions, Inc., a Colorado
corporation (the "Company"), hereby promises to pay to [FULL CIRCLE CAPITAL
CORPORATION] [OTHER BUYERS] or registered assigns (the "Holder") in cash and/or
in shares of Common Stock (as defined below) the amount set out above as the
Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion, amortization or otherwise, the "Principal") when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("Interest") on any outstanding Principal at the applicable Interest Rate from
the date set out above as the Issuance Date (the "Issuance Date") until the same
becomes due and payable, whether upon an Interest Date (as defined below), the
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Senior Secured Convertible Note
(including all Senior Secured Convertible Notes issued in exchange, transfer or
replacement hereof, this "Note") is one of an issue of Senior Secured
Convertible Notes issued pursuant to the Securities Purchase Agreement
(collectively, the "Other Notes"). Certain capitalized terms used herein are
defined in Section 30.
(1) PAYMENTS OF PRINCIPAL; PREPAYMENT. On the Maturity Date, the Company
shall pay to the Holder an amount in cash representing all outstanding
Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as
defined in Section 24(b)) on such Principal and Interest. The "Maturity Date"
shall be [ ], as may be extended at the option of the Holder (i) in the event
that, and for so long as, an Event of Default (as defined in Section 4(a) shall
have occurred and be continuing on the Maturity Date (as may be extended
pursuant to this Section 1) or any event shall have occurred and be continuing
on the Maturity Date (as may be extended pursuant to this Section 1) that with
the passage of time and the failure to cure would result in an Event of Default
and (ii) through the date that is ten (10) Business Days after the consummation
of a Change of Control in the event that a Change of Control is publicly
announced or a Change of Control Notice (as defined in Section 4(b)) is
delivered prior to the Maturity Date. Other than as specifically permitted by
this Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and
Interest, if any.
(2) INTEREST.
(a) The Company acknowledges and agrees that this Note was issued at an
original issue discount. Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 360-day year and actual
number of days elapsed and shall be payable in arrears on the first (1st)
Business Day of each calendar month following the Issuance Date through the
Maturity Date (each, an "Interest Date") on the Principal amount of this Note
that is then outstanding with the first (1st) Interest Date being March 3, 2014.
Interest shall be payable on each Interest Date to the record holder of this
Note in cash by wire transfer of immediately available funds pursuant to wire
instructions provided by the Holder in writing to the Company. Prior to the
payment of Interest on an Interest Date, Interest on this Note shall accrue at
the Interest Rate and be payable by way of inclusion of the Interest in the
Conversion Amount (as defined in Section 3(b)(i)) on each Conversion Date (as
defined in Section 3(c)(i)) in accordance with Section 3(b)(i). In the event of
an Interest Increase Event that is subsequently cured, the adjustments in the
Interest Rate shall cease to be effective as of the date of such cure; provided,
that the Interest as calculated and unpaid at such increased rate during the
continuance of such Interest Increase Event shall continue to apply to the
extent relating to the days after the occurrence of such Interest Increase Event
through and including the date of cure of such Interest Increase Event.
(3) CONVERSION OF NOTES. At any time or times after the Issuance Date, this
Note shall be convertible into shares of the Company's common stock, no par
value (the "Common Stock"), on the terms and conditions set forth in this
Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at any
time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 3(c), at the Conversion Rate (as defined below). The Company shall
not issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp and
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similar taxes that may be payable with respect to the issuance and delivery of
Common Stock upon conversion of any Conversion Amount.
(b) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the
"Conversion Rate").
(i) "Conversion Amount" means the sum of (A) the portion of the
Principal to be converted, amortized, redeemed or otherwise with respect to
which this determination is being made, (B) accrued and unpaid Interest
with respect to such Principal and (C) accrued and unpaid Late Charges, if
any, with respect to such Principal and Interest.
(ii) "Conversion Price" means, as of any Conversion Date or other date
of determination, $5.00 per share, subject to adjustment as provided
herein.
(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into shares
of Common Stock on any date (a "Conversion Date"), the Holder shall (A)
transmit by facsimile or electronic mail (or otherwise deliver), for
receipt on or prior to 11:59 p.m., New York time, on such date, a copy of
an executed notice of conversion in the form attached hereto as Exhibit I
(the "Conversion Notice") to the Company and (B) if required by Section
3(c)(iii), surrender this Note to a common carrier for delivery to the
Company as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case of its
loss, theft or destruction). On or before the first (1st) Business Day
following the date of receipt of a Conversion Notice, the Company shall
transmit by facsimile or electronic mail a confirmation of receipt of such
Conversion Notice to the Holder and the Company's transfer agent (the
"Transfer Agent"). On or before the third (3rd) Trading Day following the
date of receipt of a Conversion Notice (the "Share Delivery Date"), the
Company shall (x) provided that the Transfer Agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock to which
the Holder shall be entitled to the Holder's or its designee's balance
account with DTC through its Deposit Withdrawal At Custodian system or (y)
if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified
in the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled. If this Note is physically surrendered for
conversion as required by Section 3(c)(iii) and the outstanding Principal
of this Note is greater than the Principal portion of the Conversion Amount
being converted, then the Company shall as soon as practicable and in no
event later than three (3) Business Days after receipt of this Note and at
its own expense, issue and deliver to the Holder a new Note (in accordance
with Section 18(d)) representing the outstanding Principal not converted.
The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes
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as the record holder or holders of such shares of Common Stock on the
Conversion Date, irrespective of the date such Conversion Shares are
credited to the Holder's account with DTC or the date of delivery of the
certificates evidencing such Conversion Shares, as the case may be.
(ii) Company's Failure to Timely Convert. If the Company shall fail on
or prior to the Share Delivery Date to issue and deliver a certificate to
the Holder, if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, or credit the Holder's balance
account with DTC, if the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, for the number of shares of Common
Stock to which the Holder is entitled upon the Holder's conversion of any
Conversion Amount (a "Conversion Failure"), then (i) the Company shall pay
damages to the Holder for each Trading Day of such Conversion Failure in an
amount equal to 1.5% of the product of (a) the sum of the number of shares
of Common Stock not issued to the Holder on or prior to the Share Delivery
Date and to which the Holder is entitled, and (b) the Closing Sale Price of
the Common Stock on the Share Delivery Date and (ii) the Holder, upon
written notice to the Company, may void its Conversion Notice with respect
to, and retain or have returned, as the case may be, any portion of this
Note that has not been converted pursuant to such Conversion Notice;
provided that the voiding of a Conversion Notice shall not affect the
Company's obligations to make any payments which have accrued prior to the
date of such notice pursuant to this Section 3(c)(ii) or otherwise. In
addition to the foregoing, if the Company shall fail on or prior to the
Share Delivery Date to issue and deliver a certificate to the Holder, if
the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, or credit the Holder's balance account with
DTC, if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program for the number of shares of Common Stock to
which the Holder is entitled upon the Holder's conversion of any Conversion
Amount or on any date of the Company's obligation to deliver shares of
Common Stock as contemplated pursuant to clause (y) below and if on or
after such Trading Day the Holder purchases (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a sale by the
Holder of Common Stock issuable upon such conversion that the Holder
anticipated receiving from the Company (a "Buy-In"), then the Company
shall, within three (3) Trading Days after the Holder's request and in the
Holder's discretion, either (x) pay cash to the Holder in an amount equal
to the Holder's total purchase price (including brokerage commissions and
other out-of-pocket expenses, if any) for the shares of Common Stock so
purchased (the "Buy-In Price"), at which point the Company's obligation to
issue and deliver such certificate or credit the Holder's balance account
with DTC for the shares of Common Stock to which the Holder is entitled
upon the Holder's conversion of the applicable Conversion Amount shall
terminate, or (y) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common Stock or
credit the Holder's balance account with DTC for such shares of Common
Stock and pay cash to the Holder in an amount equal to the excess (if any)
of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Bid Price on the Conversion Date.
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(iii) Registration; Book-Entry. The Company shall maintain a register
(the "Register") for the recordation of the names and addresses of the
holders of each Note and the principal amount of the Notes (and stated
interest thereon) held by such holders (the "Registered Notes"). The
entries in the Register shall be conclusive and binding for all purposes
absent manifest error. The Company and the holders of the Notes shall treat
each Person whose name is recorded in the Register as the owner of a Note
for all purposes, including, without limitation, the right to receive
payments of Principal and Interest, if any, hereunder, notwithstanding
notice to the contrary. A Registered Note may be assigned or sold in whole
or in part only by registration of such assignment or sale on the Register.
Upon its receipt of a request to assign or sell all or part of any
Registered Note by a Holder, the Company shall record the information
contained therein in the Register and issue one or more new Registered
Notes in the same aggregate principal amount as the principal amount of the
surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18. Notwithstanding anything to the contrary in this
Section 3(c)(iii), a Holder may assign any Note or any portion thereof to
an Affiliate of such Holder or a Related Fund of such Holder without
delivering a request to assign or sell such Note to the Company and the
recordation of such assignment or sale in the Register (a "Related Party
Assignment"); provided, that (x) the Company may continue to deal solely
with such assigning or selling Holder unless and until such Holder has
delivered a request to assign or sell such Note or portion thereof to the
Company for recordation in the Register; (y) the failure of such assigning
or selling Holder to deliver a request to assign or sell such Note or
portion thereof to the Company shall not affect the legality, validity, or
binding effect of such assignment or sale and (z) such assigning or selling
Holder shall, acting solely for this purpose as a non-fiduciary agent of
the Company, maintain a register (the "Related Party Register") comparable
to the Register on behalf of the Company, and any such assignment or sale
shall be effective upon recordation of such assignment or sale in the
Related Party Register. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this
Note to the Company unless (A) the full Conversion Amount represented by
this Note is being converted or (B) the Holder has provided the Company
with prior written notice (which notice may be included in a Conversion
Notice) requesting reissuance of this Note upon physical surrender of this
Note. The Holder and the Company shall maintain records showing the
Principal, Interest and Late Charges, if any, converted and the dates of
such conversions or shall use such other method, reasonably satisfactory to
the Holder and the Company, so as not to require physical surrender of this
Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the event that the Company
receives a Conversion Notice from this Note and one or more holder of Other
Notes for the same Conversion Date and the Company can convert some, but
not all, of such portions of this Note and the Other Notes submitted for
conversion, the Company, subject to Section 3(d), shall convert from the
Holder and each holder of Other Notes electing to have this Note or the
Other Notes converted on such date a pro rata amount of such holder's
portion of the Note and its Other Notes submitted for conversion based on
the Principal amount of this Note and the Other Notes submitted for
conversion on such date by such holder relative to the aggregate principal
amount of this Note and all Other Notes submitted for conversion on such
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date. In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of shares of Common Stock not
in dispute and resolve such dispute in accordance with Section 23.
(d) Limitations on Conversions. The Company shall not effect the
conversion of any portion of this Note, and the Holder shall not have the
right to convert any portion of this Note, to the extent that after giving
effect to such conversion, the Holder together with the other Attribution
Parties collectively would beneficially own in excess of 4.99% (the
"Maximum Percentage") of the shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned
by the Holder and the other Attribution Parties shall include the number of
shares of Common Stock held by the Holder and all other Attribution Parties
plus the number of shares of Common Stock issuable upon conversion of this
Note with respect to which the determination of such sentence is being
made, but shall exclude shares of Common Stock which would be issuable upon
(i) conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of the other Attribution Parties
and (ii) exercise or conversion of the unexercised or nonconverted portion
of any other securities of the Company (including, without limitation, any
convertible notes or convertible preferred stock or warrants, including the
Other Notes and the Warrants) beneficially owned by the Holder or any other
Attribution Party subject to a limitation on conversion or exercise
analogous to the limitation contained in this Section 3(d). For purposes of
this Section 3(d), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act. For purposes of determining the
number of outstanding shares of Common Stock the Holder may acquire upon
the conversion of the Note without exceeding the Maximum Percentage, the
Holder may rely on the number of outstanding shares of Common Stock as
reflected in (i) the Company's most recent Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public
filing with the SEC, as the case may be, (ii) a more recent public
announcement by the Company or (iii) any other written notice by the
Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding (the "Reported Outstanding Share Number"). If the Company
receives a Conversion Notice from a Holder at a time when the actual number
of outstanding shares of Common Stock is less than the Reported Outstanding
Share Number, the Company shall notify the Holder in writing of the number
of shares of Common Stock then outstanding and, to the extent that such
Conversion Notice would otherwise cause the Holder's beneficial ownership,
as determined pursuant to this Section 3(d), to exceed the Maximum
Percentage, the Holder must notify the Company of a reduced number of
shares of Common Stock to be purchased pursuant to such Conversion Notice.
For any reason at any time, upon the written or oral request of the Holder,
the Company shall within one (1) Trading Day confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the
Company, including this Note, by the Holder and any other Attribution Party
since the date as of which the Reported Outstanding Share Number was
reported. In the event that the issuance of shares of Common Stock to the
Holder upon conversion of this Note results in the Holder and the other
Attribution Parties being deemed to beneficially own, in the aggregate,
more than the Maximum Percentage of the number of outstanding shares of
Common Stock (as determined under Section 13(d) of the Exchange Act), the
number of shares so issued by which the Holder's and the other Attribution
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Parties' aggregate beneficial ownership exceeds the Maximum Percentage (the
"Excess Shares") shall be deemed null and void and shall be cancelled ab
initio, and the Holder shall not have the power to vote or to transfer the
Excess Shares. Upon delivery of a written notice to the Company, the Holder
may from time to time increase (with such increase not effective until the
sixty-first (61st) day after delivery of such notice) or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% as
specified in such notice; provided that (i) any such increase in the
Maximum Percentage will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company and (ii) any such increase or
decrease will apply only to the Holder and the other Attribution Parties
and not to any other holder of Notes that is not an Attribution Party of
the Holder. For purposes of clarity, the shares of Common Stock issuable
pursuant to the terms of this Note in excess of the Maximum Percentage
shall not be deemed to be beneficially owned by the Holder for any purpose
including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the Exchange
Act. The provisions of this paragraph shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this Section
3(d) to the extent necessary to correct this paragraph (or any portion of
this paragraph) which may be defective or inconsistent with the intended
beneficial ownership limitation contained in this Section 3(d) or to make
changes or supplements necessary or desirable to properly give effect to
such limitation. The limitation contained in this paragraph may not be
waived and shall apply to a successor holder of this Note.
(4) RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events shall constitute an
"Event of Default":
(i) the failure of the applicable Registration Statement required to
be filed pursuant to the Registration Rights Agreement to be filed within
the applicable time period specified in the Registration Rights Agreement
or to be declared effective by the SEC on or prior to the date that is
sixty (60) days after the applicable Effectiveness Deadline (as defined in
the Registration Rights Agreement), or, while the applicable Registration
Statement is required to be maintained effective pursuant to the terms of
the Registration Rights Agreement, the effectiveness of the applicable
Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to any holder
of the Notes for sale of all of such holder's Registrable Securities in
accordance with the terms of the Registration Rights Agreement, and such
lapse or unavailability continues for a period of ten (10) consecutive days
or for more than an aggregate of thirty (30) days in any 365-day period
(other than days during an Allowable Grace Period);
(ii) the suspension from trading or failure of the Common Stock to be
listed on an Eligible Market for a period of five (5) consecutive Trading
Days or for more than an aggregate of ten (10) Trading Days in any 365-day
period;
(iii) the Company's (A) failure to cure a Conversion Failure by
delivery of the required number of shares of Common Stock within ten (10)
Business Days after the applicable Conversion Date or (B) notice, written
or oral, to the Holder or any holder of the Other Notes, including by way
of public announcement or through any of its agents, at any time, of its
intention not to comply with a request for conversion of this Note or any
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Other Notes into shares of Common Stock that is tendered in accordance with
the provisions of this Note or the Other Notes, other than pursuant to
Section 3(d) (and analogous provisions under the Other Notes);
(iv) at any time following the tenth (10th) consecutive Business Day
that the Holder's Authorized Share Allocation is less than the sum of the
number of shares of Common Stock that the Holder would be entitled to
receive upon a conversion of the full Conversion Amount of this Note
(without regard to any limitations on conversion set forth in Section 3(d)
or otherwise) and exercise in full of the Holder's Warrants (without regard
to any limitations on exercise set forth in the Warrants);
(v) the Company's failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under
this Note or the Other Notes or any other Transaction Document (as defined
in the Securities Purchase Agreement) or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby to which the Holder is a
party, except, in the case of a failure to pay Interest and/or Late Charges
when and as due, in which case only if such failure continues for a period
of at least an aggregate of five (5) Business Days;
(vi) any default under, redemption of or acceleration prior to
maturity of any Indebtedness of the Company or any of its Subsidiaries (as
defined in Section 3(a) of the Securities Purchase Agreement) other than
with respect to this Note or any Other Notes;
(vii) the Company or any of its Subsidiaries, pursuant to or within
the meaning of Title 11, U.S. Code, or any similar Federal, foreign or
state law for the relief of debtors (collectively, "Bankruptcy Law"), (A)
commences a voluntary case, (B) consents to the entry of an order for
relief against it in an involuntary case, (C) consents to the appointment
of a receiver, trustee, assignee, liquidator or similar official (a
"Custodian"), (D) makes a general assignment for the benefit of its
creditors or (E) admits in writing that it is generally unable to pay its
debts as they become due; (viii) a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that (A) is for relief against
the Company or any of its Subsidiaries in an involuntary case, (B) appoints
a Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its Subsidiaries;
(ix) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against the Company or any
of its Subsidiaries and which judgments are not, within sixty (60) days
after the entry thereof, bonded, discharged or stayed pending appeal, or
are not discharged within sixty (60) days after the expiration of such
stay; provided, however, that any judgment which is covered by insurance or
an indemnity from a credit worthy party shall not be included in
calculating the $500,000 amount set forth above so long as the Company
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provides the Holder a written statement from such insurer or indemnity
provider (which written statement shall be reasonably satisfactory to the
Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;
(x) other than as specifically set forth in another clause of this
Section 4(a), the Company or any of its Subsidiaries breaches any
representation, warranty, covenant or other term or condition of any
Transaction Document, except, in the case of a breach of a covenant or
other term or condition of any Transaction Document which is curable, only
if such breach continues for a period of at least an aggregate of ten (10)
Business Days;
(xi) any breach or failure in any respect to comply with either
Section 15 of this Note;
(xii) the Company or any Subsidiary shall fail to perform or comply
with any covenant or agreement contained in the Security Agreement (as
defined in the Securities Purchase Agreement) to which it is a party or any
Mortgage (as defined in the Securities Purchase Agreement) to which it is a
party;
(xiii) any material provision of any Security Document (as determined
by the Collateral Agent (as defined in the Securities Purchase Agreement))
shall at any time for any reason (other than pursuant to the express terms
thereof) cease to be valid and binding on or enforceable against the
Company or any Subsidiary intended to be a party thereto, or the validity
or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by the Company or any Subsidiary or any
governmental authority having jurisdiction over any of them, seeking to
establish the invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or obligation
purported to be created under any Security Document;
(xiv) any Security Document or any other security document, after
delivery thereof pursuant hereto, shall for any reason fail or cease to
create a valid and perfected and, except to the extent permitted by the
terms hereof or thereof, first priority Lien (as defined in Section 15(c))
in favor of the Collateral Agent for the benefit of the holders of the
Notes on any Collateral (as defined in the Security Documents) purported to
be covered thereby;
(xv) any material damage to, or loss, theft or destruction of, any
Collateral or a material amount of property of the Company, whether or not
insured, or any strike, lockout, labor dispute, embargo, condemnation, act
of God or public enemy, or other casualty which causes, for more than
fifteen (15) consecutive days, the cessation or substantial curtailment of
revenue producing activities at any facility of the Company or any
Subsidiary, if any such event or circumstance could reasonably be expected
to have a Material Adverse Effect (as defined in the Securities Purchase
Agreement);
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(xvi) any Event of Default (as defined in the Other Notes) occurs with
respect to any Other Notes; or
(xvii) the consummation of a Change of Control.
(b) Redemption Right. Upon the occurrence of an Event of Default with
respect to this Note or any Other Note other than an Event of default
described in Section 4(a)(xviii), the Company shall within one (1) Business
Day deliver written notice thereof via facsimile or electronic mail, and
overnight courier (an "Event of Default Notice") to the Holder. No sooner
than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile or electronic mail, and overnight courier to
the Holder (a "Change of Control Notice"). At any time (A) after the
earlier of the Holder's receipt of an Event of Default Notice and the
Holder becoming aware of an Event of Default or (B) during the period
beginning on the earlier to occur of (i) any oral or written agreement by
the Company or any of its Subsidiaries, upon consummation of which the
transaction contemplated thereby would reasonably be expected to result in
a Change of Control, (ii) the Holder becoming aware of a Change of Control
and (iii) the Holder's receipt of a Change of Control Notice and ending
twenty (20) Trading Days after the date of the consummation of such Change
of Control, the Holder may require the Company to redeem (an "Event of
Default Redemption") all or any portion of this Note by delivering written
notice thereof (the "Event of Default Redemption Notice") to the Company,
which Event of Default Redemption Notice shall indicate the portion of this
Note the Holder is electing to require the Company to redeem. Each portion
of this Note subject to redemption by the Company pursuant to this Section
4(b) shall be redeemed by the Company in cash by wire transfer of
immediately available funds at a price equal to (i) the greater of (x) (A)
with respect to any Event of Default described in Section 4(a)(i) through
Section 4(a)(xvii), 125% of the Conversion Amount being redeemed and (B)
with respect to the Event of Default described in Section 4(a)(xviii), the
sum of (I) the Conversion Amount being redeemed and (II) the Make-Whole
Amount and (y) the product of (A) the Conversion Amount being redeemed and
(B) the quotient determined by dividing (I) the greatest Closing Sale Price
of the Common Stock during the period beginning on the date immediately
preceding such Event of Default and ending on the date the Holder delivers
the Event of Default Redemption Notice, by (II) the lowest Conversion Price
in effect during such period (the "Event of Default Redemption Price").
Redemptions required by this Section 4(b) shall be made in accordance with
the provisions of Section 12. To the extent redemptions required by this
Section 4(b) are deemed or determined by a court of competent jurisdiction
to be prepayments of the Note by the Company, such redemptions shall be
deemed to be voluntary prepayments. The parties hereto agree that in the
event of the Company's redemption of any portion of the Note under this
Section 4(b), the Holder's damages would be uncertain and difficult to
estimate because of the parties' inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any Event of Default redemption
premium due under this Section 4(b) is intended by the parties to be, and
shall be deemed, a reasonable estimate of the Holder's actual loss of its
investment opportunity and not as a penalty. Notwithstanding anything to
the contrary herein, until the Event of Default Redemption Price has been
paid, the Conversion Amount related thereto may be converted, in whole or
in part, by the Holder into shares of Common Stock pursuant to Section
3(c)(i).
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(5) RIGHTS UPON FUNDAMENTAL TRANSACTION. The Company shall not enter
into or be party to a Fundamental Transaction unless (i) the Successor
Entity assumes in writing all of the obligations of the Company under this
Note and the other Transaction Documents in accordance with the provisions
of this Section 5 pursuant to written agreements in form and substance
satisfactory to the Required Holders and approved by the Required Holders
prior to such Fundamental Transaction, including agreements, if so
requested by the Holder, to deliver to each holder of Notes in exchange for
such Notes a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate
equal to the principal amounts and the interest rates of the Notes then
outstanding held by such holder, having similar conversion rights and
having similar ranking and security to the Notes, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent
Entity) is a publicly traded corporation whose common capital stock is
quoted on or listed for trading on an Eligible Market. Any security
issuable or potentially issuable to the Holder pursuant to the terms of
this Note on the consummation of a Fundamental Transaction shall be
registered and freely tradable by the Holder without any restriction or
limitation or the requirement to be subject to any holding period pursuant
to any applicable securities laws. No later than (i) thirty (30) days prior
to the occurrence or consummation of any Fundamental Transaction or (ii) if
later, the first Trading Day following the date the Company first becomes
aware of the occurrence or potential occurrence of a Fundamental
Transaction, the Company shall deliver written notice thereof via facsimile
or electronic mail, and overnight courier to the Holder. Upon the
occurrence or consummation of any Fundamental Transaction, and it shall be
a required condition to the occurrence or consummation of any Fundamental
Transaction that, the Company and the Successor Entity or Successor
Entities, jointly and severally, shall succeed to, and the Company shall
cause any Successor Entity or Successor Entities to jointly and severally
succeed to, and be added to the term "Company" under this Note (so that
from and after the date of such Fundamental Transaction, each and every
provision of this Note referring to the "Company" shall refer instead to
each of the Company and the Successor Entity or Successor Entities, jointly
and severally), and the Company and the Successor Entity or Successor
Entities, jointly and severally, may exercise every right and power of the
Company prior thereto and shall assume all of the obligations of the
Company prior thereto under this Note with the same effect as if the
Company and such Successor Entity or Successor Entities, jointly and
severally, had been named as the Company in this Note, and, solely at the
request of the Holder, if the Successor Entity and/or Successor Entities is
a publicly traded corporation whose common capital stock is quoted on or
listed for trading on an Eligible Market, shall deliver (in addition to and
without limiting any right under this Note) to the Holder in exchange for
this Note a security of the Successor Entity and/or Successor Entities
evidenced by a written instrument substantially similar in form and
substance to this Note and convertible for a corresponding number of shares
of capital stock of the Successor Entity and/or Successor Entities (the
11
"Successor Capital Stock") equivalent (as set forth below) to the shares of
Common Stock acquirable and receivable upon conversion of this Note
(without regard to any limitations on the conversion of this Note) prior to
such Fundamental Transaction (such corresponding number of shares of
Successor Capital Stock to be delivered to the Holder shall equal the
quotient of (i) the aggregate dollar value of all consideration (including
cash consideration and any consideration other than cash ("Non-Cash
Consideration"), in such Fundamental Transaction, as such values are set
forth in any definitive agreement for the Fundamental Transaction that has
been executed at the time of the first public announcement of the
Fundamental Transaction or, if no such value is determinable from such
definitive agreement, as determined in accordance with Section 23 with the
term "Non-Cash Consideration" being substituted for the term "Conversion
Price") that the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction or the record, eligibility or
other determination date for the event resulting in such Fundamental
Transaction, had this Note been converted immediately prior to such
Fundamental Transaction or the record, eligibility or other determination
date for the event resulting in such Fundamental Transaction (without
regard to any limitations on the conversion of this Note) divided by (ii)
the per share Closing Sale Price of such corresponding capital stock on the
Trading Day immediately prior to the consummation or occurrence of the
Fundamental Transaction), and, such security shall be satisfactory to the
Holder, and with an identical conversion price to the Conversion Price
hereunder (such adjustments to the conversion price being for the purpose
of protecting after the consummation or occurrence of such Fundamental
Transaction the economic value of this Note that was in effect immediately
prior to the consummation or occurrence of such Fundamental Transaction, as
elected by the Holder solely at its option). Upon occurrence or
consummation of the Fundamental Transaction, and it shall be a required
condition to the occurrence or consummation of such Fundamental Transaction
that, the Company and the Successor Entity or Successor Entities shall
deliver to the Holder confirmation that there shall be issued upon
conversion of this Note at any time after the occurrence or consummation of
the Fundamental Transaction, as elected by the Holder solely at its option,
shares of Common Stock, Successor Capital Stock or, in lieu of the shares
of Common Stock or Successor Capital Stock (or other securities, cash,
assets or other property purchasable upon the conversion of this Note prior
to such Fundamental Transaction), such shares of stock, securities, cash,
assets or any other property whatsoever (including warrants or other
purchase or subscription rights), which for purposes of clarification may
continue to be shares of Common Stock, if any, that the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction
or the record, eligibility or other determination date for the event
resulting in such Fundamental Transaction, had this Note been converted
immediately prior to such Fundamental Transaction or the record,
eligibility or other determination date for the event resulting in such
Fundamental Transaction (without regard to any limitations on the
conversion of this Note), as adjusted in accordance with the provisions of
this Note. The provisions of this Section 5 shall apply similarly and
equally to successive Fundamental Transactions.
(6) DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS
AND OTHER CORPORATE EVENTS.
(a) Distribution of Assets. If the Company shall declare or make any
dividend or other distributions of its assets (or rights to acquire its
assets) to any or all holders of shares of Common Stock, by way of return
of capital or otherwise (including without limitation, any distribution of
cash, stock or other securities, property or options by way of a dividend,
spin off, reclassification, corporate rearrangement, scheme of arrangement
or other similar transaction) (the "Distributions"), then the Holder will
be entitled to such Distributions as if the Holder had held the number of
shares of Common Stock acquirable upon complete conversion of this Note
(without taking into account any limitations or restrictions on the
convertibility of this Note) immediately prior to the date on which a
record is taken for such Distribution or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined
for such Distributions (provided, however, that to the extent that the
Holder's right to participate in any such Distribution would result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage,
then the Holder shall not be entitled to participate in such Distribution
12
to such extent (and shall not be entitled to beneficial ownership of such
shares of Common Stock as a result of such Distribution (and beneficial
ownership) to such extent) and the portion of such Distribution shall be
held in abeyance for the Holder until such time or times as its right
thereto would not result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, at which time or times the Holder shall
be granted such rights (and any rights under this Section 6(a) on such
initial rights or on any subsequent such rights to be held similarly in
abeyance) to the same extent as if there had been no such limitation).
(b) Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of
any class of Common Stock (the "Purchase Rights"), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the
Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any
limitations or restrictions on the convertibility of this Note) immediately
prior to the date on which a record is taken for the grant, issuance or
sale of such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be determined
for the grant, issue or sale of such Purchase Rights (provided, however,
that to the extent that the Holder's right to participate in any such
Purchase Right would result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, then the Holder shall not be entitled to
participate in such Purchase Right to such extent (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result
of such Purchase Right (and beneficial ownership) to such extent) and such
Purchase Right to such extent shall be held in abeyance for the Holder
until such time or times as its right thereto would not result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage,
at which time or times the Holder shall be granted such right (and any
Purchase Right granted, issued or sold on such initial Purchase Right or on
any subsequent Purchase Right to be held similarly in abeyance) to the same
extent as if there had been no such limitation).
(c) Other Corporate Events. In addition to and not in substitution for
any other rights hereunder, prior to the occurrence or consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock
are entitled to receive securities, cash, assets or other property with
respect to or in exchange for shares of Common Stock (a "Corporate Event"),
the Company shall make appropriate provision to insure that, and any
applicable Successor Entity or Successor Entities shall ensure that, and it
shall be a required condition to the occurrence or consummation of such
Corporate Event that, the Holder will thereafter have the right to receive
upon conversion of this Note at any time after the occurrence or
consummation of the Corporate Event, shares of Common Stock or Successor
Capital Stock or, if so elected by the Holder, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property)
purchasable upon the conversion of this Note prior to such Corporate Event
(but not in lieu of such items still issuable under Sections 6(a) and 6(b),
which shall continue to be receivable on the Common Stock or on the such
shares of stock, securities, cash, assets or any other property otherwise
receivable with respect to or in exchange for shares of Common Stock), such
shares of stock, securities, cash, assets or any other property whatsoever
13
(including warrants or other purchase or subscription rights and any shares
of Common Stock) which the Holder would have been entitled to receive upon
the occurrence or consummation of such Corporate Event or the record,
eligibility or other determination date for the event resulting in such
Corporate Event, had this Note been converted immediately prior to such
Corporate Event or the record, eligibility or other determination date for
the event resulting in such Corporate Event (without regard to any
limitations on conversion of this Note). Provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory
to the Required Holders. The provisions of this Section 6 shall apply
similarly and equally to successive Corporate Events.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If
and whenever on or after the Subscription Date, the Company issues or
sells, or in accordance with this Section 7(a) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares
of Common Stock owned or held by or for the account of the Company, but
excluding shares of Common Stock deemed to have been issued or sold by the
Company in connection with any Excluded Securities) for a consideration per
share (the "New Issuance Price") less than a price (the "Applicable Price")
equal to the Conversion Price in effect immediately prior to such issue or
sale or deemed issuance or sale (the foregoing a "Dilutive Issuance"), then
immediately after such Dilutive Issuance the Conversion Price then in
effect shall be reduced to an amount equal to the New Issuance Price. For
purposes of determining the adjusted Conversion Price under this Section
7(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or
sells any Options and the lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Option or
upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of any such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share.
For purposes of this Section 7(a)(i), the "lowest price per share for
which one share of Common Stock is issuable upon the exercise of any
such Options or upon conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of any such Option"
shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one
share of Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion or exchange or exercise of
any Convertible Security issuable upon exercise of such Option less
any consideration paid or payable by the Company with respect to such
one share of Common Stock upon the granting or sale of such Option,
upon exercise of such Option and upon conversion exercise or exchange
of any Convertible Security issuable upon exercise of such Option. No
further adjustment of the Conversion Price shall be made upon the
actual issuance of such shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such shares of Common Stock upon conversion or exchange or
exercise of such Convertible Securities.
14
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon the
conversion or exchange or exercise thereof is less than the Applicable
Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this Section 7(a)(ii), the
"lowest price per share for which one share of Common Stock is
issuable upon the conversion or exchange or exercise thereof" shall be
equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and
upon the conversion or exchange or exercise of such Convertible
Security less any consideration paid or payable by the Company with
respect to such one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion or exchange or exercise
of such Convertible Security. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such shares of Common
Stock upon conversion or exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment
of the Conversion Price has been or is to be made pursuant to other
provisions of this Section 7(a), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or
exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or
exercisable for shares of Common Stock increases or decreases at any
time, the Conversion Price in effect at the time of such increase or
decrease shall be adjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case
may be, at the time initially granted, issued or sold. For purposes of
this Section 7(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the Subscription Date are
increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the
shares of Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of
such increase or decrease. No adjustment pursuant to this Section 7(a)
shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction (x) the
Options will be deemed to have been issued for the Option Value of
such Options and (y) the other securities issued or sold in such
integrated transaction shall be deemed to have been issued or sold for
the difference of (I) the aggregate consideration received by the
15
Company less any consideration paid or payable by the Company pursuant
to the terms of such other securities of the Company, less (II) the
Option Value. If any shares of Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration other than cash received therefor will be
deemed to be the net amount received by the Company therefor. If any
shares of Common Stock, Options or Convertible Securities are issued
or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration received
by the Company will be the Closing Sale Price of such publicly traded
securities on the date of receipt of such securities. If any shares of
Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is attributable
to such shares of Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash
or publicly traded securities will be determined jointly by the
Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event
requiring valuation (the "Valuation Event"), the fair value of such
consideration will be determined within five (5) Business Days after
the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required
Holders. The determination of such appraiser shall be final and
binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of Common
Stock, Options or in Convertible Securities or (B) to subscribe for or
purchase shares of Common Stock, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(b) Adjustment of Conversion Price upon Subdivision or Combination of Commn
Stock. If the Company at any time on or after the Subscription Date subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided, that no
16
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 7.
(d) Voluntary Adjustment by Company. The Company may at any time during the
term of this Note reduce the then current Conversion Price to any amount and for
any period of time deemed appropriate by the Board of Directors of the Company.
(8) OPTIONAL REDEMPTION AT THE COMPANY'S ELECTION. The Company shall at any
time after the thirty-six (36) month anniversary of the Issuance Date have the
right, so long as there has been no Equity Conditions Failure during the period
beginning on the first day of the applicable Equity Conditions Measuring Period
prior to the applicable Company Optional Redemption Notice Date (as defined
below) through the Company Optional Redemption Date (as defined below), to
redeem all, but not less than all, of the Conversion Amount under this Note and
the Other Notes (the "Company Optional Redemption Amount") as designated in the
Company Optional Redemption Notice on the Company Optional Redemption Date (each
as defined below) (a "Company Optional Redemption"), provided, that the
aggregate Conversion Amount under this Note and the Other Notes being redeemed
pursuant to this Section 8 (and analogous provisions under the Other Notes)
shall be at least $500,000, or such lesser amount that is then outstanding under
this Note and the Other Notes. This Note and the Other Notes subject to
redemption pursuant to this Section 8 shall be redeemed by the Company on the
Company Optional Redemption Date at the Company Optional Redemption Price in
cash by wire transfer of immediately available funds pursuant to wire
instructions provided by the Holder in writing to the Company. The Company may
exercise its right to require redemption under this Section 8 by delivering a
written notice thereof at least forty-five (45) days prior to the Company
Optional Redemption Date by facsimile or electronic mail, and overnight courier
to the Holder and all, but not less than all, of the holders of the Other Notes
(the "Company Optional Redemption Notice" and the date all of the holders of the
Notes received such notice is referred to as the "Company Optional Redemption
Notice Date"). The Company Optional Redemption Notice shall be irrevocable. The
Company Optional Redemption Notice shall (i) state the date on which the Company
Optional Redemption shall occur (the "Company Optional Redemption Date"), which
date shall not be less than forty-five (45) days nor more than sixty (60) days
following the Company Optional Redemption Notice Date, (ii) state the aggregate
Conversion Amount of the Notes which the Company has elected to be subject to
Company Optional Redemption from the Holder and all of the holders of the Other
Notes pursuant to this Section 8 (and analogous provisions under the Other
Notes) on the Company Optional Redemption Date and (iii) certify that there has
been no Equity Conditions Failure during the period beginning on the first day
of the applicable Equity Conditions Measuring Period prior to the applicable
Company Optional Redemption Date through the applicable Company Optional
Redemption Notice Date. If the Company confirmed that there was no such Equity
Conditions Failure but an Equity Conditions Failure occurs between the
applicable Company Optional Redemption Notice Date and any time through the
applicable Company Optional Redemption Date (the "Company Optional Redemption
Interim Period"), the Company shall provide the Holder a subsequent notice to
that effect. If there is an Equity Conditions Failure (which is not waived in
writing by the Holder) during such Company Optional Redemption Interim Period,
then the Company Optional Redemption shall be null and void with respect to all
or any part designated by the Holder of the unconverted Company Optional
Redemption Amount and the Holder shall be entitled to all the rights of a holder
of this Note with respect to such amount of the Company Optional Redemption
Amount. Notwithstanding anything to the contrary in this Section 8, until the
17
Company Optional Redemption Price is paid, in full, the Company Optional
Redemption Amount may be converted, in whole or in part, by the Holder into
Common Stock pursuant to Section 3(c)(i). Company Optional Redemptions made
pursuant to this Section 8 shall be made in accordance with Section 12. To the
extent redemptions required by this Section 8 are deemed or determined by a
court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. All Conversion
Amounts converted by the Holder after the Company Optional Redemption Notice
Date shall reduce the Company Optional Redemption Amount of this Note required
to be redeemed on the Company Optional Redemption Date, unless the Holder
otherwise indicates in the applicable Conversion Notice. The parties hereto
agree that in the event of the Company's redemption of any portion of the Note
under this Section 8, the Holder's damages would be uncertain and difficult to
estimate because of the parties' inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 8 is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder's actual loss of its investment opportunity and not as a
penalty. If the Company elects to cause a Company Optional Redemption pursuant
to Section 8, then it must simultaneously take the same action in the same
proportion with respect to the Other Notes.
(9) OFFER TO REPURCHASE. If, at any time while this Note is outstanding,
the Company or any Subsidiary effects an Asset Sale, the Company shall deliver a
written notice thereof within two (2) Business Days prior to the occurrence of
such Asset Sale by confirmed facsimile or electronic mail, and overnight courier
to all, but not less than all, of the holders of the Notes (the "Offer to
Repurchase Notice") and offer to repurchase a portion of this Note in cash equal
to the Holder Repurchase Amount at the Offer to Repurchase Price (an "Offer to
Repurchase"). At any time after the receipt by the Holder of an Offer to
Repurchase Notice, the Holder may require the Company or its Subsidiary, as
applicable, to redeem at the Offer to Repurchase Price, up to a Conversion
Amount of this Note equal to the Holder Repurchase Amount by delivering written
notice thereof (the "Acceptance Notice") to the Company, which Acceptance Notice
shall indicate the Conversion Amount of the Note the Holder is electing to
redeem and the date chosen by the Holder on which the Offer to Repurchase shall
occur (the "Offer to Repurchase Date"). Each Offer to Repurchase Notice shall
(i) describe the Asset Sale, including, without limitation a certification by
the Company's or such Subsidiary's, as the case may be, Chief Financial Officer
demonstrating the calculation of the aggregate Available Proceeds received by
the Company or such Subsidiary in connection with such Asset Sale and (ii) state
the Offer to Repurchase Price to be paid to the Holder on such date. The Company
shall publicly disclose (as part of an Annual Report on Form 10-K, a Quarterly
Report on Form 10-Q or on a Current Report on Form 8-K or otherwise), that (i)
an Asset Sale has occurred and that, pursuant to the terms of the Notes, the
Holder may require the Company or such Subsidiary, as applicable, to redeem at
the Offer to Repurchase Price the applicable portion of the Notes with any
Available Proceeds received therefrom and (ii) the amount of Available Proceeds
received from such Asset Sale. In the event that the Company or such Subsidiary
shall subsequently determine after the Offer to Repurchase Date that the actual
Available Proceeds received exceeded the amount set forth in the applicable
Offer to Repurchase Notice, the Company or such Subsidiary, as applicable, shall
promptly make an additional Offer to Repurchase of the Notes in an amount equal
to such excess, and the Company or such Subsidiary, as applicable, shall
concurrently therewith (i) deliver to each holder of Notes a certificate of the
Chief Financial Officer demonstrating the derivation of such excess and (ii)
publicly disclose (as part of a Current Report on Form 8-K, or otherwise) the
making of such additional Offer to Repurchase, including, without limitation,
18
the additional amount that may be repurchased. If the Holder or one or more
holders of Other Notes does not elect to require the Company or its Subsidiary,
as applicable, to redeem its Note with its full Holder Repurchase Amount, the
Company or the applicable Subsidiary shall promptly make additional Offers to
Repurchase for this Note and the Other Notes that previously elected to require
the Company or applicable Subsidiary to redeem its Note or Other Note for its
full Holder Repurchase Amount. Such additional Offers to Repurchase shall be
repeated pursuant to the terms of this Section 9 until all Available Proceeds
have been used to redeem this Note and the Other Notes or the Holder and all
holders of Other Notes have failed to elect to have their Notes redeemed for
their maximum amount hereunder. On the Offer to Repurchase Date the Company
shall deliver or shall cause to be delivered to the Holder the Offer to
Repurchase Price in cash by wire transfer of immediately available funds
pursuant to wire instructions provided by the Holder in writing to the Company.
Offers to Repurchase made pursuant to this Section 9 shall be made in accordance
with Section 12. To the extent redemptions required by this Section 9 are deemed
or determined by a court of competent jurisdiction to be prepayments of the Note
by the Company, such redemptions shall be deemed to be voluntary prepayments.
All Conversion Amounts converted by the Holder after the Offer to Repurchase
Notice Date shall reduce the Holder Repurchase Amount of this Note required to
be redeemed on the Offer to Repurchase Date, unless the Holder otherwise
indicates in the applicable Conversion Notice. The parties hereto agree that in
the event of the Company's redemption of any portion of the Note under this
Section 9, the Holder's damages would be uncertain and difficult to estimate
because of the parties' inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment opportunity
for the Holder.
(10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.
(11) RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. The Company shall initially reserve out of its authorized
and unissued shares of Common Stock a number of shares of Common Stock for each
of this Note and the Other Notes equal to 130% of the Conversion Rate with
respect to the Conversion Amount of each such Note as of the Issuance Date. So
long as any of this Note and the Other Notes are outstanding, the Company shall
take all action necessary to reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the conversion of
this Note and the Other Notes, the number of shares of Common Stock specified
above in this Section 11(a) as shall from time to time be necessary to effect
the conversion of all of the Notes then outstanding; provided, that at no time
shall the number of shares of Common Stock so reserved be less than the number
of shares required to be reserved pursuant hereto (in each case, without regard
to any limitations on conversions) (the "Required Reserve Amount"). The initial
number of shares of Common Stock reserved for conversions of this Note and the
Other Notes and each increase in the number of shares so reserved shall be
19
allocated pro rata among the Holder and the holders of the Other Notes based on
the principal amount of this Note and the Other Notes held by each holder at the
Closing (as defined in the Securities Purchase Agreement) or increase in the
number of reserved shares, as the case may be (the "Authorized Share
Allocation"). In the event that a holder shall sell or otherwise transfer this
Note or any of such holder's Other Notes, each transferee shall be allocated a
pro rata portion of such holder's Authorized Share Allocation. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any Notes
shall be allocated to the Holder and the remaining holders of Other Notes, pro
rata based on the principal amount of this Note and the Other Notes then held by
such holders.
(b) Insufficient Authorized Shares. If at any time while any of the Notes
remain outstanding the Company does not have a sufficient number of authorized
and unreserved Common Stock to satisfy its obligation to reserve for issuance
upon conversion of the Notes at least a number of shares of Common Stock equal
to the Required Reserve Amount (an "Authorized Share Failure"), then the Company
shall immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Notes then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than sixty
(60) days after the occurrence of such Authorized Share Failure, the Company
shall either (x) obtain the written consent of the its shareholders for the
approval of an increase in the number of authorized shares of Common Stock and
provide each shareholder with an information statement with respect thereto or
(y) hold a meeting of its shareholders for the approval of an increase in the
number of authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each shareholder with a proxy statement and shall use
its best efforts to solicit its shareholders' approval of such increase in
authorized shares of Common Stock and to cause its Board of Directors to
recommend to the shareholders that they approve such proposal.
(12) REDEMPTIONS.
(a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder within five (5) Business Days after the Company's
receipt of the Holder's Event of Default Redemption Notice, provided that if the
Holder has submitted an Event of Default Redemption Notice with respect to the
Event of Default described in Section 4(a)(xviii), the Company shall deliver the
applicable Event of Default Redemption Price to the Holder (i) concurrently with
the consummation of such Change of Control if such notice is received prior to
the consummation of such Change of Control and (ii) within five (5) Business
Days after the Company's receipt of such notice otherwise (the "Event of Default
Redemption Date"). The Company shall deliver the applicable Offer to Repurchase
Price on the applicable Offer to Repurchase Date. The Company shall deliver the
applicable Company Optional Redemption Price on the applicable Company Optional
Redemption Date. The Company shall pay the applicable Redemption Price to the
Holder in cash by wire transfer of immediately available funds on the applicable
due date. In the event of a redemption of less than all of the Conversion Amount
of this Note, the Company shall promptly cause to be issued and delivered to the
20
Holder a new Note (in accordance with Section 18(d)) representing the
outstanding Principal which has not been redeemed and any accrued Interest on
such Principal which shall be calculated as if no Redemption Notice has been
delivered. In the event that the Company does not pay the applicable Redemption
Price to the Holder within the time period required, at any time thereafter and
until the Company pays such unpaid Redemption Price in full, the Holder shall
have the option, in lieu of redemption, to require the Company to promptly
return to the Holder all or any portion of this Note representing the Conversion
Amount that was submitted for redemption and for which the applicable Redemption
Price (together with any Late Charges thereon) has not been paid. Upon the
Company's receipt of such notice, (x) the applicable Redemption Notice shall be
null and void with respect to such Conversion Amount, (y) the Company shall
immediately return this Note, or issue a new Note (in accordance with Section
18(d)) to the Holder representing such Conversion Amount to be redeemed and (z)
the Conversion Price of this Note or such new Notes shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the
applicable Redemption Notice is voided and (B) the lowest Closing Bid Price of
the Common Stock during the period beginning on and including the date on which
the applicable Redemption Notice is delivered to the Company and ending on and
including the date on which the applicable Redemption Notice is voided. The
Holder's delivery of a notice voiding a Redemption Notice and exercise of its
rights following such notice shall not affect the Company's obligations to make
any payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such notice.
(b) Redemption by Other Holders. Upon the Company's receipt of notice from
any of the holders of the Other Notes for redemption or repayment as a result of
an event or occurrence substantially similar to the events or occurrences
described in Section 4(b), Section 8 or Section 9 or pursuant to equivalent
provisions set forth in the Other Notes (each, an "Other Redemption Notice"),
the Company shall immediately, but no later than one (1) Business Day of its
receipt thereof, forward to the Holder by facsimile or electronic mail a copy of
such notice. If the Company receives a Redemption Notice and one or more Other
Redemption Notices, during the seven (7) Business Day period beginning on and
including the date which is three (3) Business Days prior to the Company's
receipt of the Holder's Redemption Notice and ending on and including the date
which is three (3) Business Days after the Company's receipt of the Holder's
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other Redemption
Notices received during such seven (7) Business Day period, then the Company
shall redeem a pro rata amount from the Holder and each holder of the Other
Notes based on the principal amount of this Note and the Other Notes submitted
for redemption pursuant to such Redemption Notice and such Other Redemption
Notices received by the Company during such seven (7) Business Day period.
(c) Insufficient Assets. If upon a Redemption Date, the assets of the
Company are insufficient to pay the applicable Redemption Price, the Company
shall (i) take all appropriate action reasonably within its means to maximize
the assets available for paying the applicable Redemption Price, (ii) redeem out
of all such assets available therefor on the applicable Redemption Date the
maximum possible Conversion Amount that it can redeem on such date, pro rata
among the holders of this Note and the Other Notes to be redeemed in proportion
to the aggregate principal amount of this Note and the Other Notes outstanding
on the applicable Redemption Date and (iii) following the applicable Redemption
21
Date, at any time and from time to time when additional assets of the Company
become available to redeem the remaining principal amount of this Note and the
Other Notes, the Company shall use such assets, at the end of the then current
fiscal quarter, to redeem the balance of such principal amount of this Note and
the Other Notes, or such portion thereof for which assets are then available, on
the basis set forth above at the applicable Redemption Price, and such assets
will not be used prior to the end of such fiscal quarter for any other purpose.
Interest on the principal amount of this Note and the Other Notes that have not
been redeemed shall continue to accrue until such time as the Company redeems
this Note and the Other Notes. The Company shall pay to the Holder the
applicable Redemption Price without regard to the legal availability of funds
unless expressly prohibited by applicable law or unless the payment of the
applicable Redemption Price could reasonably be expected to result in personal
liability to the directors of the Company.
(13) VOTING RIGHTS. The Holder shall have no voting rights as the holder of
this Note, except as required by law and as expressly provided in this Note.
(14) SECURITY. This Note and the Other Notes are secured to the extent and
in the manner set forth in the Security Documents.
(15) COVENANTS.
(a) Rank. All payments due under this Note (a) shall rank pari passu with
all Other Notes and (b) shall be senior to all other Indebtedness of the Company
and its Subsidiaries.
(b) Incurrence of Indebtedness. So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, except that the Company and any of its Subsidiaries other than [ ]
may incur or guarantee, assume or suffer to exist (x) Indebtedness evidenced by
this Note and the Other Notes and (y) trade payables incurred in the ordinary
course of business consistent with past practice.
(c) Existence of Liens. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "Liens") other than Permitted Liens.
(d) Restricted Payments. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, redeem, defease, repurchase, repay or make any payments in
respect of, by the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private transactions or
otherwise), all or any portion of any Indebtedness (other than this Note and the
Other Notes), whether by way of payment in respect of principal of (or premium,
if any) or interest on, such Indebtedness if at the time such payment is due or
is otherwise made or, after giving effect to such payment, an event
22
constituting, or that with the passage of time and without being cured would
constitute, an Event of Default has occurred and is continuing.
(e) Restriction on Redemption and Cash Dividends. Until this Note and all
of the Other Notes have been converted, redeemed or otherwise satisfied in
accordance with their terms, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem or repurchase
its Equity Interest, or permit any Subsidiary to redeem or repurchase its Equity
Interests (except on a pro rata basis among all holders thereof) or declare or
pay any cash dividend or distribution on any Equity Interest of the Company or
of its Subsidiaries without in each case the prior express written consent of
the Required Holders.
(f) Change in Nature of Business. So long as this Note is outstanding, the
Company shall not make, or permit any of its Subsidiaries to make, any change in
the nature of its business as described in the Company's most recent Annual
Report filed on Form 10-K with the SEC. The Company shall not modify its
corporate structure or purpose.
(g) Intellectual Property. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries, directly or
indirectly, to encumber or allow any Liens on, any of its copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of the Company and its Subsidiaries
connected with and symbolized thereby, know-how, operating manuals, trade secret
rights, rights to unpatented inventions, and any claims for damage by way of any
past, present, or future infringement of any of the foregoing, other than
Permitted Liens.
(h) Preservation of Existence, Etc. So long as this Note is outstanding,
the Company shall maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, its existence, rights and privileges, and become or
remain, and cause each of its Subsidiaries to become or remain, duly qualified
and in good standing in each jurisdiction in which the character of the
properties owned or leased by it or in which the transaction of its business
makes such qualification necessary.
(i) Maintenance of Properties, Etc. So long as this Note is outstanding,
the Company shall maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, all of its properties which are necessary or useful in
the proper conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply, and cause each of its Subsidiaries to
comply, at all times with the provisions of all leases to which it is a party as
lessee or under which it occupies property, so as to prevent any loss or
forfeiture thereof or thereunder.
23
(j) Maintenance of Insurance. So long as this Note is outstanding, the
Company shall maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or associations
(including, without limitation, comprehensive general liability, hazard, rent
and business interruption insurance) with respect to its properties (including
all real properties leased or owned by it) and business, in such amounts and
covering such risks as is required by any governmental authority having
jurisdiction with respect thereto or as is carried generally in accordance with
sound business practice by companies in similar businesses similarly situated.
(k) Transactions with Affiliates. So long as this Note is outstanding, the
Company shall not, nor shall it permit any of its Subsidiaries to, enter into,
renew, extend or be a party to, any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease, transfer
or exchange of property or assets of any kind or the rendering of services of
any kind) with any Affiliate, except in the ordinary course of business in a
manner and to an extent consistent with past practice and necessary or desirable
for the prudent operation of its business, for fair consideration and on terms
no less favorable to it or its Subsidiaries than would be obtainable in a
comparable arm's length transaction with a Person that is not an Affiliate
thereof.
(l) Material Sale of Assets. So long as this Note is outstanding, the
Company shall not, nor shall it permit any of its Subsidiaries to make any
Dispositon of its business, property or assets, whether now owned or hereafter
acquired (or agree to do any of the foregoing) if (i) such Disposition alone or
in the aggregate exceed $[ ] per fiscal year or (ii) such Disposition, whether
in one transaction or a series of related transactions, exceed $[ ], provided,
however, the Company and its Subsidiaries may (A) sell inventory in the ordinary
course of business, (B) license, on a non-exclusive basis, patents, trademarks,
copyrights, and other intellectual property rights in the ordinary course of
business, (C) lease or sublease assets in the ordinary course of business, (D)
dispose of obsolete or worn-out equipment in the ordinary course of business,
and (E) sell or otherwise dispose of other property or assets for cash in an
aggregate amount not less than the fair market value of such property or assets,
provided that the net cash proceeds of such Dispositions in the case of clauses
(D) and (E) above, do not exceed $[ ] in the aggregate in any fiscal year of the
Company; provided, further, that any transaction described in clauses (A)
through (E) above that constitutes a Disposition of any real estate assets of
the Company or any of its Subsidiaries securing the Notes pursuant to the
Security Documents shall be deemed an "Asset Sale" hereunder and any proceeds,
net of any bona fide fees incurred with respect thereto, generated therefrom
shall be deemed "Available Proceeds" hereunder and be subject to the Company's
requirement to effect an Offer to Repurchase pursuant to Section 9.
(m) Management and Consulting Fees. So long as this Note is outstanding,
the Company shall not, nor shall it permit any of its Subsidiaries to, pay any
management, consulting, monitoring or advisory fees or any other fees or
expenses (including the reimbursement thereof by the Company or any of its
Subsidiaries) pursuant to any management, consulting, monitoring, advisory or
other services agreement to any of the directors, officers, management,
shareholders or other equityholders of the Company or any of its Subsidiaries or
other Affiliates, or to any other Subsidiaries or Affiliates of the Company. In
addition, the Company shall not, in the aggregate for any given calendar year,
pay the five (5) most highly compensated employees of the Company for such year,
compensation for services rendered to the Company that exceeds [ ]% of the
aggregate
24
compensation paid in the immediately preceding calendar year to the five (5)
most highly compensated employees of the Company in such preceding calendar year
for services rendered to the Company.
(n) Leverage Ratio. So long as this Note is outstanding, the Company shall
not permit the Leverage Ratio of the Company and its Subsidiaries for any period
of twelve (12) consecutive fiscal months of the Company and its Subsidiaries for
which the last month ends on the last day of any fiscal quarter of the Company
and its Subsidiaries to be greater than [ ] to [ ].
(o) Interest Coverage Ratio. So long as the Note is outstanding, the
Company shall not permit the Interest Coverage Ratio of [ ] for any period of
twelve (12) consecutive fiscal months of the Company and its Subsidiaries for
which the last month ends on the last day of any fiscal quarter of the Company
and its Subsidiaries to be less than 1.50 to 1.00.
(16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting
of the Required Holders shall be required for any change or amendment or waiver
of any provision to this Note or any of the Other. Any change, amendment or
waiver by the Company and the Required Holders shall be binding on the Holder
and all holders of the Other Notes; provided that any such change, amendment or
waiver with respect to the Interest, Principal amount or Maturity Date that
complies with the foregoing but that disproportionately, materially and
adversely affects the rights and obligations of any holder relative to the
comparable rights and obligations of the other holders shall require the prior
written consent of such holder.
(17) TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Section 2(f) of the Securities Purchase Agreement.
(18) REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Note (in accordance with Section 18(d)),
registered as the Holder may request, representing the outstanding Principal
being transferred by the Holder and, if less than the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 18(d)) to
the Holder representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) following conversion or
redemption of any portion of this Note, the outstanding Principal represented by
this Note may be less than the Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or
25
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 18(d)) representing the outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is
exchangeable upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 18(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 18(a) or Section 18(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges, if any, on the Principal and Interest of this Note,
from the Issuance Date.
(19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not
26
limited to, attorneys' fees and disbursements.
(21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the initial purchasers of the Notes pursuant to
the Securities Purchase Agreement (the "Purchasers") and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.
(22) 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 privilege.
(23) DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate, the Conversion Price or
any Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile or electronic mail within one (1) Business
Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice
or other event giving rise to such dispute, as the case may be, to the Holder.
If the Holder and the Company are unable to agree upon such determination or
calculation within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within one Business Day submit via facsimile or electronic mail (a) the disputed
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price to an independent, reputable investment bank selected by the
Holder and approved by the Company, such approval not to be unreasonably
withheld or delayed, or (b) the disputed arithmetic calculation of the
Conversion Rate, Conversion Price or any Redemption Price to an independent,
outside accountant, selected by the Holder and approved by the Company, such
approval not to be unreasonably withheld or delayed. The Company, at the
Company's expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five (5) Business Days from
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.
(24) NOTICES; PAYMENTS.
(a) Notices. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company shall
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case
27
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
(b) Payments. Except as otherwise provided in this Note, whenever any
payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier
service to such Person at such address as previously provided to the Company in
writing (which address, in the case of each of the Purchasers, shall initially
be as set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement); provided, that the Holder may elect to receive a payment of cash via
wire transfer of immediately available funds by providing the Company with prior
written notice setting out such request and the Holder's wire transfer
instructions. 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. Any amount of Principal or
other amounts due under the Transaction Documents which is not paid when due
shall result in a late charge being incurred and payable by the Company in an
amount equal to interest on such amount at the rate of fifteen percent (15.0%)
per annum from the date such amount was due until the same is paid in full
("Late Charge").
(25) CANCELLATION. After all Principal, accrued Interest and other amounts
at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
(26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.
(27) GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed
and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. The Company hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address it set forth
on the signature page hereto and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Nothing contained herein shall be deemed or operate to
preclude the Holder from bringing suit or taking other legal action against the
Company in any other jurisdiction to
28
collect on the Company's obligations to the Holder, to realize on any collateral
or any other security for such obligations, or to enforce a judgment or other
court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR
ANY TRANSACTION CONTEMPLATED HEREBY.
(28) SEVERABILITY. If any provision of this Note is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Note
so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof
and the prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s).
(29) DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
(30) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
"control" of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
(b) "Allowable Grace Period" shall have the meaning ascribed to such term
in the Registration Rights Agreement.
29
(c) "Asset Sale" means any Disposition of any real estate assets
of the Company or any of its Subsidiaries securing this Note and the Other Notes
pursuant to the Security Documents.
(d) "Attribution Parties" means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company's Common
Stock would or could be aggregated with the Holder's and the other Attribution
Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the
purpose of the foregoing is to subject collectively the Holder and all other
Attribution Parties to the Maximum Percentage.
(e) "Available Proceeds" means, with respect to any Asset Sale, one hundred
percent (100%) of the cash proceeds generated by any Asset Sale net of any bona
fide fees incurred with respect thereto.
(f) "Bloomberg" means Bloomberg Financial Markets.
(g) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(h) "Change of Control" means any Fundamental Transaction other than (i)
any reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, are, in all material respect, the
holders of the voting power of the surviving entity (or entities with the
authority or voting power to elect the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities) after
such reorganization, recapitalization or reclassification or (ii) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.
(i) "Closing Bid Price" and "Closing Sale Price" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
30
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the OTC Link or "pink sheets"
by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 23. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction during the
applicable calculation period.
(j) "Company Optional Redemption Price" means the sum of (i)(x) during the
period after to the thirty-six (36) month anniversary of the Issuance Date but
prior to the sixty (60) month anniversary of the Issuance Date, inclusive, 103%
of the Conversion Amount being redeemed and (y) thereafter, 100% of the
Conversion Amount being redeemed and (ii) accrued and unpaid Interest, if any,
with respect to the amount set forth in clause (i), and (iii) accrued and unpaid
Late Charges, if any, with respect to the amounts set forth in clauses (i) and
(ii).
(k) "Consolidated Cash Interest Expense" means, with respect to any Person
for any period, (a) gross interest expense of such Person and its Subsidiaries
for such period determined on a consolidated basis and in accordance with GAAP
(including, without limitation, interest expense paid to Affiliates of such
Person), less (b) the sum of, in each case to the extent included in clause (a)
above, (i) the amortized amount of debt discount and debt issuance costs, (ii)
charges relating to write-ups or write-downs in the book or carrying value of
existing Consolidated Funded Indebtedness, (c) interest payable in evidences of
Indebtedness or by addition to the principal of the related Indebtedness and (d)
other non-cash interest.
(l) "Consolidated EBITDA" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Subsidiaries for such period,
plus (i) without duplication, the sum of the following amounts of such Person
and its Subsidiaries for such period and to the extent deducted in determining
Consolidated Net Income of such Person for such period: (A) Consolidated Net
Interest Expense, (B) income tax expense, (C) depreciation expense, and (D)
amortization expense.
(m) "Consolidated Funded Indebtedness" means, with respect to any Person at
any date, all Indebtedness of such Person, determined on a consolidated basis in
accordance with GAAP, which by its terms matures more than one year after the
date of calculation, and any such Indebtedness maturing within one year from
such date which is renewable or extendable at the option of such Person to a
date more than one year from such date.
(n) "Consolidated Net Income" means, with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its
Subsidiaries for such period; provided, however, that the following shall be
excluded: (a) the net income of any other Person in which such Person or
31
one of its Subsidiaries has a joint interest with a third-party (which interest
does not cause the net income of such other Person to be consolidated into the
net income of such Person), except to the extent of the amount of dividends or
distributions paid to such Person or Subsidiary, (b) the net income of any
Subsidiary of such Person that is, on the last day of such period, subject to
any restriction or limitation on the payment of dividends or the making of other
distributions, to the extent of such restriction or limitation, and (c) the net
income of any other Person arising prior to such other Person becoming a
Subsidiary of such Person or merging or consolidating into such Person or its
Subsidiaries.
(o) "Consolidated Net Interest Expense" means, with respect to any Person
for any period, (a) gross interest expense of such Person and its Subsidiaries
for such period determined on a consolidated basis and in accordance with GAAP
(including, without limitation, interest expense paid to Affiliates of such
Person), less (b) the sum of (i) interest income for such period and (ii) gains
for such period on Hedging Agreements (to the extent not included in interest
income above and to the extent not deducted in the calculation of gross interest
expense), plus (c) the sum of (i) losses for such period on Hedging Agreements
(to the extent not included in gross interest expense) and (ii) the upfront
costs or fees for such period associated with Hedging Agreements (to the extent
not included in gross interest expense), in each case, determined on a
consolidated basis and in accordance with GAAP.
(p) "Contingent Obligation" means, 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.
(q) "Conversion Shares" means shares of Common Stock issuable by the
Company pursuant to the terms of any of this Note and the Other Notes,
including, without limitation, the shares of Common Stock issuable by the
Company upon conversion of the Notes pursuant to Section 3 (and analogous
provisions under the Other Notes).
(r) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.
(s) "Disposition" means any transaction, or series of related transactions,
pursuant to which any Person or any of its Subsidiaries sells, assigns,
transfers, leases, licenses (as licensor) or otherwise disposes of any property
or assets (whether now owned or hereafter acquired) to any other Person, in each
case, whether or not the consideration therefor consists of cash, securities or
other assets owned by the acquiring Person.
(t) "Eligible Market" means the Principal Market, The New York Stock
Exchange, The NASDAQ Global Market, The NASDAQ Capital Market, The NASDAQ Global
Select Market or the NYSE MKT.
32
(u) "Equity Conditions" means each of the following conditions: (i) on each
day during the Equity Conditions Measuring Period, either (x) all Registration
Statements filed and required to be filed pursuant to the Registration Rights
Agreement shall be effective and available for the resale of all remaining
Registrable Securities, including the shares of Common Stock issuable upon
conversion of the Conversion Amount that is subject to the applicable Company
Optional Redemption requiring the satisfaction of the Equity Conditions, in
accordance with the terms of the Registration Rights Agreement and there shall
not have been any Allowable Grace Periods or (y) all Conversion Shares issuable
pursuant to the terms of this Note and the Other Notes and exercise of the
Warrants, including the shares of Common Stock issuable upon conversion of the
Conversion Amount that is subject to the applicable Company Optional Redemption
requiring the satisfaction of the Equity Conditions, shall be eligible for sale
without restriction pursuant to Rule 144 and without the need for registration
under any applicable federal or state securities laws; (ii) on each day during
the Equity Conditions Measuring Period, the Common Stock is designated for
quotation on the Principal Market or any other Eligible Market and shall not
have been suspended from trading on such exchange or market (other than
suspensions of not more than two (2) days and occurring prior to the applicable
date of determination due to business announcements by the Company) nor shall
delisting or suspension by such exchange or market been threatened, commenced or
pending either (A) in writing by such exchange or market or (B) by falling below
the then effective minimum listing maintenance requirements of such exchange or
market; (iii) on each day during the Equity Conditions Measuring Period, the
Company shall have delivered Conversion Shares pursuant to the terms of this
Note and the Other Notes and Warrant Shares upon exercise of the Warrants to the
holders on a timely basis as set forth in Section 3(c) hereof (and analogous
provisions under the Other Notes) and Section 1(a) of the Warrants; (iv) the
shares of Common Stock issuable upon conversion of the Conversion Amount that is
subject to the applicable Company Optional Redemption requiring the satisfaction
of the Equity Conditions may be issued in full without violating Section 3(d)
hereof and the rules or regulations of the Principal Market or any other
applicable Eligible Market, (v) on each day during the Equity Conditions
Measuring Period, the Company shall not have failed to timely make any payments
within five (5) Business Days of when such payment is due pursuant to any
Transaction Document; (vi) on each day during the Equity Conditions Measuring
Period, there shall not have occurred either (A) the public announcement of a
pending, proposed or intended Fundamental Transaction which has not been
abandoned, terminated or consummated, (B) an Event of Default or (C) an event
that with the passage of time or giving of notice would constitute an Event of
Default; (vii) the Company shall have no knowledge of any fact that would cause
(x) the Registration Statements required pursuant to the Registration Rights
Agreement not to be effective and available for the resale of all remaining
Registrable Securities, including the shares of Common Stock issuable upon
conversion of the Conversion Amount that is subject to the applicable Company
Optional Redemption requiring the satisfaction of the Equity Conditions, in
accordance with the terms of the Registration Rights Agreement or (y) any shares
of Common Stock issuable pursuant to the terms of this Note and the Other Notes
and shares of Common Stock issuable upon exercise of the Warrants, including the
shares of Common Stock issuable upon conversion of the Conversion Amount that is
subject to the applicable Company Optional Redemption requiring the satisfaction
of the Equity Conditions, not to be eligible for sale without restriction
pursuant to Rule 144 and without the requirement to be in compliance with Rule
33
144(c)(1) promulgated under the Securities Act and any applicable state
securities laws; (viii) on each day during the Equity Conditions Measuring
Period, the Company otherwise shall have been in compliance with, and shall not
have breached, any provision, covenant, representation or warranty of any
Transaction Document; and (ix) no Holder shall be in possession of any material,
nonpublic information received from the Company, any Subsidiary or its
respective agent or affiliates.
(v) "Equity Conditions Failure" means that on any day during the period
commencing ten (10) Trading Days prior to the applicable date of determination
through the applicable date of determination, the Equity Conditions have not
each been satisfied (or waived in writing by the Holder).
(w) "Equity Conditions Measuring Period" means each day during the period
beginning ninety (90) days prior to the applicable date of determination and
ending on and including the applicable date of determination.
(x) "Equity Interests" means (a) all shares of capital stock (whether
denominated as common capital stock or preferred capital stock), equity
interests, beneficial, partnership or membership interests, joint venture
interests, participations or other ownership or profit interests in or
equivalents (regardless of how designated) of or in a Person (other than an
individual), whether voting or non-voting and (b) all securities convertible
into or exchangeable for any of the foregoing and all warrants, options or other
rights to purchase, subscribe for or otherwise acquire any of the foregoing,
whether or not presently convertible, exchangeable or exercisable.
(y) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(z) "Excluded Securities" means any Common Stock issued or issuable: (i)
pursuant to the terms of the Notes issued on the Issuance Date or upon the
exercise of the Warrants; provided that the terms of such Notes or Warrants are
not amended, modified or changed on or after the Subscription Date; and (ii)
upon conversion or exercise of any Options or Convertible Securities which are
outstanding on the day immediately preceding the Subscription Date, provided
that the terms of such Options or Convertible Securities are not amended,
modified or changed on or after the Subscription Date.
(aa) "Fundamental Transaction" means (i) that the Company shall, directly
or indirectly, including through subsidiaries, Affiliates or otherwise, in one
or more related transactions, (a) consolidate or merge with or into (whether or
not the Company is the surviving corporation) another Subject Entity, or (b)
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company or any of its "significant
subsidiaries" (as defined in Rule 1-02 of Regulation S-X) to one or more Subject
Entities, or (c) make, or allow one or more Subject Entities to make, or allow
the Company to be subject to or have its Common Stock be subject to or party to
one or more Subject Entities making, a purchase, tender or exchange offer that
is accepted by the holders of at least either (1) 50% of the outstanding shares
of Common Stock, (2) 50% of the outstanding shares of Common Stock calculated as
if any shares of Common Stock held by all Subject Entities making or party to,
34
or Affiliated with any Subject Entities making or party to, such purchase,
tender or exchange offer were not outstanding; or (3) such number of shares of
Common Stock such that all Subject Entities making or party to, or Affiliated
with any Subject Entity making or party to, such purchase, tender or exchange
offer, become collectively the beneficial owners (as defined in Rule 13d-3 under
the Exchange Act) of at least 50% of the outstanding shares of Common Stock, or
(d) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with one or more Subject Entities whereby such Subject
Entities, individually or in the aggregate, acquire, either (1) at least 50% of
the outstanding shares of Common Stock, (2) at least 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all
the Subject Entities making or party to, or Affiliated with any Subject Entity
making or party to, such stock purchase agreement or other business combination
were not outstanding; or (3) such number of shares of Common Stock such that the
Subject Entities become collectively the beneficial owners (as defined in Rule
13d-3 under the Exchange Act) of at least 50% of the outstanding shares of
Common Stock, or (e) reorganize, recapitalize or reclassify its Common Stock,
(ii) that the Company shall, directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions,
allow any Subject Entity individually or the Subject Entities in the aggregate
to be or become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, whether through acquisition, purchase,
assignment, conveyance, tender, tender offer, exchange, reduction in outstanding
shares of Common Stock, merger, consolidation, business combination,
reorganization, recapitalization, spin-off, scheme of arrangement,
reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (a) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock, (b) at least 50% of the
aggregate ordinary voting power represented by issued and outstanding Common
Stock not held by all such Subject Entities as of the date of this Note
calculated as if any shares of Common Stock held by all such Subject Entities
were not outstanding, or (c) a percentage of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock or other equity
securities of the Company sufficient to allow such Subject Entities to effect a
statutory short form merger or other transaction requiring other shareholders of
the Company to surrender their shares of Common Stock without approval of the
shareholders of the Company or (iii) directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions, the
issuance of or the entering into any other instrument or transaction structured
in a manner to circumvent, or that circumvents, the intent of this definition in
which case this definition shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this definition to the
extent necessary to correct this definition or any portion of this definition
which may be defective or inconsistent with the intended treatment of such
instrument or transaction.
(bb) "GAAP" means United States generally accepted accounting principles,
consistently applied.
(cc) "Group" means a "group" as that term is used in Section 13(d) of the
Exchange Act and as defined in Rule 13d-5 thereunder.
(dd) "Hedging Agreement" means any interest rate, foreign currency,
commodity or equity swap, collar, cap, floor or forward rate agreement, or other
agreement or arrangement designed to protect against fluctuations in interest
rates or currency, commodity or equity values (including, without limitation,
any option with respect to any of the foregoing and any
35
combination of the foregoing agreements or arrangements), and any confirmation
executed in connection with any such agreement or arrangement.
(ee) "Holder Pro Rata Amount" means a fraction (i) the numerator of which
is the Principal amount of this Note on the Issuance Date and (ii) the
denominator of which is the sum of (i) the aggregate principal amount of this
Note issued to the Holder on the Issuance Date and (ii) the aggregate principal
amount of the Other Notes issued on the date of issuance of such Other Notes.
(ff) "Holder Repurchase Amount" means the Holder Pro Rata Amount of the
Available Proceeds relating to the applicable Asset Sale.
(gg) "Indebtedness" of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) "capital leases" in accordance with GAAP (other than trade
payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above.
(hh) "Interest Coverage Ratio" means, with respect to any Person for any
period, the ratio of (a) Consolidated EBITDA of such Person for such period to
(b) Consolidated Cash Interest Expense of such Person for such period.
(ii) "Interest Increase Event" means any of an Event of Default, a Public
Information Failure or a Registration Failure.
(jj) "Interest Rate" means 12.0% per annum, which Interest Rate shall be
increased from the then existing Interest Rate on the occurrence of each or any
of the following events: (i) by three percent (3.0%) from and after the
occurrence and during the continuance of an Event of Default and (ii) by one
percent (1.0%) from and after the occurrence and during the continuance of a
Public Information Failure or Registration Failure, subject to adjustment as set
forth in Section 2.
36
(kk) "Leverage Ratio" means, with respect to any Person and its
Subsidiaries for any period, the ratio of (a) Consolidated Funded Indebtedness
of such Person and its Subsidiaries as of the end of such period to (b)
Consolidated EBITDA of such Person and its Subsidiaries for such period.
(ll) "Make-Whole Amount" means the amount equal to any Interest, if any,
that, but for the applicable event resulting in the reduction of the Principal
amount outstanding under this Note, would have accrued with respect to the
Principal amount being redeemed or repurchased under this Note at the Interest
Rate (assuming the Interest Rate then in effect as of the applicable related
event resulting in the reduction of the Principal amount outstanding under this
Note is the Interest Rate through the Make-Whole End Date) for the period from
the date of the applicable related event resulting in the reduction of the
Principal amount outstanding under this Note through the Make-Whole End Date.
(mm) "Make-Whole End Date" means the date that is the three (3) year
anniversary of the applicable event resulting in the reduction of the Principal
amount outstanding under this Note triggering the Company's obligation to pay a
Make-Whole Amount or, if such date occurs after the Maturity Date, the Maturity
Date.
(nn) "Offer to Repurchase Price" means the sum of (i)(x) during the period
prior to the thirty-six (36) month anniversary of the Issuance Date, inclusive,
the sum of (A) the Principal amount being redeemed and (B) the Make-Whole
Amount, (y) during the period after to the thirty-six (36) month anniversary of
the Issuance Date but prior to the sixty (60) month anniversary of the Issuance
Date, inclusive, 103% of the Principal amount being redeemed and (z) thereafter,
100% of the Principal amount being redeemed and (ii) accrued and unpaid
Interest, if any, with respect to the amount set forth in clause (i), and (iii)
accrued and unpaid Late Charges, if any, with respect to the amounts set forth
in clauses (i) and (ii).
(oo) "Options" means any rights, warrants or options to subscribe for or
purchase (i) shares of Common Stock or (ii) Convertible Securities.
(pp) "Option Value" means the value of an Option based on the Black and
Scholes Option Pricing model obtained from the "OV" function on Bloomberg
determined as of (A) the Trading Day prior to the public announcement of the
applicable Option if the issuance of such Option is publicly announced or (B)
the Trading Day immediately following the issuance of the applicable Option if
the issuance of such Option is not publicly announced, for pricing purposes and
reflecting (i) a risk-free interest rate corresponding to the U.S. treasury rate
for a period equal to the remaining term of the applicable Option as of the
applicable date of determination, (ii) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the day immediately following the public announcement of (A) the
Trading Day immediately following the public announcement of the applicable
Option if the issuance of such Option is publicly announced or (B) the Trading
Day immediately following the issuance of the applicable Option if the issuance
of such Option is not publicly announced, (iii) the underlying price per share
used in such calculation shall be the highest Weighted Average Price during the
period beginning on the day prior to the execution of definitive documentation
relating to the issuance of the applicable Option and the public announcement of
37
such issuance, (iv) a zero cost of borrow and (v) a 360 day annualization
factor.
(qq) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person, including such entity whose common
capital stock or equivalent equity security is quoted or listed on an Eligible
Market (or, if so elected by the Required Holders, any other market, exchange or
quotation system), or, if there is more than one such Person or entity, the
Person or Parent Entity designated by the Required Holders or in the absence of
such designation, such Person or entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.
(rr) "Permitted Liens" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (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, (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment
acquired or held by the Company or any of its Subsidiaries to secure the
purchase price of such equipment or Indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, or (B) existing on such
equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of
such equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in clause
(iv) above, provided that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal amount
of the Indebtedness being extended, renewed or refinanced does not increase,
(vi) leases or subleases and licenses and sublicenses granted to others in the
ordinary course of the Company's business, not interfering in any material
respect with the business of the Company and its Subsidiaries taken as a whole,
(vii) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payments of custom duties in connection with the importation of
goods, and (viii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 4(a)(ix).
(ss) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(tt) "Principal Market" means the OTC Bulletin Board.
(uu) "Public Information Failure" means the Company's failure for any
reason to satisfy the current public information requirement under Rule 144(c)
at any time during the period commencing from the six (6) month anniversary of
the Closing and ending at such time that all of the Securities (as defined in
the Securities Purchase Agreement) can be sold either pursuant to a registration
statement, or if a registration statement is not available for the resale of all
of the Securities, may be sold without the requirement for the Company to be in
38
compliance with Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144.
(vv) "Redemption Date" means an Event of Default Redemption Date, an Offer
to Repurchase Date and/or Company Optional Redemption Date.
(ww) "Redemption Notices" means, collectively, the Event of Default
Redemption Notices, the Company Optional Redemption Notices and the Offer to
Repurchase Notices, each of the foregoing, individually, a Redemption Notice.
(xx) "Redemption Prices" means, collectively, the Event of Default
Redemption Price, the Offer to Repurchase Price and the Company Optional
Redemption Price, each of the foregoing, individually, a Redemption Price.
(yy) "Registrable Securities" shall have the meaning ascribed to such term
in the Registration Rights Agreement.
(zz) "Registration Failure" means if (i) the Registration Statement
covering all the Registrable Securities required to be covered thereby and
required to be filed by the Company pursuant to the Registration Rights
Agreement is (A) not filed with the SEC on or before the respective Filing
Deadline (as defined in the Registration Rights Agreement) or (B) not declared
effective by the SEC on or before the respective Effectiveness Deadline (as
defined in the Registration Rights Agreement) or (ii) on any day after the
respective Effective Date (as defined in the Registration Rights Agreement)
sales of all of the Registrable Securities required to be included on such
Registration Statement cannot be made (other than during an Allowable Grace
Period pursuant to such Registration Statement or otherwise (including, without
limitation, because of the suspension of trading or any other limitation imposed
by an Eligible Market, a failure to keep such Registration Statement effective,
a failure to disclose such information as is necessary for sales to be made
pursuant to such Registration Statement or a failure to register a sufficient
number of shares of Common Stock or to maintain the listing of the Common
Stock)).
(aaa) "Registration Rights Agreement" means that certain registration
rights agreement dated as of the Subscription Date by and among the Company and
the initial holders of the Notes relating to, among other things, the
registration of the resale of the shares of Common Stock issuable upon
conversion of this Note and the Other Notes and exercise of the Warrants.
(bbb) "Registration Statement" shall have the meaning ascribed to such term
in the Registration Rights Agreement.
(ccc) "Related Fund" means, with respect to any Person, a fund or account
managed by such Person or an Affiliate of such Person.
(ddd) "Required Holders" means the holders of Notes representing at least a
majority of the aggregate principal amount of the Notes then outstanding.
(eee) "Rule 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto.
39
(fff) "SEC" means the United States Securities and Exchange Commission.
(ggg) "Securities Act" means the Securities Act of 1933, as amended.
(hhh) "Securities Purchase Agreement" means that certain securities
purchase agreement dated as of the Subscription Date by and among the Company
and the initial holders of the Notes pursuant to which the Company issued the
Notes and Warrants.
(iii) "Security Documents" shall have the meaning ascribed to such term in
the Registration Rights Agreement.
(jjj) "Subject Entity" means any Person, Persons or Group or any Affiliate
or associate of any such Person, Persons or Group.
(kkk) "Subscription Date" means January [ ], 2014.
(lll) "Successor Entity" means one or more Person or Persons (or, if so
elected by the Holder, the Company or Parent Entity) formed by, resulting from
or surviving any Fundamental Transaction or one or more Person or Persons (or,
if so elected by the Holder, the Company or the Parent Entity) with which such
Fundamental Transaction shall have been entered into.
(mmm) "Trading Day" means any day on which the Common Stock is traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).
(nnn) "Warrants" has the meaning ascribed to such term in the Securities
Purchase Agreement, and shall include all warrants issued in exchange therefor
or replacement thereof.
(ooo) "Warrant Shares" means shares of Common Stock issuable by the Company
upon the exercise of any of the Warrants.
(ppp) "Weighted Average Price" means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its "Volume at Price" functions, or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
40
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC
Markets Inc.). If the Weighted Average Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Weighted Average Price
of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction during the applicable calculation
period.
[Signature Page Follows]
41
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the Issuance Date set out above.
ADVANCED CANNABIS SOLUTIONS, INC.
By:
----------------------------------
Name:
Title:
42
44
EXHIBIT I
ADVANCED CANNABIS SOLUTIONS, INC.
CONVERSION NOTICE
Reference is made to the Senior Secured Convertible Note (the "Note") issued to
the undersigned by Advanced Cannabis Solutions, Inc., a Colorado corporation
(the "Company"). In accordance with and pursuant to the Note, the undersigned
hereby elects to convert the Conversion Amount (as defined in the Note) of the
Note indicated below into shares of Common Stock, no par value (the "Common
Stock") of the Company, as of the date specified below.
Date of Conversion:
-------------------------------------------------------
Aggregate Conversion Amount to be converted:
------------------------------
Please confirm the following information:
Conversion Price:
-------------------------------------------------------
Number of shares of Common Stock to be issued:
---------------------------
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Facsimile Number
and E-mail:
-------------------------------------------------------
Authorization:
----------------------------------------------------------
By:
------------------------------------------------------------
Title:
--------------------------------------------------------
Dated:
----------------------------------------------------------------------
Account Number:
---------------------------------------------------------
(if electronic book entry transfer)
Transaction Code Number:
------------------------------------------------
(if electronic book entry transfer)
43
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
Corporate Stock Transfer, Inc.to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated January
__, 2014 from the Company and acknowledged and agreed to by Corporate Stock
Transfer, Inc.
ADVANCED CANNABIS SOLUTIONS, INC.
By:
----------------------------------
Name:
Title:
44
EX-10
6
guarantyjan-14.txt
EXH. 10.5 - GUARANTY
EXHIBIT 10.5
GUARANTY
GUARANTY, dated as of January [__], 2014 made by each of the
undersigned (each a "Guarantor", and collectively, the "Guarantors"), in favor
of the "Buyers" (as defined below) party to the Securities Purchase Agreement
referenced below.
W I T N E S S E T H :
WHEREAS, Advanced Cannabis Solutions, Inc., a Colorado corporation
(the "Company"), and each party listed as a "Buyer" on the Schedule of Buyers
attached to the Securities Purchase Agreement (each a "Buyer", and collectively,
the "Buyers") are parties to that certain Securities Purchase Agreement, dated
as of January [__], 2014 (the "Securities Purchase Agreement") pursuant to
which, among other things, the Buyers shall purchase from the Company certain
senior secured convertible "Notes" (as defined in the Securities Purchase
Agreement) (collectively, the "Notes");
WHEREAS, the Buyers have requested, and the Guarantors have agreed,
that the Guarantors shall execute and deliver to the Buyers, a guaranty
guaranteeing all of the obligations of the Company under the Securities Purchase
Agreement, the Notes and the other "Transaction Documents" (as defined in the
Securities Purchase Agreement, the "Transaction Documents");
WHEREAS, pursuant to a Pledge and Security Agreement, dated as of
the date hereof (the "Security Agreement"), the Company and the Guarantors have
granted to Full Circle Capital Corporation, as collateral agent for the Buyers
(in such capacity, the "Collateral Agent"), a security interest in and lien on
their assets to secure their respective obligations under this Guaranty, the
Securities Purchase Agreement, the Notes and the other Transaction Documents;
and
WHEREAS, each Guarantor has determined that the execution, delivery
and performance of this Guaranty directly benefits, and is in the best interest
of, such Guarantor;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and for other consideration, the sufficiency of which is hereby
acknowledged, each Guarantor hereby agrees with each Buyer as follows:
SECTION 1. Definitions. Reference is hereby made to the Securities Purchase
Agreement and the Notes for a statement of the terms thereof. All terms used in
this Guaranty, which are defined in the Securities Purchase Agreement or the
Notes and not otherwise defined herein, shall have the same meanings herein as
set forth therein.
SECTION 2. Guaranty. The Guarantors, jointly and severally, hereby
unconditionally and irrevocably, guaranty (a) the punctual payment, as and when
due and payable, by stated maturity or otherwise, of all obligations and any
other amounts now or hereafter owing by the Company in respect of the Securities
Purchase Agreement, the Notes and the other Transaction Documents, including,
without limitation, all interest that accrues after the commencement of any
proceeding commenced by or against any the Company or any Guarantor 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
1
other similar relief (an "Insolvency Proceeding"), whether or not the payment of
such interest is unenforceable or is not allowable due to the existence of such
Insolvency Proceeding, and all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under any of the
Transaction Documents, and any and all expenses (including reasonable counsel
fees and expenses) reasonably incurred by the Buyers or the Collateral Agent in
enforcing any rights under this Guaranty (such obligations, to the extent not
paid by the Company, being the "Guaranteed Obligations") and (b) the punctual
and faithful performance, keeping, observance and fulfillment by the Company of
all of the agreements, conditions, covenants and obligations of the Company
contained in the Securities Purchase Agreement, the Notes and the other
Transaction Documents. Without limiting the generality of the foregoing, each
Guarantor's liability hereunder shall extend to all amounts that constitute part
of the Guaranteed Obligations and would be owed by the Company to the Buyers
under the Securities Purchase Agreement and the Notes but for the fact that they
are unenforceable or not allowable due to the existence of an Insolvency
Proceeding involving any Guarantor or the Company (each, a "Transaction Party").
SECTION 3. Guaranty Absolute; Continuing Guaranty; Assignments.
(a) The Guarantors, jointly and severally, guaranty that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the
Transaction Documents, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Buyers with respect thereto. The obligations of each Guarantor
under this Guaranty are independent of the Guaranteed Obligations, and a
separate action or actions may be brought and prosecuted against any Guarantor
to enforce such obligations, irrespective of whether any action is brought
against any Transaction Party or whether any Transaction Party is joined in any
such action or actions. The liability of any Guarantor under this Guaranty shall
be irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives, to the extent permitted by law, any defenses it may
now or hereafter have in any way relating to, any or all of the following:
(i) any lack of validity or enforceability of any Transaction Document or
any agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations, or any other amendment or
waiver of or any consent to departure from any Transaction Document, including,
without limitation, any increase in the Guaranteed Obligations resulting from
the extension of additional credit to any Transaction Party or otherwise;
(iii) any taking, exchange, release or non-perfection of any collateral
with respect to the Guaranteed Obligations, or any taking, release or amendment
or waiver of or consent to departure from any other guaranty, for all or any of
the Guaranteed Obligations; or
(iv) any change, restructuring or termination of the corporate, limited
liability company or partnership structure or existence of any Transaction
Party.
2
This Guaranty shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by any Buyer or any other Person upon
the insolvency, bankruptcy or reorganization of any Transaction Party or
otherwise, all as though such payment had not been made.
(b) This Guaranty is a continuing guaranty and shall (i) remain in full
force and effect until the complete conversion of all of the Company's
obligations under the Notes to equity securities of the Company and/or
indefeasible payment in full in cash of all obligations under the Notes
(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 payment of all other amounts payable under this
Guaranty (excluding any inchoate or unmatured contingent indemnification
obligations) and (ii) be binding upon each Guarantor and its respective
successors and assigns. This Guaranty shall inure to the benefit of and be
enforceable by the Buyers and their respective successors, and permitted
pledgees, transferees and assigns. Without limiting the generality of the
foregoing sentence, any Buyer may pledge, assign or otherwise transfer all or
any portion of its rights and obligations under and subject to the terms of any
Transaction Document to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such Buyer
herein or otherwise, in each case as provided in the Securities Purchase
Agreement or such Transaction Document. Notwithstanding the foregoing and for
the avoidance of doubt, this Guaranty will expire and each Guarantor will be
released from its obligation hereunder upon the complete conversion of all of
the Company's obligations under the Notes to equity securities of the Company
and/or indefeasible payment in full in cash of all obligations under the Notes
(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 payment of all other amounts payable under this
Guaranty (excluding any inchoate or unmatured contingent indemnification
obligations).
SECTION 4. Waivers. To the extent permitted by applicable law, each
Guarantor hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Guaranteed Obligations and this Guaranty
and any requirement that the Buyers or the Collateral Agent exhaust any right or
take any action against any Transaction Party or any other Person or any
Collateral (as defined in the Security Agreement). Each Guarantor acknowledges
that it will receive direct and indirect benefits from the financing
arrangements contemplated herein and that the waiver set forth in this Section 4
is knowingly made in contemplation of such benefits. The Guarantors hereby waive
any right to revoke this Guaranty, and acknowledge that this Guaranty is
continuing in nature and applies to all Guaranteed Obligations, whether existing
now or in the future.
SECTION 5. Subrogation. No Guarantor may exercise any rights that it may
now or hereafter acquire against any Transaction Party or any other guarantor
that arise from the existence, payment, performance or enforcement of any
Guarantor's obligations under this Guaranty, including, without limitation, any
right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the
Buyers or the Collateral Agent against any Transaction Party or any other
guarantor or any Collateral (as defined in the Security Agreement), whether or
3
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
Transaction Party or any other guarantor, 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 Notes to equity
securities of the Company and/or indefeasible payment in full in cash of all
obligations under the Notes (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 payment of all
other amounts payable under this Guaranty (excluding any inchoate or unmatured
contingent indemnification obligations). If any amount shall be paid to a
Guarantor in violation of the immediately preceding sentence at any time prior
to the later of the payment in full in cash of the Guaranteed Obligations and
all other amounts payable under this Guaranty, such amount shall be held in
trust for the benefit of the Buyers and shall forthwith be paid ratably to the
Buyers to be credited and applied to the Guaranteed Obligations and all other
amounts payable under this Guaranty, whether matured or unmatured, in accordance
with the terms of the Transaction Document, or to be held as collateral for any
Guaranteed Obligations or other amounts payable under this Guaranty thereafter
arising. If (a) any Guarantor shall make payment to the Buyers of all or any
part of the Guaranteed Obligations, and (b) the Buyers receive the complete
conversion of all of the Company's obligations under the Notes to equity
securities of the Company and/or indefeasible payment in full in cash of all
obligations under the Notes (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 payment of all
other amounts payable under this Guaranty (excluding any inchoate or unmatured
contingent indemnification obligations), the Buyers will, at such Guarantor's
request and expense, execute and deliver to such Guarantor appropriate
documents, without recourse and without representation or warranty, necessary to
evidence the transfer by subrogation to such Guarantor of an interest in the
Guaranteed Obligations resulting from such payment by such Guarantor.
SECTION 6. Representations, Warranties and Covenants.
(a) Each Guarantor hereby represents and warrants as of the date first
written above as follows:
(i) Each Guarantor (A) is a corporation, limited liability company or
limited partnership duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization as set forth on the signature
pages hereto, (B) has all requisite corporate, limited liability company or
limited partnership power and authority to conduct its business as now conducted
and as presently contemplated and to execute and deliver this Guaranty and each
other Transaction Document to which the Guarantor is a party, and to consummate
the transactions contemplated hereby and thereby and (C) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary except where the failure to be so qualified
would not result in a Material Adverse Effect.
(ii) The execution, delivery and performance by each Guarantor of this
Guaranty and each other Transaction Document to which such Guarantor is a party
(A) have been duly authorized by all necessary corporate, limited liability
4
company or limited partnership action, (B) do not and will not contravene its
charter or by-laws, its limited liability company or operating agreement or its
certificate of partnership or partnership agreement, as applicable, or any
applicable law or any contractual restriction binding on the Guarantor or its
properties do not and will not result in or require the creation of any lien
(other than pursuant to any Transaction Document) upon or with respect to any of
its properties, and (C) do not and will not result in any default,
noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of
any material permit, license, authorization or approval applicable to it or its
operations or any of its properties.
(iii) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority is required in connection with the due
execution, delivery and performance by the Guarantor of this Guaranty or any of
the other Transaction Documents to which the Guarantor is a party (other than
expressly provided for in any of the Transaction Documents).
(iv) Each of this Guaranty and the other Transaction Documents to which the
Guarantor is or will be a party, when delivered, will be, a legal, valid and
binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, suretyship or
other similar laws and equitable principles (regardless of whether enforcement
is sought in equity or at law).
(v) There is no pending or, to the best knowledge of the Guarantor,
threatened action, suit or proceeding against the Guarantor or to which any of
the properties of the Guarantor is subject, before any court or other
governmental authority or any arbitrator that (A) if adversely determined, could
reasonably be expected to have a Material Adverse Effect or (B) relates to this
Guaranty or any of the other Transaction Documents to which the Guarantor is a
party or any transaction contemplated hereby or thereby.
(vi) The Guarantor (A) has read and understands the terms and conditions of
the Securities Purchase Agreement, the Notes and the other Transaction
Documents, and (B) now has and will continue to have independent means of
obtaining information concerning the affairs, financial condition and business
of the Company and the other Transaction Parties, and has no need of, or right
to obtain from the Collateral Agent or any Buyer, any credit or other
information concerning the affairs, financial condition or business of the
Company or the other Transaction Parties that may come under the control of the
Collateral Agent or any Buyer.
(b) The Guarantor covenants and agrees that until the complete conversion
of all of the Company's obligations under the Notes to equity securities of the
Company and/or indefeasible payment in full in cash of all obligations under the
Notes (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 payment of all other amounts payable
under this Guaranty (excluding any inchoate or unmatured contingent
indemnification obligations), it will comply with each of the covenants (except
to the extent applicable only to a public company) which are set forth in
Section 4 of the Securities Purchase Agreement as if the Guarantor were a party
thereto.
5
SECTION 7. Right of Set-off. Upon the occurrence and during the continuance
of any Event of Default, the Collateral Agent and any Buyer may, and is hereby
authorized to, at any time and from time to time, without notice to the
Guarantors (any such notice being expressly waived by each Guarantor) and to the
fullest extent permitted by law, set-off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by any Buyer to or for the credit or the account
of any Guarantor against any and all obligations of the Guarantors now or
hereafter existing under this Guaranty or any other Transaction Document,
irrespective of whether or not Collateral Agent or any Buyer shall have made any
demand under this Guaranty or any other Transaction Document and although such
obligations may be contingent or unmatured. Collateral Agent and each Buyer
agrees to notify the relevant Guarantor promptly after any such set-off and
application made by such Buyer, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Collateral Agent or any Buyer under this Section 7 are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which the Collateral Agent or such Buyer may have under this Guaranty or any
other Transaction Document in law or otherwise.
SECTION 8. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing and shall be mailed (by overnight mail or by
certified mail, postage prepaid and return receipt requested), telecopied or
delivered, if to any Guarantor, to the address for such Guarantor set forth on
the signature page hereto, or if to any Buyer, to it at its respective address
set forth in the Securities Purchase Agreement; or as to any 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 8. All such
notices and other communications shall be effective (i) if mailed (by certified
mail, postage prepaid and return receipt requested), when received or three
Business Days after deposited in the mails, whichever occurs first; (ii) if
telecopied, when transmitted and confirmation is received, provided same is on a
Business Day and, if not, on the next Business Day; or (iii) if delivered by
hand, upon delivery, provided same is on a Business Day and, if not, on the next
Business Day.
SECTION 9. CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER TRANSACTION
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF
NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GUARANTOR HEREBY
IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE JURISDICTION OF THE AFORESAID COURTS. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF THE BUYERS TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH GUARANTOR IN ANY
OTHER JURISDICTION. ANY GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
6
HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY GUARANTOR HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, EACH GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF
ITS OBLIGATIONS UNDER THIS GUARANTY AND THE OTHER TRANSACTION DOCUMENTS.
SECTION 10. WAIVER OF JURY TRIAL, ETC. EACH GUARANTOR HEREBY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING
ANY RIGHTS UNDER THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, OR UNDER ANY
AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR
WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR
ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION,
PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
EACH GUARANTOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY BUYER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY BUYER WOULD NOT, IN
THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE
FOREGOING WAIVERS. EACH GUARANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE BUYERS ENTERING INTO THE OTHER TRANSACTION
DOCUMENTS.
SECTION 11. Taxes.
(a) All payments made by any Guarantor hereunder or under any other
Transaction Document shall be made in accordance with the terms of the
respective Transaction Document and shall be made without set-off, counterclaim,
deduction or other defense. All such payments shall be made free and clear of
and without deduction for any present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on the net income of any Buyer by the jurisdiction in
which such Buyer is organized or where it has its principal lending office (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities, collectively or individually, "Taxes"). If any Guarantor shall be
required to deduct or to withhold any Taxes from or in respect of any amount
payable hereunder or under any other Transaction Document:
(i) the amount so payable shall be increased to the extent necessary so
that after making all required deductions and withholdings (including Taxes on
amounts payable to any Buyer pursuant to this sentence) each Buyer receives an
amount equal to the sum it would have received had no such deduction or
withholding been made,
(ii) such Guarantor shall make such deduction or withholding,
7
(iii) such Guarantor shall pay the full amount deducted or withheld to the
relevant taxation authority in accordance with applicable law, and
(iv) as promptly as possible thereafter, such Guarantor shall send the
Buyers an official receipt (or, if an official receipt is not available, such
other documentation as shall be satisfactory to the Buyers, as the case may be)
showing payment. In addition, each Guarantor agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the execution,
delivery, registration or enforcement of, or otherwise with respect to, this
Agreement or any other Transaction Document (collectively, "Other Taxes").
(b) Each Guarantor hereby indemnifies and agrees to hold the Collateral
Agent and each Buyer (each an "Indemnified Party") harmless from and against
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 11) paid by
any Indemnified Party as a result of any payment made hereunder or from the
execution, delivery, registration or enforcement of, or otherwise with respect
to, this Agreement or any other Transaction Document, and any liability
(including penalties, interest and expenses for nonpayment, late payment or
otherwise) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This indemnification shall be
paid within 30 days from the date on which such Buyer makes written demand
therefor, which demand shall identify the nature and amount of such Taxes or
Other Taxes.
(c) If any Guarantor fails to perform any of its obligations under this
Section 11, such Guarantor shall indemnify the Collateral Agent and each Buyer
for any taxes, interest or penalties that may become payable as a result of any
such failure. The obligations of the Guarantors under this Section 11 shall
survive the termination of this Guaranty and the payment of the Obligations and
all other amounts payable hereunder.
SECTION 12. Miscellaneous.
(a) Each Guarantor will make each payment hereunder in lawful money of the
United States of America and in immediately available funds to each Buyer, at
such address specified by such Buyer from time to time by notice to the
Guarantors.
(b) No amendment or waiver of any provision of this Guaranty and no consent
to any departure by any Guarantor therefrom shall in any event be effective
unless the same shall be in writing and signed by each Guarantor and each Buyer,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
(c) No failure on the part of the Collateral Agent or any Buyer to
exercise, and no delay in exercising, any right hereunder or under any other
Transaction Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder or under any Transaction Document
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Collateral Agent and the Buyers provided
herein and in the other Transaction Documents are cumulative and are in addition
to, and not exclusive of, any rights or remedies provided by law. The rights of
8
the Collateral Agent and the Buyers under any Transaction Document against any
party thereto are not conditional or contingent on any attempt by the Collateral
Agent or any Buyer to exercise any of their respective rights under any other
Transaction Document against such party or against any other Person.
(d) Any provision of this Guaranty 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 affecting the validity or enforceability of such provision in any
other jurisdiction.
(e) This Guaranty shall (i) be binding on each Guarantor and its respective
successors and assigns, and (ii) inure, together with all rights and remedies of
the Collateral Agent and the Buyers hereunder, to the benefit of the Collateral
Agent and the Buyers and their respective successors, transferees and assigns.
Without limiting the generality of clause (ii) of the immediately preceding
sentence, the Collateral Agent and any Buyer may assign or otherwise transfer
its rights and obligations under the Securities Purchase Agreement or any other
Transaction Document to any other Person in accordance with the terms thereof,
and such other Person shall thereupon become vested with all of the benefits in
respect thereof granted to the Collateral Agent or such Buyer, as the case may
be, herein or otherwise. None of the rights or obligations of any Guarantor
hereunder may be assigned or otherwise transferred without the prior written
consent of each Buyer.
(f) This Guaranty reflects the entire understanding of the transaction
contemplated hereby and shall not be contradicted or qualified by any other
agreement, oral or written, entered into before the date hereof.
(g) Section headings herein are included for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.
(h) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
THEREIN WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed
by its respective duly authorized officer, as of the date first above written.
[ACS ACQUISITION CO.], a [Colorado
corporation]
By:
---------------------------
Name:
Title:
Address for Notices:
-----------------------
-----------------------
Facsimile:_______________
[ADDITIONAL SUBSIDIARIES], a [_________]
By:
---------------------------
Name:
Title:
Address for Notices:
-----------------------
-----------------------
Facsimile:_______________
EX-10
7
pledgsecagreejan-14.txt
EXH. 10.6 - PLEDGE & SECURITY AGREE
EXHIBIT 10.6
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of January [__], 2014 (this
"Agreement"), made by Advanced Cannabis Solutions, Inc., a Colorado corporation
("Company"), and each of its existing "Subsidiaries" (as defined in the
Securities Purchase Agreement defined below) as named on the signature pages
hereto (collectively, the "Existing Subsidiaries") and each other Subsidiary of
the Company hereafter becoming party hereto (together with the Company and the
Existing Subsidiaries, each a "Grantor" and, collectively, the "Grantors"), in
favor of Full Circle Capital Corporation, in its capacity as collateral agent
(in such capacity, the "Collateral Agent") for the Buyers (as defined below)
party to the Securities Purchase Agreement, dated as of even date herewith (as
amended, restated or otherwise modified from time to time, the "Securities
Purchase Agreement").
W I T N E S S E T H:
WHEREAS, Company and each party listed as a "Buyer" on the Schedule of
Buyers (as such schedule may be amended, restated or otherwise modified from
time to time) attached thereto, each a "Buyer", and collectively, the "Buyers")
are parties to the Securities Purchase Agreement, pursuant to which the Company
shall be required to sell, and the Buyers shall purchase or have the right to
purchase, the "Notes" (as defined in the Securities Purchase Agreement);
WHEREAS, the Buyers and the Collateral Agent have required that the
Existing Subsidiaries execute a Guaranty and this Agreement;
WHEREAS, it is a condition precedent to the Buyers consummating the
transactions contemplated by the Securities Purchase Agreement that the Company
shall have executed and delivered to the Collateral Agent this Agreement
providing for the grant to the Collateral Agent for the benefit of the Buyers of
a security interest in all personal property of the Company to secure all of the
Company's obligations under the Securities Purchase Agreement and the "Notes"
(as defined therein) issued pursuant thereto (as such Notes may be amended,
restated, replaced or otherwise modified from time to time in accordance with
the terms thereof, collectively, the "Notes") and the other Transaction
Documents (as defined in the Securities Purchase Agreement);
WHEREAS, each of the Existing Subsidiaries is a wholly-owned Subsidiary of
the Company and will derive substantial benefits from the execution of the
Securities Purchase Agreement;
WHEREAS, each of the Existing Subsidiaries, the Company and each other
Grantor (i) are or will be mutually dependent on each other in the conduct of
their respective businesses as an integrated operation, with the credit needed
from time to time by one often being provided through financing obtained by the
other and the ability to obtain such financing being dependent on the successful
operations of each of the Existing Subsidiaries, the Company and each other
Grantor and (ii) will receive a mutual benefit from the proceeds received by the
Company in respect of the issuance of the Notes;
WHEREAS, it is a condition precedent to the Buyers consummating the
transaction contemplated by the Securities Purchase Agreement that each of the
Existing Subsidiaries shall have granted to the Collateral Agent for the benefit
of the Buyers a security interest in all personal property of each of the
Existing Subsidiaries to secure the Company's obligations under the Securities
Purchase Agreement and the Notes, and that each future Subsidiary of the Company
becomes a party to this Agreement; and
WHEREAS, each of the Existing Subsidiaries and each other Grantor has
determined that the execution, delivery and performance of this Agreement
directly benefits, and are in the best interest of the Company; and
NOW, THEREFORE, in consideration of the premises and the agreements herein
and in order to induce the Buyers to perform under the Securities Purchase
Agreement, each Grantor agrees with the Collateral Agent, for the benefit of the
Buyers, as follows:
SECTION 1. Definitions.
(a) Reference is hereby made to the Securities Purchase Agreement and the
Notes for a statement of the terms thereof. All terms used in this Agreement and
the recitals hereto which are defined in the Securities Purchase Agreement, the
Notes or in Articles 8 or 9 of the Uniform Commercial Code (the "Code") as in
effect from time to time in the State of New York, and which are not otherwise
defined herein shall have the same meanings herein as set forth therein;
provided that terms used herein which are defined in the Code as in effect in
the State of New York on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute except as the
Collateral Agent may otherwise determine.
(b) The following terms shall have the respective meanings provided for in
the Code: "Accounts", "Cash Proceeds", "Chattel Paper", "Commercial Tort Claim",
"Commodity Account", "Commodity Contracts", "Deposit Account", "Documents",
"Equipment", "Fixtures", "General Intangibles", "Goods", "Instruments",
"Inventory", "Investment Property", "Letter-of-Credit Rights", "Noncash
Proceeds", "Payment Intangibles", "Proceeds", "Promissory Notes", "Security",
"Record", "Security Account", "Software", and "Supporting Obligations".
(c) As used in this Agreement, the following terms shall have the
respective meanings indicated below, such meanings to be applicable equally to
both the singular and plural forms of such terms:
"Collateral" shall have the meaning set forth in Section 2 hereof.
"Copyright Licenses" means all licenses, contracts or other agreements,
whether written or oral, naming any Grantor as licensee or licensor and
providing for the grant of any right to use or sell any works covered by any
copyright (including, without limitation, all Copyright Licenses set forth in
Schedule II hereto).
"Copyrights" means all domestic and foreign copyrights, whether registered
or not, including, without limitation, all copyright rights throughout the
universe (whether now or hereafter arising) in any and all media (whether now or
2
hereafter developed), in and to all original works of authorship fixed in any
tangible medium of expression, acquired or used by any Grantor (including,
without limitation, all copyrights described in Schedule II hereto), all
applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.
"Event of Default" means (i) any defined event of default under any one or
more of the Transaction Documents, in each instance, after giving effect to any
notice, grace, or cure periods provided for in the applicable Transaction
Document, (ii) the failure by the Company to pay any amounts when due under the
Notes or any other Transaction Document, or (iii) the breach of any
representation, warranty or covenant by any Grantor under this Agreement.
"Existing Issuer" has the meaning specified therefor in the definition of
the term "Pledged Shares".
"Guaranty" means the Guaranty, dated as of the date hereof, by the Existing
Subsidiaries in favor of the Buyers and the Collateral Agent.
"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.
"Intellectual Property" means the Copyrights, Trademarks and Patents.
"Licenses" means the Copyright Licenses, the Trademark Licenses and the
Patent Licenses.
"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.
"Obligations" shall have the meaning set forth in Section 3 hereof.
"Patent Licenses" means all licenses, contracts or other agreements,
whether written or oral, naming any Grantor as licensee or licensor and
providing for the grant of any right to manufacture, use or sell any invention
covered by any Patent (including, without limitation, all Patent Licenses set
forth in Schedule II hereto).
"Patents" means all domestic and foreign letters patent, design patents,
utility patents, industrial designs, inventions, trade secrets, ideas, concepts,
methods, techniques, processes, proprietary information, technology, know-how,
formulae, rights of publicity and other general intangibles of like nature, of
3
any Grantor, now existing or hereafter acquired (including, without limitation,
all domestic and foreign letters patent, design patents, utility patents,
industrial designs, inventions, trade secrets, ideas, concepts, methods,
techniques, processes, proprietary information, technology, know-how and
formulae described in Schedule II hereto), all applications, registrations and
recordings thereof (including, without limitation, applications, registrations
and recordings in the United States Patent and Trademark Office, or in any
similar office or agency of the United States or any other country or any
political subdivision thereof), and all reissues, divisions, continuations,
continuations in part and extensions or renewals thereof.
"Permitted Liens" means (i) any Lien for taxes not yet due or delinquent or
being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any Lien created by
operation of law, such as materialmen's liens, mechanics' liens and other
similar liens, arising in the ordinary course of business with respect to a
liability that is not yet due or delinquent or that are being contested in good
faith by appropriate proceedings, (iii) Liens granted hereunder securing the
Obligations and (iv) leases or subleases and licenses and sublicenses granted to
others in the ordinary course of the Grantors' business, not interfering in any
material respect with the business of a Grantor.
"Pledged Debt" means the indebtedness described in Schedule VII hereto and
all indebtedness from time to time owned or acquired by a Grantor, the
promissory notes and other Instruments evidencing any or all of such
indebtedness, and all interest, cash, Instruments, Investment Property,
financial assets, securities, capital stock, other equity interests, stock
options and commodity contracts, notes, debentures, bonds, promissory notes or
other evidences of indebtedness and all other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such indebtedness.
"Pledged Interests" means, collectively, (a) the Pledged Debt, (b) the
Pledged Shares and (c) all security entitlements in any and all of the
foregoing.
"Pledged Issuer" has the meaning specified therefor in the definition of
the term "Pledged Shares".
"Pledged Shares" means (a) the shares of capital stock or other equity
interests described in Schedule VIII hereto, whether or not evidenced or
represented by any stock certificate, certificated security or other Instrument,
issued by the Persons described in such Schedule VIII (the "Existing Issuers"),
(b) the shares of capital stock or other equity interests at any time and from
time to time acquired by a Grantor of any and all Persons now or hereafter
existing (such Persons, together with the Existing Issuers, being hereinafter
referred to collectively as the "Pledged Issuers" and each individually as a
"Pledged Issuer"), whether or not evidenced or represented by any stock
certificate, certificated security or other Instrument, and (c) the certificates
representing such shares of capital stock, all options and other rights,
contractual or otherwise, in respect thereof and all dividends, distributions,
cash, Instruments, Investment Property, financial assets, securities, capital
stock, other equity interests, stock options and commodity contracts, notes,
debentures, bonds, promissory notes or other evidences of indebtedness and all
other property (including, without limitation, any stock dividend and any
distribution in connection with a stock split) from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such capital stock.
4
"Trademark Licenses" means all licenses, contracts or other agreements,
whether written or oral, naming any Grantor as licensor or licensee and
providing for the grant of any right concerning any Trademark, together with any
goodwill connected with and symbolized by any such trademark licenses, contracts
or agreements and the right to prepare for sale or lease and sell or lease any
and all Inventory now or hereafter owned by any Grantor and now or hereafter
covered by such licenses (including, without limitation, all Trademark Licenses
described in Schedule II hereto).
"Trademarks" means all domestic and foreign trademarks, service marks,
collective marks, certification marks, trade names, business names, d/b/a's,
Internet domain names, trade styles, designs, logos and other source or business
identifiers and all general intangibles of like nature, now or hereafter owned,
adopted, acquired or used by any Grantor (including, without limitation, all
domestic and foreign trademarks, service marks, collective marks, certification
marks, trade names, business names, d/b/a's, Internet domain names, trade
styles, designs, logos and other source or business identifiers described in
Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any state thereof or any other country or any political
subdivision thereof), and all reissues, extensions or renewals thereof, together
with all goodwill of the business symbolized by such marks and all customer
lists, formulae and other Records of any Grantor relating to the distribution of
products and services in connection with which any of such marks are used.
SECTION 2. Grant of Security Interest. As collateral security for all of
the Obligations, each Grantor hereby pledges and assigns to the Collateral Agent
for the benefit of the Buyers, and grants to the Collateral Agent for the
benefit of the Buyers a continuing security interest in, all personal property
of such Grantor, wherever located and whether now or hereafter existing and
whether now owned or hereafter acquired, of every kind and description, tangible
or intangible (collectively, the "Collateral"), including, without limitation,
the following:
(a) all Accounts;
(b) all Chattel Paper (whether tangible or electronic);
(c) the Commercial Tort Claims specified on Schedule VI hereto;
(d) all Deposit Accounts (including, without limitation, all cash,
and all other property from time to time deposited therein and
the monies and property in the possession or under the control of
the Collateral Agent or a Buyer or any affiliate, representative,
agent or correspondent of the Collateral Agent or a Buyer;
(e) all Documents;
(f) all Equipment;
(g) all Fixtures;
5
(h) all General Intangibles (including, without limitation, all
Payment Intangibles);
(i) all Goods;
(j) all Instruments (including, without limitation, Promissory Notes
and each certificated Security);
(k) all Inventory;
(l) all Investment Property;
(m) all Copyrights, Patents and Trademarks, and all Licenses;
(n) all Letter-of-Credit Rights;
(o) all Supporting Obligations;
(p) all Pledged Interests;
(q) all other tangible and intangible personal property of such
Grantor (whether or not subject to the Code), including, without
limitation, all bank and other accounts and all cash and all
investments therein, all proceeds, products, offspring,
accessions, rents, profits, income, benefits, substitutions and
replacements of and to any of the property of such Grantor
described in the preceding clauses of this Section 2 (including,
without limitation, any proceeds of insurance thereon and all
causes of action, claims and warranties now or hereafter held by
such Grantor in respect of any of the items listed above), and
all books, correspondence, files and other Records, including,
without limitation, all tapes, desks, cards, Software, data and
computer programs in the possession or under the control of such
Grantor or any other Person from time to time acting for such
Grantor that at any time evidence or contain information relating
to any of the property described in the preceding clauses of this
Section 2 or are otherwise necessary or helpful in the collection
or realization thereof; and
(r) all Proceeds, including all Cash Proceeds and Noncash Proceeds,
and products of any and all of the foregoing Collateral;
in each case howsoever such Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
SECTION 3. Security for Obligations. The security interest created hereby
in the Collateral constitutes continuing collateral security for all of the
following obligations, whether now existing or hereafter incurred (collectively,
the "Obligations"):
(a) the prompt payment by each Grantor, as and when due and payable (by
scheduled maturity, required prepayment, acceleration, demand or otherwise), of
all amounts from time to time owing by it in respect of the Securities Purchase
Agreement, the Notes, the Guaranty and the other Transaction Documents,
including, without limitation, (A) all principal of and interest on the Notes
6
(including, without limitation, all interest that accrues after the commencement
of any Insolvency Proceeding of any Grantor, whether or not the payment of such
interest is unenforceable or is not allowable due to the existence of such
Insolvency Proceeding), (B) all amounts from time to time owing by such Grantor
under the Guaranty, and (C) all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under any of the
Transaction Documents; and
(b) the due performance and observance by each Grantor of all of its other
obligations from time to time existing in respect of any of the Transaction
Documents for so long as the Notes are outstanding.
SECTION 4. Representations and Warranties. Each Grantor represents and
warrants as follows:
(a) Schedule I hereto sets forth (i) the exact legal name of such Grantor,
and (ii) the organizational identification number of such Grantor or states that
no such organizational identification number exists.
(b) 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 Collateral Agent of any of its rights or
remedies hereunder.
(c) 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").
(d) All Equipment, Fixtures, Goods and Inventory of such Grantor now
existing are, and all Equipment, Fixtures, Goods and Inventory of such Grantor
hereafter existing will be, located and/or based at the addresses specified
therefor in Schedule III hereto, except that such Grantor will give the
Collateral Agent not less than 30 days' prior written notice of any change of
the location of any such Collateral, other than to locations set forth on
Schedule III and with respect to which the Collateral Agent has filed financing
statements and otherwise fully perfected its Liens thereon. Such Grantor's chief
place of business and chief executive office, the place where such Grantor keeps
its Records concerning Accounts and all originals of all Chattel Paper are
located at the addresses specified therefor in Schedule III hereto. None of the
Accounts is evidenced by Promissory Notes or other Instruments. Set forth in
Schedule IV hereto is a complete and accurate list, as of the date of this
Agreement, of (i) each Promissory Note, Security and other Instrument owned by
each Grantor and (ii) each Deposit Account, Securities Account and Commodities
Account of each Grantor, together with the name and address of each institution
7
at which each such Account is maintained, the account number for each such
Account and a description of the purpose of each such Account. Set forth in
Schedule II hereto is a complete and correct list of each trade name used by
each Grantor and the name of, and each trade name used by, each person from
which such Grantor has acquired any substantial part of the Collateral.
(e) Such Grantor has delivered or made available to the Collateral Agent
complete and correct copies of each License described in Schedule II hereto,
including all schedules and exhibits thereto, which represents all of the
Licenses existing on the date of this Agreement. Each such License sets forth
the entire agreement and understanding of the parties thereto relating to the
subject matter thereof, and there are no other agreements, arrangements or
understandings, written or oral, relating to the matters covered thereby or the
rights of such Grantor or any of its affiliates in respect thereof. Each
material License now existing is, and any material License entered into in the
future will be, the legal, valid and binding obligation of the parties thereto,
enforceable against such parties in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, suretyship or other similar laws and equitable principles
(regardless of whether enforcement is sought in equity or in law). No default
under any material License by any such party has occurred, nor does any defense,
offset, deduction or counterclaim exist thereunder in favor of any such party.
(f) Such Grantor owns and controls, or otherwise possesses adequate rights
to use, all Trademarks, Patents and Copyrights, which are the only trademarks,
patents, copyrights, inventions, trade secrets, proprietary information and
technology, know-how, formulae, rights of publicity necessary to conduct its
business in substantially the same manner as conducted as of the date hereof.
Schedule II hereto sets forth a true and complete list of all registered
copyrights, issued patents, Trademarks (including, without limitation, any
Internet domain names and the registrar of each such Internet domain name), and
Licenses annually owned or used by such Grantor as of the date hereof. To the
best knowledge of each Grantor, all such Intellectual Property of such Grantor
is subsisting and in full force and effect, has not been adjudged invalid or
unenforceable, is valid and enforceable and has not been abandoned in whole or
in part. Except as set forth in Schedule II, no such Intellectual Property is
the subject of any licensing or franchising agreement. Such Grantor has no
knowledge of any conflict with the rights of others to any Intellectual Property
and, to the best knowledge of such Grantor, such Grantor is not now infringing
or in conflict with any such rights of others in any material respect, and to
the best knowledge of such Grantor, no other Person is now infringing or in
conflict in any material respect with any such properties, assets and rights
owned or used by such Grantor. Such Grantor has not received any notice that it
is violating or has violated the trademarks, patents, copyrights, inventions,
trade secrets, proprietary information and technology, know-how, formulae,
rights of publicity or other intellectual property rights of any third party.
(g) Such 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 (A)
such as may have been filed in favor of the Collateral Agent relating to this
Agreement, and (B) such as may have been filed to perfect any Permitted Liens.
8
(h) The exercise by the Collateral Agent 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.
(i) 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 Collateral Agent of any of its rights and remedies hereunder,
except (A) 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, (B) with
respect to the perfection of the security interest created hereby in the
Intellectual Property, for the recording of the appropriate Assignment for
Security, substantially in the form of Exhibit A hereto, as applicable, in the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, and (C) with respect to the perfection of the security interest
created hereby in foreign Intellectual Property and Licenses, for registrations
and filings in jurisdictions located outside of the United States and covering
rights in such jurisdictions relating to the Intellectual Property and Licenses.
(j) This Agreement creates in favor of the Collateral Agent a legal, valid
and enforceable security interest in the Collateral, as security for the
Obligations. The Collateral Agent's having possession of all Instruments and
cash constituting Collateral from time to time, the recording of the appropriate
Assignment for Security executed pursuant hereto in the United States Patent and
Trademark Office and the United States Copyright Office, as applicable, and the
filing of the financing statements and the other filings and recordings, as
applicable, described in Schedule V hereto and, with respect to the Intellectual
Property hereafter existing and not covered by an appropriate Assignment for
Security, the recording in the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, of appropriate instruments of
assignment, result in the perfection of such security interests. Such security
interests are, or in the case of Collateral in which such Grantor obtains rights
after the date hereof, will be, perfected, first priority security interests,
subject only to Permitted Liens and the recording of such instruments of
assignment. Such recordings and filings and all other action necessary or
desirable to perfect and protect such security interest have been duly taken,
except for the Collateral Agent's having possession of Instruments and cash
constituting Collateral after the date hereof and the other filings and
recordations described in Section 4(l) hereof.
(k) As of the date hereof, such Grantor does not hold any Commercial Tort
Claims nor is aware of any such pending claims, except for such claims described
in Schedule VI.
(l) Each of the Existing Subsidiaries is a wholly-owned Subsidiary of the
Company and are the only Subsidiaries of the Company, as of the date hereof.
9
SECTION 5. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding, unless the Collateral Agent shall
otherwise consent in writing:
(a) Further Assurances. Each 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 Collateral Agent may reasonably
request in order to: (i) perfect and protect the security interest purported to
be created hereby; (ii) enable the Collateral Agent 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)
marking conspicuously all Chattel Paper and each License and, at the request of
the Collateral Agent, each of its Records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Collateral Agent, indicating
that such Chattel Paper, License or Collateral is subject to the security
interest created hereby, (B) delivering and pledging to the Collateral Agent
hereunder each Promissory Note, Security, Chattel Paper or other Instrument, now
or hereafter owned by such Grantor, duly endorsed and accompanied by executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Collateral Agent, (C) 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 Collateral Agent may request in order to perfect and
preserve the security interest purported to be created hereby, (D) furnishing to
the Collateral Agent 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 Collateral Agent may reasonably request,
all in reasonable detail, (E) if any Collateral shall be in the possession of a
third party, notifying such Person of the Collateral Agent'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 Collateral
Agent, which such written acknowledgement shall be in form and substance
satisfactory to the Collateral Agent, (F) if at any time after the date hereof,
such Grantor acquires or holds any Commercial Tort Claim, promptly notifying the
Collateral Agent in a writing signed by such Grantor setting forth a brief
description of such Commercial Tort Claim and granting to the Collateral Agent a
security interest therein and in the proceeds thereof, which writing shall
incorporate the provisions hereof and shall be in form and substance
satisfactory to the Collateral Agent, (G) upon the acquisition after the date
hereof by such Grantor of any motor vehicle or other Equipment subject to a
certificate of title or ownership (other than a Motor Vehicle or Equipment that
is subject to a purchase money security interest), causing the Collateral Agent
to be listed as the lienholder on such certificate of title or ownership and
delivering evidence of the same to the Collateral Agent in accordance with the
Securities Purchase Agreement; and (H) taking all actions required by any
earlier versions of the Uniform Commercial Code or by other law, as applicable,
in any relevant Uniform Commercial Code jurisdiction, or by other law as
applicable in any foreign jurisdiction.
(b) Location of Equipment and Inventory. Each Grantor will keep the
Equipment and Inventory at the locations specified therefor in Section 4(g)
hereof or, upon not less than thirty (30) days' prior written notice to the
Collateral Agent accompanied by a new Schedule V hereto indicating each new
location of the Equipment and Inventory, at such other locations in the
United States.
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(c) Condition of Equipment. Each Grantor will maintain or cause the
Equipment (necessary or useful to its business) to be maintained and preserved
in good condition, repair and working order, ordinary wear and tear excepted,
and will forthwith, or in the case of any loss or damage to any Equipment of
such Grantor within a commercially reasonable time after the occurrence thereof,
make or cause to be made all repairs, replacements and other improvements in
connection therewith which are necessary or desirable, consistent with past
practice, or which the Collateral Agent may reasonably request to such end. Such
Grantor will promptly furnish to the Collateral Agent a statement describing in
reasonable detail any such loss or damage in excess of $25,000 to any Equipment.
(d) Taxes, Etc. Each 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
Equipment and 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.
(e) Insurance.
(i) Each Grantor will, at its own expense, maintain insurance
(including, without limitation, commercial general liability and property
insurance) with respect to the Equipment and 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 Collateral Agent. Each such policy for
liability insurance shall provide for all losses to be paid on behalf of
the Collateral Agent 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 Collateral Agent.
Each such policy shall in addition (A) name the Collateral Agent as an
additional insured party thereunder (without any representation or warranty
by or obligation upon the Collateral Agent) as their interests may appear,
(B) contain an agreement by the insurer that any loss thereunder shall be
payable to the Collateral Agent 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 Collateral Agent
for payment of premiums or other amounts with respect thereto, and (D)
provide that at least 30 days' prior written notice of cancellation, lapse,
expiration or other adverse change shall be given to the Collateral Agent
by the insurer. Such Grantor will, if so requested by the Collateral Agent,
deliver to the Collateral Agent original or duplicate policies of such
insurance and, as often as the Collateral Agent may reasonably request, a
report of a reputable insurance broker with respect to such insurance. Such
Grantor will also, at the request of the Collateral Agent, 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(e) may be paid directly to the Person
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who shall have incurred liability covered by such insurance. In the case of
any loss involving damage to Equipment or Inventory, any proceeds of
insurance maintained by a Grantor pursuant to this Section 5(e) shall be
paid to the Collateral Agent (except as to which paragraph (iii) of this
Section 5(e) is not applicable), such Grantor will make or cause to be made
the necessary repairs to or replacements of such Equipment or Inventory,
and any proceeds of insurance maintained by such Grantor pursuant to this
Section 5(e) shall be paid by the Collateral Agent to such Grantor as
reimbursement for the costs of such repairs or replacements.
(iii) All insurance payments in respect of such Equipment or Inventory
shall be paid to the Collateral Agent and applied as specified in Section
7(b) hereof.
(f) Provisions Concerning the Accounts and the Licenses.
(i) Each Grantor will (A) give the Collateral Agent at least 30 days'
prior written notice of any change in such Grantor's name, identity or
organizational structure, (B) maintain its jurisdiction of incorporation as
set forth in Section 4(b) hereto, (C) immediately notify the Collateral
Agent upon obtaining an organizational identification number, if on the
date hereof such Grantor did not have such identification number, and (D)
keep adequate records concerning the Accounts and Chattel Paper and permit
representatives of the Collateral Agent during normal business hours on
reasonable notice to such Grantor, to inspect and make abstracts from such
Records and Chattel Paper.
(ii) Each Grantor will, except as otherwise provided in this
subsection (f), continue to collect, at its own expense, all amounts due or
to become due under the Accounts. In connection with such collections, such
Grantor may (and, at the Collateral Agent's direction, will) take such
action as such Grantor or the Collateral Agent may deem necessary or
advisable to enforce collection or performance of the Accounts; provided,
however, that the Collateral Agent shall have the right at any time, upon
the occurrence and during the continuance of an Event of Default, to notify
the account debtors or obligors under any Accounts of the assignment of
such Accounts to the Collateral Agent and to direct such account debtors or
obligors to make payment of all amounts due or to become due to such
Grantor thereunder directly to the Collateral Agent or its designated agent
and, upon such notification and at the expense of such Grantor and to the
extent permitted by law, to enforce collection of any such Accounts and to
adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as such Grantor might have done. After
receipt by a Grantor of a notice from the Collateral Agent that the
Collateral Agent has notified, intends to notify, or has enforced or
intends to enforce a Grantor's rights against the account debtors or
obligors under any Accounts as referred to in the proviso to the
immediately preceding sentence, (A) all amounts and proceeds (including
Instruments) received by such Grantor in respect of the Accounts shall be
received in trust for the benefit of the Collateral Agent hereunder, shall
be segregated from other funds of such Grantor and shall be forthwith paid
over to the Collateral Agent in the same form as so received (with any
necessary endorsement) to be held as cash collateral and applied as
specified in Section 7(b) hereof, and (B) such Grantor will not adjust,
settle or compromise the amount or payment of any Account or release wholly
or partly any account debtor or obligor thereof or allow any credit or
discount thereon. In addition, upon the occurrence and during the
continuance of an Event of Default, the Collateral Agent may (in its sole
and absolute discretion) direct any or all of the banks and financial
institutions with which such Grantor either maintains a Deposit Account or
a lockbox or deposits the proceeds of any Accounts to send immediately to
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the Collateral Agent by wire transfer (to such account as the Collateral
Agent shall specify, or in such other manner as the Collateral Agent shall
direct) all or a portion of such securities, cash, investments and other
items held by such institution. Any such securities, cash, investments and
other items so received by the Collateral Agent shall (in the sole and
absolute discretion of the Collateral Agent) be held as additional
Collateral for the Obligations or distributed in accordance with Section 7
hereof.
(iii) Upon the occurrence and during the continuance of any breach or
default under any material License referred to in Schedule II hereto by any
party thereto other than a Grantor, the Grantor party thereto will,
promptly after obtaining knowledge thereof, give the Collateral Agent
written notice of the nature and duration thereof, specifying what action,
if any, it has taken and proposes to take with respect thereto and
thereafter will take reasonable steps to protect and preserve its rights
and remedies in respect of such breach or default, or will obtain or
acquire an appropriate substitute License.
(iv) Each Grantor will, at its expense, promptly deliver to the
Collateral Agent a copy of each notice or other communication received by
it by which any other party to any material License referred to in Schedule
II hereto purports to exercise any of its rights or affect any of its
obligations thereunder, together with a copy of any reply by such Grantor
thereto.
(v) Each Grantor will exercise promptly and diligently each and every
right which it may have under each material License (other than any right
of termination) and will duly perform and observe in all respects all of
its obligations under each material License and will take all action
reasonably necessary to maintain such Licenses in full force and effect. No
Grantor will, without the prior written consent of the Collateral Agent,
cancel, terminate, amend or otherwise modify in any respect, or waive any
provision of, any material License referred to in Schedule II hereto.
(g) 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
Collateral, except (A) Inventory in the ordinary course of business and (B)
worn-out or obsolete assets not necessary to the 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.
(h) Intellectual Property.
(i) If applicable, each Grantor shall, upon the Collateral Agent's
written request, duly execute and delivered the applicable Assignment for
Security in the form attached hereto as Exhibit A. Each Grantor (either
itself or through licensees) will, and will cause each licensee thereof to,
take all action necessary to maintain all of the Intellectual Property in
full force and effect, including, without limitation, using the proper
statutory notices and markings and using the Trademarks on each applicable
trademark class of goods in order to so maintain the Trademarks in full
force and free from any claim of abandonment for non-use, and such Grantor
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will not (nor permit any licensee thereof to) do any act or knowingly omit
to do any act whereby any Intellectual Property may become invalidated;
provided, however, that so long as no Event of Default has occurred and is
continuing, such Grantor shall not have an obligation to use or to maintain
any Intellectual Property (A) that relates solely to any product or work,
that has been, or is in the process of being, discontinued, abandoned or
terminated, (B) that is being replaced with Intellectual Property
substantially similar to the Intellectual Property that may be abandoned or
otherwise become invalid, so long as the failure to use or maintain such
Intellectual Property does not materially adversely affect the validity of
such replacement Intellectual Property and so long as such replacement
Intellectual Property is subject to the Lien created by this Agreement or
(C) that is substantially the same as another Intellectual Property that is
in full force, so long the failure to use or maintain such Intellectual
Property does not materially adversely affect the validity of such
replacement Intellectual Property and so long as such other Intellectual
Property is subject to the Lien and security interest created by this
Agreement. Each Grantor will cause to be taken all necessary steps in any
proceeding before the United States Patent and Trademark Office and the
United States Copyright Office or any similar office or agency in any other
country or political subdivision thereof to maintain each registration of
the Intellectual Property (other than the Intellectual Property described
in the proviso to the immediately preceding sentence), including, without
limitation, filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings
and payment of maintenance fees, filing fees, taxes or other governmental
fees in the ordinary course of business. If any Intellectual Property
(other than Intellectual Property described in the proviso to the first
sentence of subsection (i) of this clause (h)) is infringed,
misappropriated, diluted or otherwise violated in any material respect by a
third party, such Grantor shall (x) upon learning of such infringement,
misappropriation, dilution or other violation, promptly notify the
Collateral Agent and (y) to the extent such Grantor shall deem appropriate
under the circumstances, promptly sue for infringement, misappropriation,
dilution or other violation, seek injunctive relief where appropriate and
recover any and all damages for such infringement, misappropriation,
dilution or other violation, or take such other actions as such Grantor
shall deem appropriate under the circumstances to protect such Intellectual
Property. Each Grantor shall furnish to the Collateral Agent from time to
time upon its request statements and schedules further identifying and
describing the Intellectual Property and Licenses and such other reports in
connection with the Intellectual Property and Licenses as the Collateral
Agent may reasonably request, all in reasonable detail and promptly upon
request of the Collateral Agent, following receipt by the Collateral Agent
of any such statements, schedules or reports, such Grantor shall modify
this Agreement by amending Schedule II hereto, as the case may be, to
include any Intellectual Property and License, as the case may be, which
becomes part of the Collateral under this Agreement and shall execute and
authenticate such documents and do such acts as shall be necessary or, in
the judgment of the Collateral Agent, desirable to subject such
Intellectual Property and Licenses to the Lien and security interest
created by this Agreement. Notwithstanding anything herein to the contrary,
upon the occurrence and during the continuance of an Event of Default, such
Grantor may not abandon or otherwise permit any Intellectual Property to
become invalid without the prior written consent of the Collateral Agent,
and if any Intellectual Property is infringed, misappropriated, diluted or
otherwise violated in any material respect by a third party, such Grantor
will take such action as the Collateral Agent shall deem appropriate under
the circumstances to protect such Intellectual Property.
(ii) In no event shall a Grantor, either itself or through any agent,
employee, licensee or designee, file an application for the registration of
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any Trademark or Copyright or the issuance of any Patent with the United
States Patent and Trademark Office or the United States Copyright Office,
as applicable, or in any similar office or agency of the United States or
any country or any political subdivision thereof unless it gives the
Collateral Agent prior written notice thereof. Upon request of the
Collateral Agent, each Grantor shall execute, authenticate and deliver any
and all assignments, agreements, instruments, documents and papers as the
Collateral Agent may reasonably request to evidence the Collateral Agent's
security interest hereunder in such Intellectual Property and the General
Intangibles of such Grantor relating thereto or represented thereby, and
such Grantor hereby appoints the Collateral Agent its attorney-in-fact to
execute and/or authenticate and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed,
and such power (being coupled with an interest) shall be irrevocable until
the complete conversion of all of the Company's obligations under the Notes
to equity securities of the Company and/or indefeasible payment in full in
cash of all obligations under the Notes (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).
(iii) Upon the Collateral Agent's request, each Grantor shall cause
each domain registrar where any of such Grantor's Internet domain names are
registered, whether as of the date of this Agreement or at any time
hereafter, to execute and Statedeliver to the StateCollateral Agent a
domain name control agreement, in form and substance reasonably
satisfactory to the Collateral Agent, duly executed by such Grantor and
such domain registrar, or enter into other arrangements in form and
substance satisfactory to the Collateral Agent, pursuant to which such
domain registrar shall irrevocably agree, inter alia, that (i) it will
comply at any time with the instructions originated by the Collateral Agent
to such domain registrar directing substitution of the Collateral Agent or
its designee as the registered owner of such Internet domain names, without
further consent of such Grantor, which instructions the Collateral Agent
will not give to such domain registrar in the absence of a continuing Event
of Default.
(i) Deposit, Commodities and Securities Accounts. Upon the Collateral
Agent's request, each Grantor shall cause each bank and other financial
institution with an account referred to in Schedule IV hereto to execute and
deliver to the Collateral Agent a control agreement, in form and substance
reasonably satisfactory to the Collateral Agent, duly executed by such Grantor
and such bank or financial institution, or enter into other arrangements in form
and substance satisfactory to the Collateral Agent, pursuant to which such
institution shall irrevocably agree, inter alia, that (i) it will comply at any
time with the instructions originated by the Collateral Agent to such bank or
financial institution directing the disposition of cash, Commodity Contracts,
securities, Investment Property and other items from time to time credited to
such account, without further consent of such Grantor, which instructions the
Collateral Agent will not give to such bank or other financial institution in
the absence of a continuing Event of Default, (ii) all cash, Commodity
Contracts, securities, Investment Property and other items of such Grantor
deposited with such institution shall be subject to a perfected, first priority
security interest in favor of the Collateral Agent, (iii) any right of set off,
banker's Lien or other similar Lien, security interest or encumbrance shall be
fully waived as against the Collateral Agent, and (iv) upon receipt of written
notice from the Collateral Agent during the continuance of an Event of Default,
such bank or financial institution shall immediately send to the Collateral
Agent by wire transfer (to such account as the Collateral Agent shall specify,
or in such other manner as the Collateral Agent shall direct) all such cash, the
15
value of any Commodity Contracts, securities, Investment Property and other
items held by it. Without the prior written consent of the Collateral Agent,
such Grantor shall not make or maintain any Deposit Account, Commodity Account
or Securities Account except for the accounts set forth in Schedule IV hereto.
The provisions of this paragraph 5(i) shall not apply to (i) Deposit Accounts
for which the Collateral Agent is the depositary and (ii) Deposit Accounts
specially and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of a Grantor's salaried
employees.
(j) Motor Vehicles.
(i) Upon the Collateral Agent's written request, each Grantor shall
deliver to the Collateral Agent originals of the certificates of title or
ownership for all motor vehicles owned by it with the Collateral Agent
listed as lienholder, for the benefit of the Buyers.
(ii) Each Grantor hereby appoints the Collateral Agent as its
attorney-in-fact, effective the date hereof and terminating upon the
termination of this Agreement, for the purpose of (A) executing on behalf
of such Grantor title or ownership applications for filing with appropriate
state agencies to enable motor vehicles now owned or hereafter acquired by
such Grantor to be retitled and the Collateral Agent listed as lienholder
thereof, (B) filing such applications with such state agencies, and (C)
executing such other documents and instruments on behalf of, and taking
such other action in the name of, such Grantor as the Collateral Agent may
deem necessary or advisable to accomplish the purposes hereof (including,
without limitation, for the purpose of creating in favor of the Collateral
Agent a perfected Lien on the motor vehicles and exercising the rights and
remedies of the Collateral Agent hereunder). This appointment as
attorney-in-fact is coupled with an interest and is irrevocable until the
complete conversion of all of the Company's obligations under the Notes to
equity securities of the Company and/or indefeasible payment in full in
cash of all obligations under the Notes (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).
(iii) Any certificates of title or ownership delivered pursuant to the
terms hereof shall be accompanied by odometer statements for each motor
vehicle covered thereby.
(iv) So long as no Event of Default shall have occurred and be
continuing, upon the request of such Grantor, the Collateral Agent shall
execute and deliver to such Grantor such instruments as such Grantor shall
reasonably request to remove the notation of the Collateral Agent as
lienholder on any certificate of title for any motor vehicle; provided,
however, that any such instruments shall be delivered, and the release
effective, only upon receipt by the Collateral Agent of a certificate from
such Grantor stating that such motor vehicle is to be sold or has suffered
a casualty loss (with title thereto passing to the casualty insurance
company therefor in settlement of the claim for such loss) and the amount
that such Grantor will receive as sale proceeds or insurance proceeds. Any
proceeds of such sale or casualty loss shall be paid to the Collateral
Agent hereunder immediately upon receipt, to be applied to the Obligations
then outstanding.
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(k) Control. Each Grantor hereby agrees to take any or all action that may
be necessary or desirable or that the Collateral Agent may request in order for
the Collateral Agent to obtain control in accordance with Sections 9-105 - 9-107
of the Code with respect to the following Collateral: (i) Electronic Chattel
Paper, (ii) Investment Property, (iii) Pledged Interests and (iv)
Letter-of-Credit Rights.
(l) Inspection and Reporting. Each Grantor shall permit the Collateral
Agent, or any agent or representatives thereof or such professionals or other
Persons as the Collateral Agent may designate, not more than once a year 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 materials, leases, Instruments, Accounts, Inventory
and other assets of such Grantor from time to time, (iii) to conduct audits,
physical counts, appraisals and/or valuations, examinations at the locations of
such Grantor. Each Grantor shall also permit the Collateral Agent, or any agent
or representatives thereof or such professionals or other Persons as the
Collateral Agent may designate to discuss such Grantor's affairs, finances and
accounts with any of its officers subject to the execution by the Collateral
Agent or its designee(s) of a mutually agreeable confidentiality agreement.
(m) Future Subsidiaries. If any Grantor shall hereafter create or acquire
any Subsidiary, simultaneously with the creation of acquisition of such
Subsidiary, such Grantor shall cause such Subsidiary to become a party to this
Agreement as an additional "Grantor" hereunder and to become a party to the
Guaranty as an additional "Guarantor" thereunder, and to duly execute and/or
deliver such opinions of counsel and other documents, in form and substance
acceptable to the Collateral Agent, as the Collateral Agent shall reasonably
request with respect thereto.
SECTION 6. Additional Provisions Concerning the Collateral.
(a) Each Grantor hereby (i) authorizes the Collateral Agent to file one or
more Uniform Commercial Code financing or continuation statements, and
amendments thereto, relating to the Collateral (including, without limitation,
financing statements describing the Collateral as "all assets" or "all personal
property" or words of similar effect) and (ii) ratifies such authorization to
the extent that the Collateral Agent 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.
(b) Each Grantor hereby irrevocably appoints the Collateral Agent 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
Collateral Agent's 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 Collateral Agent 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 Collateral Agent pursuant to Section 5(e) hereof,
17
(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 Collateral Agent may deem necessary or desirable for the collection of
any Collateral or otherwise to enforce the rights of the Collateral Agent and
the Buyers with respect to any Collateral, and (v) to execute assignments,
licenses and other documents to enforce the rights of the Collateral Agent and
the Buyers 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 Notes to equity securities of the Company and/or
indefeasible payment in full in cash of all obligations under the Notes
(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) For the purpose of enabling the Collateral Agent to exercise rights and
remedies hereunder, at such time as the Collateral Agent shall be lawfully
entitled to exercise such rights and remedies upon and during an Event of
Default, and for no other purpose, each Grantor hereby grants to the Collateral
Agent, to the extent assignable, an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to such Grantor)
to use, assign, license or sublicense any Intellectual Property now owned or
hereafter acquired by such Grantor, wherever the same may be located, including
in such license reasonable access to all media in which any of the licensed
items may be recorded or stored and to all computer programs used for the
compilation or printout thereof. Notwithstanding anything contained herein to
the contrary, but subject to the provisions of the Securities Purchase Agreement
that limit the right of such Grantor to dispose of its property and Section 5(h)
hereof, so long as no Event of Default shall have occurred and be continuing,
such Grantor may exploit, use, enjoy, protect, license, sublicense, assign,
sell, dispose of or take other actions with respect to the Intellectual Property
in the ordinary course of its business. In furtherance of the foregoing, unless
an Event of Default shall have occurred and be continuing, the Collateral Agent
shall from time to time, upon the request of a Grantor, execute and deliver any
instruments, certificates or other documents, in the form so requested, which
such Grantor shall have certified are appropriate (in such Grantor's judgment)
to allow it to take any action permitted above (including relinquishment of the
license provided pursuant to this clause (c) as to any Intellectual Property).
Further, upon the complete conversion of all of the Company's obligations under
the Notes to equity securities of the Company and/or indefeasible payment in
full in cash of all obligations under the Notes (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),
the Collateral Agent (subject to Section 10(e) hereof) shall release and
reassign to such Grantor all of the Collateral Agent's right, title and interest
in and to the Intellectual Property, and the Licenses, all without recourse,
representation or warranty whatsoever. The exercise of rights and remedies
hereunder by the Collateral Agent shall not terminate the rights of the holders
of any licenses or sublicenses theretofore granted by such Grantor in accordance
with the second sentence of this clause (c). Each Grantor hereby releases the
Collateral Agent from any claims, causes of action and demands at any time
arising out of or with respect to any actions taken or omitted to be taken by
the Collateral Agent under the powers of attorney granted herein other than
actions taken or omitted to be taken through the Collateral Agent's gross
negligence or willful misconduct, as determined by a final determination of a
court of competent jurisdiction.
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(d) If a Grantor fails to perform any agreement contained herein, the
Collateral Agent may itself perform, or cause performance of, such agreement or
obligation, in the name of such Grantor or the Collateral Agent, and the
expenses of the Collateral Agent incurred in connection therewith shall be
payable by such Grantor pursuant to Section 8 hereof and shall be secured by the
Collateral.
(e) The powers conferred on the Collateral Agent 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
Collateral Agent 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.
(f) Anything herein to the contrary notwithstanding (i) each Grantor shall
remain liable under the Licenses and otherwise with respect to any of 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 Collateral Agent of any of its rights hereunder shall not
release such Grantor from any of its obligations under the Licenses or otherwise
in respect of the Collateral, and (iii) the Collateral Agent shall not have any
obligation or liability by reason of this Agreement under the Licenses or with
respect to any of the other Collateral, nor shall the Collateral Agent 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.
SECTION 7. Remedies Upon Event of Default. If any Event of Default shall
have occurred and be continuing:
(a) The Collateral Agent may 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), and
also may (i) take absolute control of the Collateral, including, without
limitation, transfer into the Collateral Agent's name or into the name of its
nominee or nominees (to the extent the Collateral Agent has not theretofore done
so) and thereafter receive, for the benefit of the Collateral Agent, all
payments made thereon, give all consents, waivers and ratifications in respect
thereof and otherwise act with respect thereto as though it were the outright
owner thereof, (ii) require each Grantor to, and each Grantor hereby agrees that
it will at its expense and upon request of the Collateral Agent forthwith,
assemble all or part of its respective Collateral as directed by the Collateral
Agent and make it available to the Collateral Agent at a place or places to be
designated by the Collateral Agent that is reasonably convenient to both
parties, and the Collateral Agent may enter into and occupy any premises owned
or leased by such Grantor where the Collateral or any part thereof is located or
assembled for a reasonable period in order to effectuate the Collateral Agent's
rights and remedies hereunder or under law, without obligation to such Grantor
in respect of such occupation, and (iii) without notice except as specified
below and without any obligation to prepare or process the Collateral for sale,
(A) sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Collateral Agent's offices or elsewhere, for cash,
on credit or for future delivery, and at such price or prices and upon such
other terms as the Collateral Agent may deem commercially reasonable and/or (B)
lease, license or dispose of the Collateral or any part thereof upon such terms
as the Collateral Agent may deem commercially reasonable. Each Grantor agrees
that, to the extent notice of sale or any other disposition of its respective
Collateral shall be required by law, at least ten (10) days' notice to such
Grantor of the time and place of any public sale or the time after which any
private sale or other disposition of its respective Collateral is to be made
shall constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale or other disposition of any Collateral regardless of
notice of sale having been given. The Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
19
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Each Grantor hereby waives any claims
against the Collateral Agent and the Buyers arising by reason of the fact that
the price at which its respective Collateral may have been sold at a private
sale was less than the price which might have been obtained at a public sale or
was less than the aggregate amount of the Obligations, even if the Collateral
Agent accepts the first offer received and does not offer such Collateral to
more than one offeree, and waives all rights that such Grantor may have to
require that all or any part of such Collateral be marshalled upon any sale
(public or private) thereof. Each Grantor hereby acknowledges that (i) any such
sale of its respective Collateral by the Collateral Agent shall be made without
warranty, (ii) the Collateral Agent may specifically disclaim any warranties of
title, possession, quiet enjoyment or the like, and (iii) such actions set forth
in clauses (i) and (ii) above shall not adversely effect the commercial
reasonableness of any such sale of Collateral. In addition to the foregoing, (1)
upon written notice to any Grantor from the Collateral Agent, such Grantor shall
cease any use of the Intellectual Property or any trademark, patent or copyright
similar thereto for any purpose described in such notice; (2) the Collateral
Agent may, at any time and from time to time, upon 10 days' prior notice to such
Grantor, license, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any of the Intellectual Property, throughout
the universe for such term or terms, on such conditions, and in such manner, as
the Collateral Agent shall in its sole discretion determine to the extent
consistent with any restrictions or conditions imposed upon such Grantor with
respect to such Intellectual Property by license or other contractual
arrangement; and (2) the Collateral Agent may, at any time, pursuant to the
authority granted in Section 6 hereof (such authority being effective upon the
occurrence and during the continuance of an Event of Default), execute and
deliver on behalf of such Grantor, one or more instruments of assignment of the
Intellectual Property (or any application or registration thereof), in form
suitable for filing, recording or registration in any country.
(b) Any cash held by the Collateral Agent as Collateral and all Cash
Proceeds received by the Collateral Agent in respect of any sale of or
collection from, or other realization upon, all or any part of the Collateral
may, in the discretion of the Collateral Agent, be held by the Collateral Agent
as collateral for, and/or then or at any time thereafter applied (after payment
of any amounts payable to the Collateral Agent pursuant to Section 8 hereof) in
whole or in part by the Collateral Agent against, all or any part of the
Obligations in such order as the Collateral Agent shall elect, consistent with
the provisions of the Securities Purchase Agreement. Any surplus of such cash or
Cash Proceeds held by the Collateral Agent and remaining after the complete
conversion of all of the Company's obligations under the Notes to equity
securities of the Company and/or indefeasible payment in full in cash of all
20
obligations under the Notes (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) shall be paid over
to whomsoever shall be lawfully entitled to receive the same or as a court of
competent jurisdiction shall direct.
(c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent
and the Buyers are legally entitled, such each shall be liable for the
deficiency, together with interest thereon at the highest rate specified in any
of the applicable Transaction Documents for interest on overdue principal
thereof or such other rate as shall be fixed by applicable law, together with
the costs of collection and the reasonable fees, costs, expenses and other
client charges of any attorneys employed by the Collateral Agent to collect such
deficiency.
(d) Each Grantor hereby acknowledges that if the Collateral Agent complies
with any applicable state, provincial, or federal law requirements in connection
with a disposition of the Collateral, such compliance will not adversely affect
the commercial reasonableness of any sale or other disposition of the
Collateral.
(e) The Collateral Agent shall not be required to marshal any present or
future collateral security (including, but not limited to, this Agreement and
the Collateral) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral security or other assurances of payment
in any particular order, and all of the Collateral Agent's rights hereunder and
in respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To
the extent that each Grantor lawfully may, such Grantor hereby agrees that it
will not invoke any law relating to the marshalling of collateral which might
cause delay in or impede the enforcement of the Collateral Agent's rights under
this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any
of the Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, such Grantor hereby irrevocably waives the
benefits of all such laws.
SECTION 8. Indemnity and Expenses.
(a) Each Grantor agrees, jointly and severally, to defend, protect,
indemnify and hold the Collateral Agent and each of the Buyers, 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) Each Grantor agrees, jointly and severally, to upon demand pay to the
Collateral Agent the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and disbursements of counsel for the Collateral
Agent and of any experts and agents (including, without limitation, any
collateral trustee which may act as agent of the Collateral Agent), which the
Collateral Agent may incur in connection with (i) the preparation, negotiation,
execution, delivery, recordation, administration, amendment, waiver or other
21
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
Collateral Agent hereunder, or (iv) the failure by any Grantor to perform or
observe any of the provisions hereof.
SECTION 9. 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 Collateral Agent 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 days after deposited in the mails,
whichever occurs first, (b) if telecopied, when transmitted (during normal
business hours) and confirmation is received, otherwise, the day after the
notice was transmitted if confirmation is received, or (c) if delivered, upon
delivery.
SECTION 10. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by each Grantor and the Collateral Agent, 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 Collateral Agent, 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 Collateral Agent to exercise, and no
delay in exercising, any right hereunder or under any of the other Transaction
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 Collateral Agent or
any Buyer provided herein and in the other Transaction Documents are cumulative
and are in addition to, and not exclusive of, any rights or remedies provided by
law. The rights of the Collateral Agent or any Buyer under any of the other
Transaction 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 Transaction Documents against such party or against any other
Person, including but not limited to, any Grantor.
(c) To the extent permitted by applicable law, each 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
Collateral Agent exhaust any right or take any action against any other Person
or any Collateral. Each 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 10(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
22
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 Collateral Agent 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 Notes to equity securities of the Company and/or
indefeasible payment in full in cash of all obligations under the Notes
(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 obligations under the Notes to
equity securities of the Company and/or indefeasible payment in full in cash of
all obligations under the Notes (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 Collateral Agent and shall forthwith be
paid to the Collateral Agent to be credited and applied to the Obligations and
all other amounts payable under the Transaction Documents, whether matured or
unmatured, in accordance with the terms of the Transaction Documents, or to be
held as Collateral for any Obligations or other amounts payable under the
Transaction Documents thereafter arising.
(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 Notes to equity securities of the
Company and/or indefeasible payment in full in cash of all obligations under the
Notes (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 each Grantor and
all other Persons who become bound as debtor to this Agreement in accordance
with Section 9-203(d) of the Code and shall inure, together with all rights and
remedies of the Collateral Agent and the Buyers hereunder, to the benefit of the
Collateral Agent and the Buyers 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 Collateral
Agent and the Buyers may assign or otherwise transfer their rights and
obligations under this Agreement and any of the other Transaction Documents, to
any other Person and such other Person shall thereupon become vested with all of
the benefits in respect thereof granted to the Collateral Agent and the Buyers
herein or otherwise. Upon any such assignment or transfer, all references in
this Agreement to the Collateral Agent or any such Buyer shall mean the assignee
of the Collateral Agent or such Buyer. None of the rights or obligations of any
Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Collateral Agent, and any such assignment or transfer
without the consent of the Collateral Agent shall be null and void.
23
(g) Upon the complete conversion of all of the Company's obligations under the
Notes to equity securities of the Company and/or indefeasible payment in full in
cash of all obligations under the Notes (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 Collateral Agent 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.
(i) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
DOCUMENT RELATED THERETO MAY 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
COLLATERAL AGENT 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.
24
(k) Nothing contained herein shall affect the right of the Collateral Agent 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) Each 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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
25
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be executed
and delivered by its officer thereunto duly authorized, as of the date first
above written.
ADVANCED CANNABIS SOLUTIONS, INC., a
Colorado corporation
By:
---------------------------------
Name:
Title:
Address for Notices:
-----------------------
-----------------------
Facsimile:_______________
[ACS ACQUISITION CO.], a [Colorado
corporation]
By:
---------------------------------
Name:
Title:
Address for Notices:
-----------------------
-----------------------
Facsimile:_______________
26
[ADDITIONAL SUBSIDIARIES], a [_________ __________]
By:
---------------------------------
Name:
Title:
Address for Notices:
-----------------------
-----------------------
Facsimile:_______________
27
ACCEPTED BY:
FULL CIRCLE CAPITAL CORPORATION,
as Collateral Agent
By:
---------------------------------
Name:
Title:
Address:
28
SCHEDULE I
LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS;
STATES OR JURISDICTION OF ORGANIZATION
Sched. I-1
SCHEDULE II
INTELLECTUAL PROPERTY AND LICENSES
Sched. II-1
EXISTING SUBSIDIARIES
INTELLECTUAL PROPERTY AND LICENSES
Sched. II-1
SCHEDULE III
LOCATIONS
LOCATION Description of Location (State if
Location (i) contains Rolling Stock,
other Equipment, Fixtures, Goods or
Inventory, (ii) is chief place of
business and chief executive office,
or (iii) contains Records concerning
Accounts and originals of Chattel Paper)
Sched. III-1
LOCATIONS OF EXISTING SUBSIDIARIES
LOCATION Description of Location (State if
Location (i) contains Rolling Stock,
other Equipment, Fixtures, Goods or
Inventory, (ii) is chief place of
business and chief executive office, or
(iii) contains Records concerning
Accounts and originals of Chattel Paper)
Sched. III-1
SCHEDULE IV
PROMISSORY NOTES, SECURITIES, DEPOSIT ACCOUNTS,
SECURITIES ACCOUNTS AND COMMODITIES ACCOUNTS
Promissory Notes:
Securities and Other Instruments:
Name and Address
of Institution
Maintaining Account Account Number Type of Account
------------------- -------------- ---------------
Sched. IV-1
EXISTING SUBSIDIARIES
Promissory Notes
Securities and Other Instruments
Name and Address
of Institution
Maintaining Account Account Number Type of Account
------------------- -------------- ---------------
Sched. IV-1
SCHEDULE V
UCC-1 FINANCING STATEMENTS
Sched. V-1
EXISTING SUBSIDIARIES
UCC-1 FINANCING STATEMENTS
Sched. V-1
SCHEDULE VI
COMMERCIAL TORT CLAIMS
EXISTING SUBSIDIARIES
COMMERCIAL TORT CLAIMS
Sched. VI-1
SCHEDULE VII
PLEDGED DEBT
Sched. VII-1
SCHEDULE VIII
PLEDGED SHARES
Sched. VIII-1
EXHIBIT A
ASSIGNMENT FOR SECURITY
[TRADEMARKS] [PATENTS] [COPYRIGHTS]
WHEREAS, ______________________________ (the "Assignor") [has
adopted, used and is using, and holds all right, title and interest in and to,
the trademarks and service marks listed on the annexed Schedule 1A, which
trademarks and service marks are registered or applied for in the United States
Patent and Trademark Office (the "Trademarks")] [holds all right, title and
interest in the letter patents, design patents and utility patents listed on the
annexed Schedule 1A, which patents are issued or applied for in the United
States Patent and Trademark Office (the "Patents")] [holds all right, title and
interest in the copyrights listed on the annexed Schedule 1A, which copyrights
are registered in the United States Copyright Office (the "Copyrights")];
WHEREAS, the Assignor has entered into a Security Agreement, dated
as of December [__], 2013 (as amended, restated or otherwise modified from time
to time the "Security Agreement"), in favor of Full Circle Capital Corporation,
as collateral agent for certain buyers (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has
assigned to the Assignee and granted to the Assignee for the benefit of the
Buyers (as defined in the Security Agreement) a continuing security interest in
all right, title and interest of the Assignor in, to and under the [Trademarks,
together with, among other things, the good-will of the business symbolized by
the Trademarks] [Patents] [Copyrights] and the applications and registrations
thereof, and all proceeds thereof, including, without limitation, any and all
causes of action which may exist by reason of infringement thereof and any and
all damages arising from past, present and future violations thereof (the
"Collateral"), to secure the payment, performance and observance of the
"Obligations" (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Assignor does hereby pledge,
convey, sell, assign, transfer and set over unto the Assignee and grants to the
Assignee for the benefit of the Buyers a continuing security interest in the
Collateral to secure the prompt payment, performance and for the benefit of the
Buyers observance of the Obligations.
The Assignor does hereby further acknowledge and affirm that the
rights and remedies of the Assignee with respect to the Collateral are more
fully set forth in the Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.
Exh. A-1
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be
duly executed by its officer thereunto duly authorized as of _____________, 20__
[GRANTOR]
By:____________________________
Name:
Title:
Exh. A-2
STATE OF ____________
ss.:
COUNTY OF __________
On this ____ day of _______________, 20__, before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that s/he is the
________________ of _______________________________________, a
____________________, and that s/he executed the foregoing instrument in the
firm name of _______________________________________, and that s/he had
authority to sign the same, and s/he acknowledged to me that he executed the
same as the act and deed of said firm for the uses and purposes therein
mentioned.
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
[Trademarks and Trademark Applications]
[Patent and Patent Applications]
[Copyright and Copyright Applications]
Owned by ______________________________
Exh. A-3