UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
CURRENT REPORT
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Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 1.01. | Entry Into a Material Definitive Agreement. |
Senior Secured Convertible Promissory Notes
On July 2, 2024, Douglas Elliman Inc. (the “Company”), Alter Domus (US) LLC, as collateral agent, and entities (the “Purchasers”) advised or managed by Kennedy Lewis Investment Management LLC (“KLIM”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company agreed to issue and sell to the Purchasers, and the Purchasers agreed to purchase from the Company, $50,000,000 aggregate principal amount of the Company’s newly issued senior secured convertible promissory notes due July 2, 2029 (the “Convertible Notes”) in a private placement transaction in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Company intends to use the net proceeds from the sale of the Convertible Notes for general corporate purposes. The issuance and sale of the Convertible Notes contemplated by the Purchase Agreement (the “Closing”) were consummated on July 2, 2024 (the “Closing Date”).
The Convertible Notes bear interest at a rate of 7.0% per annum payable in cash, or, at the Company’s election, 8.0% per annum paid in kind, due semi-annually. The maturity date of the Convertible Notes is July 2, 2029.
The Purchasers have the right to elect at any time to convert the Convertible Notes into shares of the Company’s common stock, par value $0.01 (the “Common Stock”), at an initial conversion price equal to $1.50 per share of Common Stock, so long as the aggregate number of shares of Common Stock beneficially owned by such Purchaser (together with its affiliates) would not exceed 4.99% (the “Beneficial Ownership Limitation”) of the number of shares of Common Stock outstanding immediately after giving effect to the conversion, as such percentage ownership is determined in accordance with the terms of the Note. The Purchasers have the right to increase or decrease the Beneficial Ownership Limitation upon no less than 61 days’ prior written notice to the Company, provided that the Beneficial Ownership Limitation may in no event exceed 24.99% of the number of shares of Common Stock outstanding immediately after giving effect to the conversion. The initial conversion price of the Convertible Notes represents a premium of approximately 19% to the last reported sale price of the Common Stock on the New York Stock Exchange on July 1, 2024. The conversion price will be subject to certain customary anti-dilution adjustments. Assuming the Convertible Notes are converted in full (without issuance of any make-whole shares), and based on the current number of shares of Common Stock outstanding, the Purchasers would beneficially own 26.7% of the shares of Common Stock outstanding on an as-converted basis.
The Convertible Notes are senior secured obligations of the Company and are guaranteed by certain of the Company’s direct and indirect subsidiaries (the “Subsidiary Guarantors”) and secured by first priority security interests in substantially all of the assets of the Company and the Subsidiary Guarantors, subject to customary exceptions.
On or after July 2, 2027, the Company will have the right to redeem up to one-third of the initial outstanding principal and capitalized interest of the Convertible Notes (the “Redemption Amount”) in cash if the last reported sale price of the Common Stock equals or exceeds 200% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) in a 30-day trading period. On or after January 2, 2028, the Company will have the right to redeem the Redemption Amount in cash if the last reported sale price of the Common Stock equals or exceeds 225% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) in a 30-day trading period. On or after July 2, 2028, the Company will have the right to redeem the Redemption Amount in cash if the last reported sale price of the Common Stock equals or exceeds 250% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) in a 30-day trading period. The Company may not redeem more than the Redemption Amount in any rolling six month period after July 2, 2027. In each case, such optional redemption would entitle the holder of the Convertible Notes to convert into shares of Common Stock calculated pursuant to a customary make-whole table prior to the applicable redemption date.
In the event of certain major transactions, the Company will be required to repay the Convertible Notes on the date on which such transaction occurs at a price equal to the greater of (i) the outstanding principal and capitalized interest on the Convertible Note plus a make-whole premium and (ii) the sum of (a) the fair market value of the as-converted amount of the Convertible Note for Common Stock plus (b) the fair market value of additional make-whole shares calculated pursuant to a customary make-whole table. In the event of a major transaction triggered by (i) the Common Stock or, following an earlier merger, consolidation or similar transaction, the equity securities of a successor entity, ceasing to be listed on a national trading market or (ii) the sale of the Company’s property management business, the Purchasers may decline to be repaid.
In addition, upon certain fundamental transactions that do not result in the foregoing major transactions, the right to convert the Convertible Notes into shares of Common Stock will be converted into the right to receive the shares of a successor entity, if any, or the Company and any additional consideration receivable as a result of such transaction.
The Purchase Agreement also contains certain affirmative and negative covenants (including restrictions on the Company’s ability to incur indebtedness, permit liens, make dividends or distributions, consummate investments and consummate certain affiliate transactions). In addition, pursuant to the Purchase Agreement, if the Company’s Consolidated Adjusted EBITDA (as defined in the
Purchase Agreement) for any two consecutive fiscal quarters from and after the fiscal quarter commencing July 1, 2024 is less than $0, the Company will be required to maintain Liquidity (as defined in the Purchase Agreement) of at least $20.0 million as of the end of each calendar month until such time as the Company’s Consolidated Adjusted EBITDA is greater than $0 at the end of any subsequent fiscal quarter.
The Convertible Notes provide for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, the following: nonpayment of principal or interest, breach of covenants or other agreements in the Purchase Agreement and Convertible Notes, certain bankruptcy or insolvency events, the failure of the Common Stock to be eligible for listing or quotation on a national trading market and the failure of the Company to file certain required reports under the Exchange Act of 1934, as amended (the “Exchange Act”). Upon an event of default, the holders of the Convertible Notes may declare the outstanding principal amount of the Convertible Notes plus accrued and unpaid interest immediately due and payable. In addition, after the occurrence of any Event of Default that results in the eventual acceleration of any Convertible Notes, such Convertible Notes bear an additional rate of interest equal to 1.0% per annum.
In addition, pursuant to the Purchase Agreement, KLIM is entitled to nominate one person (the “KLIM Designee”) to serve as a director on the board of directors of the Company (the “Board”) so long as the Initial Investors’ Ownership Percentage (as defined in the Purchase Agreement) is equal to or greater than 33.33%. Pursuant to the Purchase Agreement, the initial KLIM Designee is David K. Chene.
Registration Rights Agreement
On July 2, 2024, the Company and the Purchasers entered into a Registration Rights Agreement (the “Registration Rights Agreement”) providing the Purchasers with registration rights in respect of the Common Stock issued or issuable upon conversion of the Convertible Notes. The Registration Rights Agreement requires, among other things, the Company to file a resale registration statement covering the Common Stock issued or issuable upon conversion of the Convertible Notes with the Securities and Exchange Commission (the “SEC”) within 45 days after the Closing Date.
Incorporation by Reference
The foregoing descriptions of the Purchase Agreement, the Notes and the Registration Rights Agreement do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the documents which are attached hereto as Exhibits 10.1, 10.2 and 10.3 and incorporated herein by reference.
| Item 2.02. | Results of Operations and Financial Condition. |
On July 2, 2024, in connection with the transactions described in Item 1.01 above, the Company announced certain preliminary financial information as of and for the three months ended June 30, 2024. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Item 2.02 of this Current Report on Form 8-K and the related Exhibit 99.1 attached hereto are being furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing.
| Item 2.03. | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information regarding the Purchase Agreement and the Convertible Notes set forth under Item 1.01 of this Form 8-K is incorporated by reference in this Item 2.03.
| Item 3.02. | Unregistered Sales of Equity Securities. |
The information regarding the Purchase Agreement, the Convertible Notes and the shares of Common Stock issuable upon conversion of the Convertible Notes set forth under Item 1.01 of this Form 8-K is incorporated by reference in this Item 3.02. The issuance of the Convertible Notes and the shares of Common Stock issuable upon conversion of the Convertible Notes is being made in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act.
| Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements with Certain Officers. |
On July 2, 2024, effective immediately after Closing, the Board appointed David K. Chene and Patrick J. Bartels Jr. as Class III directors of the Board to hold office until the next election of Class III directors and until their successors shall have been duly elected and qualified or until their earlier death, resignation, removal, retirement or disqualification. Mr. Chene was appointed pursuant to the Purchase Agreement.
David Chene, age 45, co-founded Kennedy Lewis in 2017. Mr. Chene is a Co-Portfolio Manager and a Co-Managing Partner of Kennedy Lewis, and he Co-Chairs the Firm’s Investment Committee and Executive Committee. Mr. Chene was formerly a Managing Director with CarVal Investors, responsible for managing the US Corporate Securities business based in Minneapolis, from 2012 to 2016. Prior to his role in the US, he was Co-Head of CarVal’s European Corporate Securities business based in London. In both roles, he focused on special situations and distressed investments, including the firm’s global liquidations exposures and European financial investments. Before joining CarVal, Mr. Chene worked at Credit Suisse in London, running the firm’s European Distressed business, and was responsible for risk management across the firm’s European Leveraged Finance trading activities, from 2010 to 2012. Prior to Credit Suisse, Mr. Chene was a Senior Distressed Trader for Morgan Stanley in London, from 2009 to 2010. Prior to Morgan Stanley, Mr. Chene was a Research Analyst at DiMaio Ahmad Capital from 2003 to 2009, first in New York and then later as Head of the Firm’s Asian Platform, based in Singapore. Mr. Chene began his career at CIBC World Markets as a Research Analyst in its Leveraged Finance Investment Banking Division in New York, from 2001 to 2003.
Patrick J. Bartels Jr., age 48, is a senior investment professional with 25 years of experience and currently serves as the Managing Member of Redan Advisors LLC. His professional experience includes investing in complex financial situations in a broad universe of industries. Mr. Bartels has served as a director on numerous public and private boards of directors with an extensive track record of driving value added returns for all stakeholders through mergers and acquisitions, corporate finance and capital markets transactions, governance, incentive alignment, talent evaluation, cost rationalization. Mr. Bartels also currently serves on the board of directors of Pyxus International, Inc. (OTC Pink: PYX) and Marblegate Acquisition Corp. (Nasdaq: GATEU), as well as several private companies. Mr. Bartels previously served on the board of directors of View, Inc. (OTCMKTS: VIEWQ), Arch Resources, Inc. (NYSE: ARCH), AgileThought (Nasdaq: AGIL), Noble Corporation (NYSE: NE), Centric Brands Inc. (Nasdaq: CTRC), Grizzly Energy, LLC, f/k/a Vanguard Natural Resources, Inc. (NYSE: VNRR), WCI Communities, Inc. (NYSE: WCIC), B. Riley Principal Merger Corp. (NYSE: BRPM), B. Riley Principal Merger Corp. II (NYSE: BRPM), Trinity Place Holdings Inc. (Nasdaq: TPHS), Parker Drilling Corp. (NYSE: PDK), Monitronics International Inc. (OTC: SCTY) and Hexion Inc. (OTC: HXN). Prior to Redan Advisors, Mr. Bartels was a Managing Principal of Monarch Alternative Capital LP in New York, a private investment firm. Prior to joining Monarch Alternative Capital LP, Mr. Bartels was a high-yield investments analyst at Invesco Ltd. He began his career at PricewaterhouseCoopers LLP, where he was a certified public accountant. Mr. Bartels received a Bachelor of Science in Accounting with a concentration in Finance from Bucknell University. He also holds the Chartered Financial Analyst designation.
Neither Mr. Chene nor Mr. Bartels have any family relationships with any of the executive officers or directors of the Company. Messrs. Chene and Bartels were not appointed pursuant to any arrangement or understanding between them and any other person. Other than pursuant to the Purchase Agreement as disclosed pursuant to Item 1.01 of this Form 8-K and incorporated herein by reference with respect to Mr. Chene, there are no transactions in which Messrs. Chene or Bartels have a direct or indirect material interest requiring disclosure under Item 404(a) of Regulation S-K.
Messrs. Chene and Bartels will be eligible for the compensation provided to the Company’s other non-employee directors, which is summarized in Part III, Item 11, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Effective upon the Closing, Ronald J. Kramer and Lynn Mestel resigned from the Board and all committees thereof. The resignations did not result from any dispute or disagreement with the Company or the Board on any matter related to the operations, policies or practices of the Company.
Mark D. Zeitchick, an independent director, was appointed to the Audit Committee of the Board to fill the vacancy left by Ms. Mestel. Ms. Mestel also served on the Corporate Responsibility and Nominating Committee; Mr. Kramer served on the Compensation and Human Capital Committee.
| Item 7.01. | Regulation FD Disclosure. |
On July 2, 2024, the Company issued a press release regarding the issuance of the Convertible Notes. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference.
The information furnished with this Item 7.01 and the related Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements, which involve risk and uncertainties. These statements include, but are not limited to, statements regarding the issuance and sale of the Convertible Notes to the Purchasers and the impact of the investment on our operations. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may be,” “continue’” “could,” “potential,” “objective,” “plan,” “seek,” “predict,” “project” and “will be” and similar expressions are intended to identify forward-looking statements. The Company’s actual results could differ significantly from the results discussed in such forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Current Report on Form 8-K. The Company undertakes no obligation to (and expressly disclaims any obligation to) revise or update any forward-looking statement, whether as a result of new information, subsequent events, or otherwise (except as may be required by law), in order to reflect any event or circumstance which may arise after the date of this Current Report on Form 8-K.
| Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits
| Exhibit Number |
Description | |
| 10.1* | Purchase Agreement, dated July 2, 2024, by and among the Company, Alter Domus (US) LLC, as collateral agent, and the Purchasers named therein. | |
| 10.2* | Form of Convertible Promissory Note. | |
| 10.3 | Registration Rights Agreement, dated July 2, 2024, by and among the Company and the Purchasers named therein. | |
| 99.1 | Press Release issued on July 2, 2024. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
| * | Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish supplementally copies of any of the omitted schedules and/or exhibits upon request by the SEC. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Douglas Elliman Inc. (Registrant) | ||||||
| Date: July 2, 2024 | By: | /s/ J. Bryant Kirkland III | ||||
| J. Bryant Kirkland III | ||||||
| Senior Vice President and Chief Financial Officer | ||||||
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made as of July 2, 2024, by and among Douglas Elliman Inc., a Delaware corporation (the “Company”), Alter Domus (US) LLC as collateral agent for the Purchasers (in such capacity, together with its successor and assigns in such capacity (the “Collateral Agent”) and the Purchasers.
RECITALS
A. The Company, the Collateral Agent and each Purchaser are executing and delivering this Agreement, and the Company is issuing and each Purchaser is purchasing the securities, respectively, pursuant hereto in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”).
B. Each Purchaser, severally and not jointly, wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the Notes, in the amounts and for the Purchase Price set forth next to the name of each Purchaser on Schedule 1 hereto.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company, the Collateral Agent and each Purchaser hereby agrees as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. In addition to terms defined elsewhere in this Agreement or in any supplement, amendment or Exhibit hereto, when used herein, the following terms shall have the following meanings:
(a) “Affiliate” of any Person means any other Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such first Person, as such terms are used in and construed under Rule 405 under the Securities Act; provided, that in no event shall the Company, any of its Subsidiaries, or any of the Company’s other controlled Affiliates be deemed to be Affiliates of the Purchasers or any of their respective Affiliates for purposes of this Agreement and the other Transaction Documents.
(b) “Akin” means Akin Gump Strauss Hauer & Feld, LLP.
(c) “ALTA” means the American Land Title Association.
(d) “Anti-Corruption Laws” has the meaning set forth in Section 3.1.
(e) “Anti-Money Laundering Laws” has the meaning set forth in Section 3.1.
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(f) “Anti-Terrorism Laws” means any applicable laws related to financing terrorism including the PATRIOT Act, The Currency and Foreign Transactions Reporting Act (31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959), the Trading With the Enemy Act (50 U.S.C. § 1 et seq.) and Executive Order 13224 (effective September 24, 2001).
(g) “Bankruptcy Event” means, with respect to the Company or its Subsidiaries, (i) commencement of any case, proceeding or other voluntary action seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, arrangement, adjustment, winding-up, reorganization, dissolution, composition under any Bankruptcy Law or other relief with respect to it or its debts; (ii) applying for, or consenting or acquiescing to, the appointment of, a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other official with similar powers for itself or any substantial part of its assets; (iii) making a general assignment for the benefit of its creditors; (iv) commencement of any involuntary case seeking liquidation, winding-up, or reorganization of the Company or its Subsidiaries under any Bankruptcy Law, or seeking issuance of a warrant of attachment, execution or distraint, or commencement of any similar proceedings against the Company or its Subsidiaries under any other applicable law and (1) consenting to the institution of the involuntary case against it, (2) the petition commencing the involuntary case not being dismissed within sixty (60) days of its filing, (3) an interim trustee being appointed to take possession of all or a portion of the property, or to operate all or any part of the business of the Company or its Subsidiaries and such appointment not being vacated within sixty (60) days, or (4) an order for relief having been issued or entered therein; (v) entry of a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, administrator, administrative receiver, liquidator, sequestrator, trustee or other official having similar powers, over the Company or its Subsidiaries or all or a part of its respective property; (vi) the granting of any other similar relief against the Company or its Subsidiaries under any applicable Bankruptcy Law, the Company or its Subsidiaries filing a petition or consent or shall otherwise institute any similar proceeding under any other applicable law, or the Company or its Subsidiaries taking any action in furtherance of, or indicating its consent to, approval of, or acquiescence in any of the acts set forth above in this definition; (vii) the Company or any of its Subsidiaries taking any form of corporate action to be liquidated or dissolved; or (viii) the Company or its Subsidiaries admitting in writing its inability to pay its debts as they become due.
(h) “Bankruptcy Law” means title 11 of the United States Code, 11 U.S.C. §§ 101 et. seq. or any similar federal or state law.
(i) “Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.
(j) “Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230, as amended, or any successor thereto.
(k) “Board of Directors” means the board of directors of the Company.
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(l) “Board of Governors” means the Board of Governors of the United States Federal Reserve System.
(m) “Business Day” means any day other than a Saturday or Sunday or any other day on which the Federal Reserve Bank of New York is not open for business.
(n) “Capital Expenditures” means expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements (or of any replacements or substitutions thereof or additions thereto) which have a useful life of more than one (1) year and which, in accordance with GAAP, would be classified as capital expenditures.
(o) “Cash Balance” means, as of any date (calculated at the close of business on such date), the aggregate amount of Unrestricted Cash and Cash Equivalents of the Company and its Subsidiaries on such date.
(p) “Cash Equivalents” means, as at any date of determination, any of the following: (i) Dollars; (ii) marketable securities (A) issued or directly and unconditionally guaranteed by the United States Government or (B) issued by any agency or instrumentality of the United States the obligations of which are backed by the full faith and credit of the United States, in each case with maturities not exceeding two years from the date of acquisition; (iii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case with maturities not exceeding two years from the date of acquisition and having, at the time of the acquisition thereof, an investment-grade rating from either Moody’s or S&P (or reasonably equivalent ratings of another internationally recognized ratings agency); (iv) commercial paper or variable or fixed rate notes issued by a corporation or other Person maturing no more than two years from the date of acquisition and having, at the time of the acquisition thereof, a rating of at least A-2 from S&P or at least P-2 from Moody’s; (v) certificates of deposit or bankers’ acceptances with maturities of two years or less from the date of acquisition and issued or accepted by any Lender or by any commercial bank organized under the Laws of the United States of America or any state thereof or the District of Columbia that has capital and surplus in excess of $500,000,000; (vi) repurchase obligations for underlying securities of the types described in clauses (ii), (iii) and (v) above entered into with any financial institution or securities dealers of recognized national standing meeting the qualifications specified in clause (v) above, (vii) Indebtedness issued by Persons with a rating of “A” or higher from S&P or “A-2” or higher from Moody’s (or reasonably equivalent ratings of another internationally recognized ratings agency) in each case with maturities not exceeding two years from the date of acquisition, and marketable short-term money market and similar securities having a rating of at least “A-2” or “P-2” from either S&P or Moody’s (or reasonably equivalent ratings of another internationally recognized ratings agency), (viii) investment funds investing at least 95% of their assets in investments of the types described in clauses (i) through (v) above and (ix) below; and (ix) Investments with average maturities of twelve (12) months or less from the date of acquisition in money market funds rated AAA (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moody’s (or reasonably equivalent ratings of another internationally recognized ratings agency).
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(q) “Closing” means the time of issuance and sale of the Notes by the Company to the Purchasers.
(r) “Closing Date” means the date on which Closing occurs.
(s) “Code” means the Internal Revenue Code of 1986, as amended, from time to time.
(t) “Collateral” has the meaning set forth in the Security Agreement.
(u) “Collateral Agent” has the meaning set forth in the Preamble hereto.
(v) “Collateral Agent Fee Letter” means the Fee Letter between the Company and Alter Domus (US) LLC, dated as of even date herewith, relating to the fees and expenses payable to Alter Domus (US) LLC as consideration for its agreement to act as Collateral Agent under this Agreement and the other Transaction Documents.
(w) “Collateral Agent Parties” has the meaning set forth in Section 8.7.
(x) “Collateral Agent’s Expenses” has the meaning set forth in Section 2.4.
(y) “Common Stock” means (i) the Company’s common stock, $0.01 par value per share, and (ii) any other capital stock or securities into which such common stock shall have been changed or any share or other capital resulting from a reclassification of such common stock.
(z) “Company” has the meaning set forth in the Preamble hereto.
(aa) “Company Covered Person” and “Company Covered Persons” have the meaning set forth in Section 3.1.
(bb) “Company Intellectual Property Rights” has the meaning set forth in Section 3.1(j).
(cc) “Company’s knowledge” means the actual knowledge (after due inquiry) of any of the persons identified on Schedule 2 hereto.
(dd) “Competitor” means a Person engaged, directly or indirectly (including through any partnership, limited liability company, corporation, joint venture or similar arrangement (whether now existing or hereafter formed)), in the real estate services business within any state or country in which, at the relevant time, the Company carries on business, but shall not include any financial investment firm or collective investment vehicle that together with its Affiliates, holds less than ten percent (10%) of the outstanding equity of a Competitor.
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(ee) “Consolidated Adjusted EBITDA” means, with respect to the Company and its consolidated Subsidiaries for any period, (i) the sum, without duplication, of the amounts for such period of (A) net income attributed to the Company, plus (B) interest expense, plus (C) provisions for Taxes based on income, plus (D) total depreciation expense, plus (E) total amortization expense, plus (F) net loss attributed to non-controlling interest, plus (G) noncash stock based compensation expense, plus (H) restructuring expenses and impairment expense; provided, that, the cash amount in this clause (H) shall not exceed $5,000,000 in any period, plus (I) non-recurring litigation settlement expense, minus (ii) the sum, without duplication of the amounts for such period of (A) other noncash items increasing net income for such period (excluding any such non cash item to the extent it represents the reversal of an accrual or reserve for potential cash item in any prior period), plus (B) interest income.
(ff) “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.
(gg) “Conversion Date” has the meaning set forth in the Notes.
(hh) “Conversion Shares” has the meaning set forth in the Notes.
(ii) “Current Report” has the meaning set forth in Section 4.5.
(jj) “DGCL” means the General Corporation Law of the State of Delaware, as amended.
(kk) “Disqualified Capital Stock” means any capital stock which, by its terms (or by the terms of any security or other capital stock into which it is convertible or for which it is exchangeable) or upon the happening of any event or condition, (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (ii) is redeemable at the option of the holder thereof, in whole or in part, (iii) provides for scheduled payments or dividends or similar distributions in cash, or (iv) is or becomes convertible into or exchangeable for Indebtedness or any other capital stock that would constitute Disqualified Capital Stock, in each case, prior to the date that is 91 days after the then maturity date of the Notes at the time of issuance, except, in the case of clauses (i) and (ii), if as a result of a change of control event or asset sale or other disposition or casualty event, so long as any rights of the holders thereof to require the redemption thereof upon the occurrence of such a change of control event or asset sale or other disposition or casualty event are subject to the prior payment in full of the Notes; provided, that if such capital stock is issued pursuant to a plan for the benefit of employees of any Note Party or by any such plan to such employees, such capital stock shall not constitute Disqualified Capital Stock solely because it may be required to be repurchased by any Note Party in order to satisfy applicable statutory or regulatory obligations.
(ll) “Disqualification Event” has the meaning set forth in Section 3.1.
(mm) “Disqualified Transferee” has the meaning set forth on Schedule 3.
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(nn) “Dollar(s)” and “$” means lawful money of the United States.
(oo) “DTC” means the Depository Trust Company.
(pp) “Enforceability Exceptions” has the meaning set forth in Section 3.1(d)(iii).
(qq) “Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any governmental authority having the force or effect of law and relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters.
(rr) “Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnity obligations), of any Note Party directly or indirectly resulting from or based upon (i) any violation of any Environmental Law, (ii) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (iii) any exposure to any Hazardous Materials, (iv) the Release or threatened Release of any Hazardous Materials into the environment or (v) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
(ss) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
(tt) “Evaluation Date” has the meaning set forth in Section 3.1.
(uu) “Event of Default” has the meaning set forth in the Notes.
(vv) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(ww) “Excluded Shares” means shares of Common Stock issued to a Holder of a Note pursuant to a Notice of Conversion delivered by such Holder following receipt of a Company Redemption Notice.
(xx) “Excluded Subsidiary” means the Subsidiaries listed on Schedule 1.1(xx).
(yy) “Free Cash Flow” means as of any date of determination, the Operating Cash Flow of the Company and its Subsidiaries less the sum of (i) the Capital Expenditures of the Company and its Subsidiaries, (ii) to the extent not otherwise deducted from Operating Cash Flow, interest payments made on the Notes and (iii) to the extent not otherwise deducted from Operating Cash Flow, Taxes paid.
(zz) “GAAP” means generally accepted accounting principles in the United States, as in effect from time to time.
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(aaa) “Hazardous Materials” means (i) any substance, material, or waste that is included within the definitions of “hazardous substances,” “hazardous materials,” “hazardous waste,” “toxic substances,” “toxic materials,” “toxic waste,” or words of similar import in any Environmental Law; (ii) those substances listed as hazardous substances by the United States Department of Transportation (or any successor agency) (49 C.F.R. 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) (40 C.F.R. Part 302 and amendments thereto); and (iii) any substance, material, or waste that is petroleum, petroleum-related, or a petroleum by-product, asbestos or asbestos-containing material, polychlorinated biphenyls, flammable, explosive, radioactive, freon gas, radon, or a pesticide, herbicide, or any other agricultural chemical.
(bbb) “Immaterial Subsidiary” means, on any date of determination, any Subsidiary designated in writing from time to time as such by the Company, so long as such Subsidiary (x) does not own or hold assets (A) individually, exceeding two and a half percent (2.5%) of the consolidated total assets of the Company and its Subsidiaries or (B) when combined with the assets of all other Immaterial Subsidiaries that are not Note Parties, exceeding five percent (5.0)% of the consolidated total assets of the Company and its Subsidiaries, and (y) does not account for revenue (A) individually, exceeding five percent (5.0%) of the revenue of the Company and its Subsidiaries or (B) when combined with the revenue of all other Immaterial Subsidiaries that are not Note Parties, exceeding ten percent (10.0%) of the revenue of the Company and its Subsidiaries, in each case, for the fiscal quarter most recently ended for which financial statements have been, or are required to have been, disclosed in the SEC Reports and pursuant to Section 4.14. The list of Subsidiaries designated as Immaterial Subsidiaries as of the Closing Date is set forth on Schedule 1.1(xx).
(ccc) “Indebtedness” means, with respect to any Person at any date, without duplication, (i) all indebtedness of such Person for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money (including interest and prepayment penalties or obligations), (ii) all obligations of such Person for the deferred purchase price of property or services including seller notes or earn-out obligations appearing on such Person’s balance sheet in accordance with GAAP (other than trade payables and accrued expenses incurred in the ordinary course of business), (iii) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or the Purchasers under such agreement in the event of default are limited to repossession or sale of such property), (v) the capitalized amount of all capital lease obligations of such Person that would appear on a balance sheet in accordance with GAAP, (vi) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any capital stock of such Person, (vii) all obligations of such Person, contingent or otherwise, with respect to all unpaid drawings in respect of letters of credit, bankers’ acceptances and similar obligations,(viii) any Disqualified Capital Stock issued by any Note Party, (ix) all guarantee obligations of such Person in respect of obligations of the kind referred to in clauses (i) through (viii) above (including guarantees in the form of an agreement to repurchase or reimburse), (ix)
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all obligations of the kind referred to in clauses (i) through (viii) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation, in each case, if and to the extent that any of the foregoing Indebtedness would appear as a liability upon a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP; provided, that, if such Person has not assumed or become liable for the payment of such obligation, the amount of such Indebtedness shall be limited to the lesser of (A) the principal amount of the obligation being secured and (B) the fair market value of the encumbered property; and (x) all Contingent Obligations in respect to indebtedness or obligations of any Person of the kind referred to in clauses (i)-(ix) above. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.
(ddd) “Indemnified Liabilities” has the meaning set forth in Section 7.4.
(eee) “Initial Investors” means KLIM, each of the Purchasers as of the date hereof, and each of their respective Affiliates.
(fff) “Initial Investors’ Ownership Percentage” means, at any relevant time, with respect to the Initial Investors, a percentage equal to the quotient of (i) the total number of shares of Common Stock beneficially owned (as that term is defined in Rule 13d-3 under the Exchange Act) by all Initial Investors in the aggregate (calculated on an as-converted basis (including any Common Stock then issued or potentially issuable in the future pursuant to the Notes), but excluding Excluded Shares) at such time, and (ii) the total number of shares of Common Stock beneficially owned by all Initial Investors in the aggregate as of the Closing Date (calculated on an as-converted basis (including any Common Stock then issued or potentially issuable in the future pursuant to the Notes), but excluding Excluded Shares), as adjusted for any subdivision, share dividend, bonus issue, combination thereof, or other recapitalization or reclassification. For purposes of this definition of “Initial Investors’ Ownership Percentage,” the term “beneficial ownership” shall not take into account any beneficial ownership limitations set forth in the Notes, the effect of which is that all Common Stock that can be issued pursuant to the Notes shall be deemed to be beneficially owned by the Initial Investors for purposes of this definition of “Initial Investors’ Ownership Percentage” notwithstanding any beneficial ownership limitations otherwise set forth in the Notes.
(ggg) “Insider” has the meaning set forth in Section 3.1(i).
(hhh) “Intellectual Property Rights” means all rights, title, and interest in and to the following: (i) issued patents, patent applications (including divisionals, continuations, continuations-in-part, extensions, reexaminations and reissues thereof), patent disclosures, inventions and invention disclosures (whether or not patentable or reduced to practice), (ii) trademarks, service marks, trade dress, trade names, corporate names, d/b/a names, logos and slogans, and Internet domain names and social media handles, together with all
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goodwill associated with each of the foregoing, (iii) copyrights and copyrightable works (both published and unpublished) including all works of authorship, (iv) trade secrets and know-how, (v) computer programs and applications, including source codes and object codes, and generative artificial intelligence tools and algorithms, (vi) all rights of publicity with all goodwill related thereto, (vii) all other intellectual, proprietary or industrial rights, including such rights arising under license agreements, (viii) all issuances, registrations and applications for any of the foregoing and (ix) all rights and remedies relating thereto, including remedies against, and the right to recover damages from, present and past infringement and rights to protection of interests therein.
(iii) “IP Licenses” has the meaning set forth in Section 3.1(j).
(jjj) “IT Systems” has the meaning set forth in Section 3.1.
(kkk) “KLIM” means Kennedy Lewis Investment Management LLC.
(lll) “KLIM Designee” has the meaning set forth in Section 5.1.
(mmm) “Legend Removal Date” has the meaning set forth in Section 4.1(e).
(nnn) “Liabilities” means all direct or indirect liabilities and obligations of any kind of the Company to the Purchasers pursuant to the Notes, this Agreement and/or any of the other Transaction Documents.
(ooo) “Liens” or “lien” means any mortgage, claim, encumbrance, right of first refusal, preemptive right, pledge, lien (statutory or otherwise), security agreement, security interest, conditional sale or trust receipt or a lease, consignment or bailment, preference or priority, assessment, deed of trust, charge, easement, servitude or other encumbrance or restriction upon or with respect to any property of any kind.
(ppp) “Liquidity” means, as of any date of determination, the amount of Unrestricted Cash and Cash Equivalents of the Company and the Subsidiary Guarantors.
(qqq) “Liquidity Covenant Trigger Period” means the period (a) commencing after any two consecutive fiscal quarters from and after the fiscal quarter commencing July 1, 2024, that the Company’s Consolidated Adjusted EBITDA for such fiscal quarters is less than zero dollars ($0) in each such fiscal quarter, and (b) continuing until such time as the Company’s Consolidated Adjusted EBITDA at the end of any subsequent fiscal quarter is greater than zero dollars ($0), in each case based on the financial information delivered pursuant to Section 4.14(a)(i).
(rrr) “Margin Stock” has the meaning set forth in Regulation U of the Board of Governors, as in effect from time to time.
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(sss) “Material Adverse Effect” means any fact, circumstance, occurrence, event, development, change or condition, either individually or together with one or more other contemporaneously existing facts, circumstances, occurrences, events, developments, changes or conditions (except for any such change or conditions that primarily result from the execution and performance of this Agreement and the other Transaction Documents) that has, or would reasonably be expected to have, a materially adverse effect on (i) the business, assets, property, prospects, operations, or condition (financial or otherwise) of the Company and all of its Subsidiaries, taken as a whole, (ii) the ability of the Company to consummate the transactions contemplated herein or in any other Transaction Document, (iii) the validity or enforceability of this Agreement or any of the other Transaction Documents or (iv) the rights or remedies of the Collateral Agent and the Purchasers hereunder or thereunder.
(ttt) “Nomination Condition” has the meaning set forth in Section 5.1.
(uuu) “Note Parties” means, collectively, the Company and each of the Subsidiary Guarantors.
(vvv) “Notes” means all of the Senior Secured Convertible Promissory Notes in the form attached hereto as Exhibit A and any and all Note(s) issued in exchange, transfer or replacement of the Notes.
(www) “OFAC” means the United States Department of the Treasury’s Office of Foreign Assets Control.
(xxx) “Operating Cash Flow” means, as of any date of determination, the cash flows from operating activities of the Company and its Subsidiaries as set forth in the Company’s financial statements delivered or required to be delivered pursuant to Section 4.14.
(yyy) “Organization Documents” means (i) with respect to any corporation or company, the certificate or articles of incorporation, the memorandum and articles of association, any certificates of change of name and/or the bylaws; (ii) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (iii) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, declaration, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable governmental authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
(zzz) “Other Covered Person” has the meaning set forth in Section 3.1.
(aaaa) “Other Documents” has the meaning set forth in Section 3.1.
(bbbb) “Perfection Certificate” means that certain perfection certificate delivered by the Note Parties, dated as of the Closing Date, which shall be in form and substance reasonably satisfactory to KLIM.
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(cccc) “Permitted Distribution Conditions” means:
(i) no Default or Event of Default has occurred and is continuing or would result immediately after giving effect to any dividend or distribution;
(ii) the PIK Option is not currently elected; and
(iii) immediately after giving effect to and at all times during the thirty (30) day period immediately prior to any dividend or distribution, Liquidity (calculated on a pro forma basis immediately after giving effect to such dividend or distribution) shall be no less than $25,000,000.
(dddd) “Permitted Indebtedness” means (i) Indebtedness of the Company evidenced by the Notes, this Agreement and/or any other Document in favor of the Purchasers, including all Liabilities, (ii) capital lease obligations of any Note Party or its Subsidiaries that appears on the balance sheet of such Note Party or its Subsidiaries in accordance with GAAP in an aggregate amount not to exceed $5,000,000; (iii) trade Indebtedness incurred in the ordinary course of business; (iv) the Permitted Revolving Facility; (v) Indebtedness consisting of unsecured intercompany loans and advances incurred by (a) any Note Party owing to any other Note Party and (b) any Note Party owing to any Subsidiary that is not a Note Party in an aggregate amount not to exceed $4,000,000; (vi) Indebtedness in respect of treasury, depositary and cash management services, including netting services, overnight draft protections, controlled disbursement services, ACH and electronic funds transfer, credit cards, merchant cards, purchase cards and debit cards (including procurement cards or p-cards), non-card e-payables services, lockbox services, stop payment services, wire transfer services, arrangements in respect of pooled deposit or sweep accounts, check endorsement guarantees and other similar and customary services in connection with deposit accounts incurred in the ordinary course of business; (vii) Indebtedness to employees, individual service providers, real estate brokers or other agents of the Company or its Subsidiaries, including forgivable loans or retention arrangements extended in the ordinary course of business and consistent with past practice; (viii) Indebtedness with respect to performance bonds, surety and appeal bonds and similar instruments incurred in the ordinary course of business; (ix) Indebtedness arising with respect to customary indemnification obligations and purchase price adjustments in favor of (a) sellers in connection with acquisitions or similar investments and (b) purchasers in connection with dispositions; (x) [reserved]; (xi) other Indebtedness in an aggregate principal amount not to exceed $5,000,000 in the aggregate at any time outstanding; (xii) Indebtedness that is subordinated to, subject to a customary intercreditor agreement in form and substance reasonably acceptable to the Required Purchasers, and not equal to or senior to the Notes; and (xiii) any Refinancing Indebtedness of the foregoing clauses (i) through (xii).
(eeee) “Permitted Liens” means (i) any Lien for Taxes not yet due and payable or being actively contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) mechanics’, materialmens’, carriers’, workmens’, warehousemens’, repairmens’ or landlords’ liens or other like liens and security obligations that are not delinquent, (iii) matters of record, zoning, building or other restrictions, variances, covenants, rights of way, encumbrances, easements and other minor irregularities in title, in each case, which do not materially interfere with the ordinary
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conduct of business of the Company and its Subsidiaries and do not materially detract from the value or use of the property subject thereto, (iv) any Lien on fixed assets arising under capital lease obligations entered into after the date of this Agreement; provided, that, each such lien shall attach only to the property to be acquired, (v) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due and delinquent, (vi) any Lien arising under a Permitted Revolving Facility, (vii) any Liens securing Permitted Indebtedness set forth in clause (i) of the definition of Permitted Indebtedness, (viii) (a) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under the Notes and (b) pledges in cash or deposits made in lieu of, or to secure the performance of, judgment or appeal bonds in respect to such judgments and proceedings described in the foregoing clause (a), (ix) Liens in favor of financial institutions arising in connection with the Company’s or its Subsidiaries’ deposit accounts maintained in the ordinary course held at such institutions to secure standard fees for services charged by, but not financing made available by, such institutions and bankers’ liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with depository institutions and payment processors; provided, that such deposit accounts or funds are not established or deposited for the purposes of providing collateral for any Indebtedness, (x) Liens (other than any Liens imposed by ERISA) (a) consisting of pledges or deposits required in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation or to secure the performance of tenders, statutory obligations, surety, stay, customs and appeals bonds, bids, leases (other than capital leases), governmental contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the repayment of borrowed money or other funded Indebtedness) or to secure liability to insurance carriers and (b) in respect of letters of credit, bank guarantees or similar instruments issued for the account of the Company or any of its Subsidiaries in the ordinary course of business supporting obligations of the type described in the foregoing clause (a), (xi) non-exclusive licenses of Intellectual Property Rights granted to third parties in the ordinary course of business, and (xii) other Liens securing Indebtedness or other obligations outstanding in an aggregate not to exceed $5,000,000 at any time outstanding.
(ffff) “Permitted Revolving Facility” means, one or more debt facilities or arrangements that may be entered into by the Company or other Note Parties providing for revolving credit loans, letters of credit or other revolving indebtedness or other advances, in each case, subject to a customary intercreditor agreement in form and substance reasonably acceptable to the Required Purchasers, in an aggregate amount not to exceed $20,000,000.
(gggg) “Permitted Transferee” means any transferee of the Notes permitted by this Agreement (including any transferee described in Section 4.1(a)).
(hhhh) “Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, county, city, municipal or otherwise including any instrumentality, division, agency, body or department thereof).
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(iiii) “Personal Data” has the meaning set forth in Section 3.1(q).
(jjjj) “Principal Market” means the Trading Market on which the Common Stock is listed or quoted for trading on the date in question, which as of the date hereof is the New York Stock Exchange.
(kkkk) “Purchase Price” means the price to be paid by each Purchaser, in cash, to purchase such Purchaser’s Notes.
(llll) “Purchaser” means (i) each Purchaser identified on the signature pages hereto, and (ii) each Purchaser’s successors and Permitted Transferees (collectively, the “Purchasers”).
(mmmm) “Purchasers’ Expenses” has the meaning set forth in Section 2.4.
(nnnn) “Real Estate Asset” means an interest (fee, leasehold or otherwise) in any real property.
(oooo) “Refinancing Indebtedness” means Indebtedness that serves to refund, refinance, replace, renew, extend or defease any Permitted Indebtedness (including any unpaid interest, premiums, defeasance costs, underwriting discounts, fees, costs and expenses (including original issue discount, upfront fees or similar fees incurred in connection with such refinancing)) in an amount not to exceed the principal amount or liquidation value of the Indebtedness so refinanced, plus premiums, fees and expenses; provided, however, that such Refinancing Indebtedness (x) has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred which is not less than the remaining weighted average life to maturity of the Indebtedness being refinanced (or requires only interest be paid in cash prior to the date that is 91 days after the maturity date of the Notes), or (y) to the extent such Refinancing Indebtedness refinances Indebtedness subordinated to the Notes, such Refinancing Indebtedness is subordinated to the Notes at least to the same extent as the Indebtedness being refinanced.
(pppp) “Register” has the meaning set forth in Section 2.7.
(qqqq) “Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date hereof, as hereinafter amended and/or supplemented, together with all exhibits, schedules and annexes thereto.
(rrrr) “Release” means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, migrating, disposing, or dumping of any substance into the environment.
(ssss) “Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock, including any Conversion Shares, that may be issued pursuant to the terms of the Transaction Documents. For purposes of calculating the Required Minimum, the Company shall assume that the entire Outstanding Balance (as defined in the Notes) of the Notes will remain outstanding until the applicable maturity date of such Notes.
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(tttt) “Required Purchasers” means the Purchasers holding a majority of the then outstanding principal amount (as such amount may be increased from time to time by the amount of interest paid in kind) under all Notes, which shall be the same threshold as the Required Holders under the Notes.
(uuuu) “Sanctions” has the meaning set forth in Section 3.1.
(vvvv) “Sanctioned Country” has the meaning set forth in Section 3.1.
(wwww) “SEC” means the United States Securities and Exchange Commission.
(xxxx) “SEC Reports” has the meaning set forth in Section 3.1(n).
(yyyy) “Secured Parties” means the Collateral Agent and each Purchaser.
(zzzz) “Securities” means the Notes purchased pursuant to this Agreement and all Conversion Shares and any securities of the Company issued in replacement, substitution and/or in connection with any exchange, conversion and/or any other transaction pursuant to which all or any of such securities of the Company are issued to the Purchasers.
(aaaaa) “Securities Act” has the meaning set forth in the Recitals hereof.
(bbbbb) “Security Agreement” means the Security Agreement, dated as of the date hereof, as hereinafter amended and/or supplemented, together with all exhibits, schedules and annexes to such Security Agreement.
(ccccc) “Specified Event of Default” means an Event of Default under Section 6(i) and/or Section 6(vii) of the Notes.
(ddddd) “Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, (ii) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of limited liability, partnership or other similar ownership interests thereof with voting rights at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity (other than a corporation) if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control, directly or indirectly, the manager, managing member, managing director (or a board comprised of any of the foregoing) or general partner of such limited liability company, partnership, association or other business entity. For the avoidance of doubt, a Person’s “Subsidiaries” shall include the Subsidiaries of such Person’s Subsidiaries (including, for the purpose of clarity, any such Subsidiary formed or acquired on or after the Closing).
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(eeeee) “Subsidiary Guarantor” means each Subsidiary of the Company that is party to the Security Agreement, which shall not, for the avoidance of doubt, include any Immaterial Subsidiary or the Excluded Subsidiary, so long as such Person remains an Immaterial Subsidiary or Excluded Subsidiary, as applicable, in accordance with the terms hereof.
(fffff) “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any U.S. federal, state, local or non-U.S. governmental authority, including any interest, additions to tax or penalties applicable thereto.
(ggggg) “Tax Return” means any return, report, declaration, designation, election, undertaking, waiver, notice, filing, information return, statement, form, certificate or any other document, including any related or supporting information with respect to any of the foregoing documents or materials, filed or to be filed with any U.S. federal, state, local or non-U.S. governmental authority in connection with the determination, assessment, collection or administration of Taxes.
(hhhhh) “Trading Day” means any day on which the Common Stock is traded on the Trading Market; provided, that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on the Trading Market for less than four and half (4.5) hours or any day that the Common Stock is suspended from trading during the final hour of trading on the Trading Market (or if the Trading Market does not designate in advance the closing time of trading on the Trading Market, then during the hour ending at 4:00:00 p.m., New York City time) unless such day is otherwise designated as a Trading Day in writing by the Required Purchasers.
(iiiii) “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: The NASDAQ Global Market, The NASDAQ Global Select Market, or The NASDAQ Capital Market, or the New York Stock Exchange, NYSE Arca, or the NYSE MKT (or any successor to any of the foregoing).
(jjjjj) “Transaction Documents” means, collectively, this Agreement, the Notes, the Security Agreement, the Collateral Agent Fee Letter, the Perfection Certificate, the Registration Rights Agreement, and such other documents, instruments, certificates, supplements, amendments, exhibits and schedules required pursuant to and/or attached to this Agreement and/or any of the above documents, and/or any other document whether now existing or at any time hereafter arising designated as such by the Company and KLIM in writing.
(kkkkk) “Transfer” has the meaning set forth in Section 4.1.
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(lllll) “UCC” means the Uniform Commercial Code of as in effect from time to time in the State of New York; provided, however, that, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to the Collateral Agent’s Liens on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.
(mmmmm) “Unrestricted Cash” means (i) unrestricted cash and Cash Equivalents and (ii) cash and Cash Equivalents that are restricted only in favor of the Purchasers established and under a Transaction Document, in each case, whether cash or Cash Equivalents are “unrestricted” or “restricted” is to be determined in accordance with GAAP.
(nnnnn) “Upfront Fee” has the meaning set forth in Section 2.5.
1.2 Other Definitional Provisions.
(a) Use of Defined Terms. Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Transaction Documents.
(b) Construction. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including the Transaction Documents and any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, modified, extended, restated, replaced or supplemented from time to time (subject to any restrictions set forth herein or in any other Transaction Document), (ii) any reference herein to any Person shall be construed to include such Person’s permitted successors and assigns, (iii) the words “hereto”, “herein,” “hereof” and “hereunder,” and words of similar import when used in any Transaction Document, shall be construed to refer to such Transaction Document in its entirety and not to any particular provision thereof, (iv) all references in a Transaction Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Transaction Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified, extended, restated, replaced or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all real and personal property and tangible and intangible assets and properties, including cash, securities, accounts, contract rights and Intellectual Property. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until”
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each mean “to but excluding;” and the word “through” means “to and including.” Section headings herein and in the other Transaction Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Transaction Document. Any reference herein to a merger, transfer, amalgamation, consolidation, assignment, sale, disposition or transfer, or similar term, shall be deemed to apply to a division of or by a limited liability company, or an allocation of assets to a series of a limited liability company (or the unwinding of such a division or allocation), as if it were a merger, transfer, amalgamation, consolidation, assignment, sale, disposition or transfer, or similar term, as applicable, to, of or with a separate Person. Any division of a limited liability company shall constitute a separate Person hereunder (and each division of any limited liability company that is a Subsidiary, joint venture or any other like term shall also constitute such a Person or entity).
(c) UCC Terms. Terms used in this Agreement that are defined in the UCC shall, unless the context indicates otherwise or are otherwise defined in this Agreement, have the meanings provided for by the UCC.
(d) Accounting Terms.
(i) Generally. Except as otherwise specifically prescribed herein, all accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements provided in the SEC Reports, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant contained herein, Indebtedness of the Company and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20, on financial liabilities shall be disregarded.
(ii) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial requirement set forth in any Transaction Document, and either the Company or the Required Purchasers shall so request, the Purchasers and Company shall negotiate in good faith to amend such requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Purchasers); provided, that, until so amended, (i) such requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Company shall provide to the Purchasers financial statements and other documents required under this Agreement or as requested hereunder setting forth a reconciliation between calculations of such requirement made before and after giving effect to such change in GAAP.
(e) Times of Day. Unless otherwise specified, all references herein to times of day shall be references to United States Eastern time (daylight or standard, as applicable).
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ARTICLE 2
PURCHASE AND SALE OF THE NOTES
2.1 Closing. The Closing shall occur at 10:00 am remotely via the electronic exchange of documents and signatures on the date hereof, which shall be the Closing Date.
2.2 Conditions to Purchase of Notes. Subject to the terms and conditions of this Agreement, each Purchaser will, at the Closing on the Closing Date, purchase from the Company, Notes in the amount and for the Purchase Price as set forth on Schedule 1 hereto.
2.3 Purchase Price and Payment of the Purchase Price for the Notes. The Purchase Price for the Notes to be purchased by each Purchaser at the Closing shall be as set forth on Schedule 1 hereto and shall be paid at the Closing (less all of such Purchaser’s pro rata share of the Purchasers’ Expenses and the Upfront Fee) by such Purchaser by wire transfer of immediately available funds to the Company in accordance with the Company’s written wiring instructions, against delivery of the Notes.
2.4 Purchasers’ Costs and Expenses; Collateral Agent’s Costs and Expenses.
(a) On the Closing Date, all reasonable and documented costs and expenses of the Purchasers related to the negotiation, due diligence, preparation, closing, and all other items regarding or related to this Agreement and the other Transaction Documents, including third-party consulting and accounting expenses, and the legal fees and expenses of the Purchasers’ legal counsel, Akin (collectively, the “Purchasers’ Expenses”), shall be due and payable from the Company to the Purchasers; and each Purchaser shall reduce by such Purchaser’s pro rata share of the Purchasers’ Expenses the Purchase Price to be paid to the Company for the purchase of the Notes. Although the Purchasers’ Expenses shall reduce the Purchase Price actually paid to the Company, such Purchasers’ Expenses shall constitute part of such Purchase Price and shall not directly and/or indirectly reduce and/or result in any set-off of the aggregate principal amount of the Notes or result in a set-off and/or reduction of any other funds owed by the Company to the Purchasers. Notwithstanding anything to the contrary contained herein, the Company’s responsibility for the Purchasers’ Expenses to be paid on the Closing Date shall not exceed, in the aggregate, $500,000.
(b) On the Closing Date, all reasonable and documented costs and expenses of the Collateral Agent related to the negotiation, due diligence, preparation, closing, and all other items regarding or related to this Agreement and the other Transaction Documents, including third-party consulting and accounting expenses, and the legal fees and expenses of the Collateral Agent’s legal counsel, Holland & Knight LLP (collectively, the “Collateral Agent’s Expenses”) together with the amount set forth in the Collateral Agent’s Fee Letter, shall be due and payable from the Company to the Collateral Agent by wire transfer, in immediately available funds to the Collateral Agent’s account as set forth in writing to the Company.
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2.5 Upfront Fee. On the Closing Date, the Company shall pay (or shall cause to be paid) to each Purchaser a fee in cash (the “Upfront Fee”) equal to the product of (x) such Purchaser’s Purchase Price as set forth on Schedule 1 hereto multiplied by (y) two and a half percent (2.50%), and each Purchaser shall reduce by such Upfront Fee its respective Purchase Price to be paid to the Company for the purchase of the Notes. Although the Upfront Fee shall reduce Purchase Price actually paid to the Company, such Upfront Fee shall constitute part of such Purchase Price and shall not directly and/or indirectly reduce and/or result in any set-off of the aggregate principal amount of the Notes or result in a set-off and/or reduction of any other funds owed by the Company to the Purchasers.
2.6 Use of Proceeds.
(a) The proceeds actually received by the Company from the sale and issuance of the Notes on the Closing Date shall be used by the Company for the payment of the Company’s transaction expenses in connection with the transactions contemplated hereby and for general corporate purposes.
(b) The Company shall not use any portion of the proceeds from the sale and issuance of the Notes to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors.
2.7 Registration of the Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes (the “Register”). The name and address of each Purchaser of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. If any Purchaser of one or more Notes is a nominee, then (a) the name and address of the beneficial owner of such Note or Notes shall also be registered in such register as an owner and holder thereof and (b) at any such beneficial owner’s option, either such beneficial owner or its nominee may execute any amendment, waiver or consent pursuant to this Agreement or the Notes. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company and the Collateral Agent shall not be affected by any notice or knowledge to the contrary. The Company shall provide to the Collateral Agent, within five (5) Business Days after (i) a request therefor or (ii) any change to the Register, a complete and correct copy of the Register; provided that the Collateral Agent shall be entitled to rely upon the most recent Register that it received from the Company and shall not be liable for any action taken in reliance on the information set forth in such Register.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES; OTHER ITEMS
3.1 Representation and Warranties of the Note Parties. Except with respect to the transactions contemplated by this Agreement and the other Transaction Documents, as set forth in the SEC Reports (excluding any exhibits to any SEC Reports, the disclosures contained in Item 1A of any Annual Report on Form 10-K and any Quarterly Report on Form 10-Q filed by the Company, any disclosures set forth in any “Forward-Looking Statements” disclaimer or any other disclosures set forth in the SEC Reports, in each case to the extent they are hypothetical, non-specific or predictive in nature) or the Schedule of Exceptions, which Schedule of Exceptions shall
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be deemed a part hereof and shall qualify any representation or warranty otherwise made herein to the extent of the disclosure contained in the corresponding section of the Schedule of Exceptions, each Note Party represents and warrants to each Purchaser and the Collateral Agent that, as of the date hereof and as of the Closing Date (unless as of a specific date therein):
(a) Subsidiaries. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, other than Permitted Liens, and all of the issued and outstanding shares of capital stock or other equity ownership interest of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive rights, preferential rights of subscription or purchase, and similar rights to subscribe for or purchase securities. Schedule 3.1(a) correctly sets forth the ownership interest of the Company in each of its Subsidiaries and in their respective Subsidiaries as of the Closing Date.
(b) Organization and Qualification. The Company and each of its Subsidiaries is an entity duly incorporated or otherwise organized and validly existing, and the Company and each of its Subsidiaries is in good standing, under the respective laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any of its Subsidiaries is in violation or default of any of the provisions of its respective Organization Documents. The Company and each of its Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, and no action, suit or proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification, except in each case, as would not reasonably be expected to have a Material Adverse Effect.
(c) No Conflict. The execution, delivery and performance by the Company and each of the Subsidiary Guarantors of the Transaction Documents to which each is a party, the issuance and sale of the Notes by the Company and the grant under the Security Agreement by each Subsidiary Guarantor, the grant and perfection of Liens and security interests in the Collateral pursuant to the Security Agreement and compliance by the Company and each of the Subsidiary Guarantors with the terms thereof, the reservation for issuance of the Required Minimum and the sale and issuance of the Conversion Shares (when issued pursuant to the terms of the Notes), and the consummation of the transactions contemplated by the Transaction Documents will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, result in the termination, modification or acceleration of, or result in the creation or imposition of any Lien upon any property, right or asset of the Company or any of its Subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any property, right or asset of the Company or any of its Subsidiaries is subject (other than any Lien created or imposed pursuant to the Transaction Documents), (ii) result in any violation of the provisions of the Organization Documents of the Company or any of its Subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority (including any rule or regulation of the Principal Market), except in the case of (i) and (iii), as would not reasonably be expected to have a Material Adverse Effect.
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(d) Authorization; Enforcement.
(i) The Company and each of the Subsidiary Guarantors have the requisite power and authority to execute and deliver this Agreement and the other Transaction Documents to the extent party hereto or thereto, including granting the Liens and security interests to be granted by it pursuant to the Transaction Documents and to perform their respective obligations hereunder and thereunder, and all action required to be taken for the due and proper authorization, execution and delivery of the Transaction Documents and the consummation of the Transactions has been duly and validly taken.
(ii) This Agreement has been duly authorized, executed and delivered by the Company.
(iii) The Notes have been duly authorized by the Company and, when duly executed, authenticated, issued and delivered as provided in the Note and paid for as provided herein, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or conveyance or other similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (collectively, the “Enforceability Exceptions”), and will be entitled to the benefits of the Note. The Conversion Shares have been duly authorized for issuance pursuant to the terms of the Notes and, when issued and delivered against payment therefor in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable, and the issuance of the Conversion Shares will not be subject to or in violation of any preemptive or similar rights. Upon issuance and delivery of the Conversion Shares in accordance with the Transaction Documents, the Purchasers will receive good, valid and marketable title to the Conversion Shares, free and clear of all Liens and all restrictions on transfer other than those expressly imposed by the Transaction Documents and applicable securities laws. The Security Agreement has been duly authorized by each of the Subsidiary Guarantors and, when the Notes have been duly executed, authenticated, issued and delivered as provided in the Note and paid for as provided herein, will be valid and legally binding obligations of each of the Subsidiary Guarantors, enforceable against each of the Subsidiary Guarantors in accordance with their terms, subject to the Enforceability Exceptions, and the Purchasers will be entitled to the benefits of the Note and the Security Agreement.
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(iv) Each of the Transaction Documents (other than this Agreement and the Notes) (the “Other Documents”) has been duly authorized by the Company and each of the Subsidiary Guarantors to the extent a party thereto, and on the Closing Date, each of the Other Documents will be duly executed and delivered by the Company and each of the Subsidiary Guarantors, to the extent a party thereto, and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of the Company and each of the Subsidiary Guarantors, to the extent a party thereto, enforceable against the Company and each of the Subsidiary Guarantors, to the extent a party thereto, subject to the Enforceability Exceptions.
(e) Title to Assets. Other than Liens that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries, (ii) are Permitted Liens, or (iii) would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, the Company and its Subsidiaries have (1) good and marketable title to all assets that are material to the respective business of the Company and its Subsidiaries, in each case free and clear of all Liens, and (2) valid rights to lease or otherwise use all items of personal property, in each case free and clear of all Liens.
(f) No Violations of Laws. The Company and its Subsidiaries are not in violation of any applicable law, ordinance, rule, regulation, judgment, decree or order of any federal, state or local governmental body or court and/or regulatory or self-regulatory body, except as would not reasonably be expected to have a Material Adverse Effect.
(g) Taxes. The Company and its Subsidiaries have (i) timely paid when due all Taxes required to have been paid by them (including in their capacity as withholding agents), regardless of whether such Taxes are reflected on any Tax Return, except for any Taxes that are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves in accordance with GAAP have been provided and (ii) duly and timely filed all Tax Returns required to have been filed through the date hereof (and the information contained in such Tax Returns is true, correct and complete in all material respects), except, in each case, as would not reasonably be expected to have a Material Adverse Effect. There are no audits, claims, suits, actions, proceedings, investigations or other actions pending or, to the Company’s knowledge, threatened against the Company or any Subsidiary in respect of Taxes.
(h) Fiscal Year. The fiscal year of the Company ends on December 31 of each year.
(i) Insider Transactions. None of the officers, directors or beneficial owners of greater than 10% of a class of registered equity securities of the Company (each, an “Insider”) is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments to or from any officer, director, Affiliate, or such employee or, to the Company’s knowledge, any entity in which any officer, director, Affiliate, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of
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$120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company in the ordinary course of business and (iii) other employee benefits, including equity award, retention or bonus agreements under equity and other incentive plans of the Company.
(j) Intellectual Property. The Company and its Subsidiaries own or have the valid and enforceable right to use pursuant to license agreements (“IP Licenses”), all Intellectual Property Rights, as necessary or required for use in connection with their respective businesses, except as would reasonably be expected to have a Material Adverse Effect (collectively, the “Company Intellectual Property Rights”). All of the applications and registrations included in owned Intellectual Property Rights are subsisting, and, to the Company’s knowledge, valid, and if registered, enforceable, and the Company and its Subsidiaries are in material compliance with all IP Licenses. In the past six (6) years, neither the Company nor any of its Subsidiaries has received written notice that any of the Company’s or its Subsidiaries’ Intellectual Property Rights has abandoned or terminated, or is expected to abandon or terminate. To the Company’s knowledge, the Company and its Subsidiaries are not infringing, nor, in the past six (6) years, have infringed, misappropriated or otherwise violated any Intellectual Property Rights of any Person in connection with their use of the Company Intellectual Property Rights. In the past six (6) years, neither the Company nor its Subsidiaries has received a written notice of a claim to the contrary. To the Company’s knowledge, there is no existing infringement by another Person of any of the Company Intellectual Property Rights. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its material trade secrets included in the Company Intellectual Property Rights, and, in the past six (6) years and to the Company’s knowledge, no such Company Intellectual Property Rights have been the subject of any unauthorized access and/or use, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(k) Sanctions. Neither the Company nor any of its Subsidiaries, nor any directors, officers, nor, to the Company’s knowledge, employees or Affiliates, nor any agent or other person acting on behalf of the Company or any of its Subsidiaries (x) has been or is in violation of Sanctions or (y) is currently (i) the subject or the target of any sanctions administered or enforced by the United States government (including OFAC, the United States Department of State and United States Department of Commerce), the United Nations Security Council, the European Union, or the United Kingdom (including His Majesty’s Treasury) (collectively, “Sanctions”), (ii) located, organized or resident in a country or territory (A) that is the subject or target of comprehensive Sanctions (currently, the Crimea, so-called Donetsk People’s Republic and so-called Luhansk People’s Republic regions of Ukraine, Kherson, Zaporizhzhia, Cuba, Iran, North Korea and Syria), (B) whose government is the subject or target of Sanctions (including Venezuela) or (C) that is otherwise the subject or target of broad Sanctions (including Afghanistan, Russia and Belarus) (each, a “Sanctioned Country”) or (iii) owned or controlled by a Person described in clause(s) (i) and/or (ii) (each of clauses (i)-(iii), a “Sanctioned Person”). Neither the Company nor any of its Subsidiaries directly or knowingly indirectly have engaged in, nor are now engaged in any dealings or transactions with any Sanctioned Person that at the time of the dealing or transaction is or was a Sanctioned Person or involving any Sanctioned Country in violation of Sanctions. The Company and its Subsidiaries have
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instituted and maintain, and will continue to maintain, policies and procedures reasonably designed to promote and ensure compliance with all Sanctions and the terms hereunder. No action, suit or proceeding by or before any court or governmental or regulatory agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries or any of their respective officers or directors with respect to any Sanctions is pending or, to the Company’s knowledge, threatened.
(l) Reservation of Conversion Shares. The Company has reserved from its duly authorized unissued capital stock a number of shares of Common Stock for issuance of the Conversion Shares at least equal to the Required Minimum.
(m) Capitalization and Voting Rights. The authorized capital stock of the Company and all securities of the Company issued and outstanding are set forth in the SEC Reports. All of the outstanding shares of Common Stock and other capital stock and equity securities of the Company have been duly authorized and validly issued, and are fully paid and nonassessable, and all the outstanding shares of capital stock or other equity interests of each Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of any Lien. There are no agreements or arrangements under which the Company is obligated to register the sale of any of the Company’s securities under the Securities Act. No shares of Common Stock and/or other securities of the Company are entitled to preemptive rights and there are no outstanding debt securities and no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock and/or other securities of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company other than those issued or granted in the ordinary course of business pursuant to the Company’s equity incentive and/or compensatory plans or arrangements. Except for customary transfer restrictions contained in agreements entered into by the Company to sell restricted securities, the Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock and/or other securities of the Company. To the Company’s knowledge, the offer and sale of all capital stock, convertible or exchangeable securities, rights, warrants, options and/or any other securities of the Company when any such securities of the Company were issued complied with all applicable federal and state securities laws, and no current and/or prior holder of any securities of the Company has any right of rescission or damages or any “put” or similar right with respect thereto that would have a Material Adverse Effect. There are no securities or instruments of the Company containing anti-dilution or similar provisions that will be triggered by the issuance and/or sale of the Securities and/or the consummation of the transactions described herein or in any of the other Transaction Documents.
(n) SEC Reports; Financial Statements. The Company has filed all registration statements, proxy statements, reports, schedules, forms, and other statements and documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, since December 29, 2021 (the foregoing materials, including the exhibits thereto and documents incorporated by
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reference therein, being collectively referred to herein as the “SEC Reports”). As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP, applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
(o) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a Material Adverse Effect; (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (1) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (2) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the SEC; (iii) the Company has not altered its method of accounting; (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock; and (v) the Company has not issued any capital stock to any officer, director or Affiliate (other than restricted stock awards disclosed under Section 16 of the Exchange Act by such directors or officers of the Company).
(p) Sarbanes-Oxley; Internal Accounting Controls. The Company and its Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective and apply to them as of the date hereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective and apply to them as of the date hereof and as of the Closing Date. The Company and 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 conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and its Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
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15(e)) for the Company and its Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and its Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
(q) Cybersecurity. (i) The Company and its Subsidiaries’ information technology assets and equipment, computers, systems, networks, hardware, software, websites, applications, and databases (collectively, “IT Systems”) are reasonably adequate for, and operate and perform in all material respects as required in connection with the operation of the business of the Company and its Subsidiaries as currently conducted, and, to the Company’s knowledge, are free and clear of all viruses, worms, bugs, errors, defects, Trojan horses, time bombs, malware, spyware and other corruptants; (ii) the Company and its Subsidiaries have implemented and maintain commercially reasonable controls, policies, procedures, and safeguards consistent with industry standards to maintain and protect (a) the integrity, continuous operation, redundancy and security of all IT Systems; and (b) their confidential information and other data (including all personal, personally identifiable, sensitive, confidential or regulated data (“Personal Data”)) stored or maintained on the IT Systems or on their behalf by third-party vendors; (iii) to the Company’s knowledge, there have been no material breaches, violations, outages or unauthorized uses or disclosures of or accesses to such Personal Data or IT Systems; (iv) to the Company’s knowledge and in the past three (3) years, there have been no investigations relating to Personal Data or IT Systems; (v) the Company and its Subsidiaries have complied and are presently in compliance with all applicable laws and statutes and all applicable judgments, orders, rules and regulations of any applicable court or arbitrator or governmental or regulatory authority, published policies and contractual obligations relating to the privacy and security of IT Systems and Personal Data and to the protection of such IT Systems and Personal Data from unauthorized use, access, disclosure, misappropriation or modification, and, in the past three (3) years, neither the Company nor any of its Subsidiaries has received a written complaint from any governmental body, agency, authority or entity or any other third party regarding its collection, storage, use, disclosure, transfer or other processing of Personal Data that is pending or unresolved; and (vi) the Company and its Subsidiaries have reasonable security measures in place designed to protect any Personal Data under their possession or control from any use or access that would violate applicable law, their applicable privacy policies or any contractual obligations applicable to the Company or any of its Subsidiaries, except, in each case of clauses (i) – (vi), as would not reasonably be expected to have a Material Adverse Effect.
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(r) Absence of Litigation. There are no actions, suits, claims, investigations, inquiries or proceedings pending or, to the Company’s knowledge, threatened to which the Company, any of its Subsidiaries or any of its or their respective directors or officers is or would be a party or of which any of its or their respective properties is or would be subject at law or in equity, before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency, or before or by any self-regulatory organization or other non-governmental regulatory authority (including the Principal Market), other than such actions, suits, claims, investigations, inquiries or proceedings that are described in the SEC Reports or such actions, suits, claims, investigations, inquiries or proceedings that, if resolved adversely to the Company or any of its Subsidiaries or any of its or their respective directors or officers, would not result in liability to the Note Parties in excess of $1,000,000, individually or in the aggregate.
(s) Labor. (i) The Company and its Subsidiaries are in material compliance with all applicable laws related to employment and employment practices, including relating to wages, hours, anti-discrimination, immigration, work rules, hiring, termination, and the Worker Adjustment and Retraining Notification Act and any comparable state or local law, as amended; (ii) there are no actual or, to the Company’s knowledge, threatened unfair labor practice charges, labor grievances, labor arbitrations, or other labor-related or employment-related administrative, arbitral, or judicial complaints, actions, investigations, or proceedings against or affecting the Company or any of its Subsidiaries; and (iii) neither the Company nor any of its Subsidiaries is party to or bound by any collective bargaining agreement, works council agreement, labor union contract, trade union agreement, or other agreement with any labor union, works council, or other labor organization and no such agreement is being negotiated by the Company or any of its Subsidiaries as of the date of this Agreement.
(t) Misconduct. As of the date of this Agreement, to the Company’s knowledge, since December 29, 2021, no allegations of harassment or other misconduct (including any conduct constituting sexual misconduct, harassment (including sexual harassment), discrimination, or retaliation) have been made by any current or former employee of the Company or any of its Subsidiaries against any management-level employee of the Company or any of its Subsidiaries and no employee of the Company or any of its Subsidiaries has engaged in any cover-up of such harassment or misconduct or aided or assisted any other person or entity to engage in any such harassment or misconduct, except as would not reasonably be expected to have a Material Adverse Effect.
(u) Benefit Plans. The Company does not sponsor, maintain, contribute to or have any liability (contingent or otherwise) with respect to any (i) “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA, (ii) employee pension benefit plan that is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code, (iii) “multiple employer welfare arrangement” (as such term is defined in Section 3(40) of ERISA), or (iv) non-qualified deferred compensation plan. The execution of this Agreement will not, with respect to any current or former employee or other individual service provider of the Company or its Subsidiaries: (i) result in the entitlement to any payments or benefits or increase in payment, compensation, or benefits under any benefit plan or otherwise, (ii) accelerate the time of payment or vesting
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of any compensation or benefit (including severance, retention, unemployment compensation or otherwise) due under any benefit plan or otherwise, (iii) result in the forgiveness of any indebtedness, or (iv) result in any payment, right or benefit that (A) would not be deductible under Section 280G of the Code and/or (B) could result in any excise tax on any “disqualified individual” (within the meaning of Section 280G of the Code) under Section 4999 of the Code.
(v) No Integrated Offering. Assuming the accuracy of the representations and warranties set forth in Section 3.2 hereof, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the issuance and/or sale of the Securities to be integrated with prior offerings of securities by the Company for purposes of the Securities Act that would require the registration of any such Securities and/or any other securities of the Company under the Securities Act.
(w) No Consents. No consent, approval, authorization, order, registration, qualification of or with any court or arbitrator or governmental or regulatory authority or similar item is required for the execution, delivery and performance by the Company and each of the Subsidiary Guarantors of each of the Transaction Documents to which each is a party, the issuance and sale of the Securities and the grant under the Security Agreement, the grant and perfection of Liens and security interests in the Collateral pursuant to the Security Agreement and compliance by the Company and each of the Subsidiary Guarantors with the terms hereof and thereof and the consummation of the of the transactions contemplated by the Transaction Documents, except to perfect the security interests granted in the Collateral pursuant to the Security Agreement and the financing statements related thereto, except for the filing of any Registration Statement required by the Registration Rights Agreement. The Company is not in violation of the requirements of the Principal Market and has no knowledge of any facts or circumstances which could reasonably lead to delisting or suspension of the Common Stock.
(x) No General Solicitation. Neither the Company, nor any of its Affiliates, nor any Person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Rule 502(c) of Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act in connection with the offer or sale of the Securities or the Security Agreement.
(y) No Unlawful Payments. Neither the Company nor any of its Subsidiaries, nor any director or officer of the Company or any of its Subsidiaries, nor to the Company’s knowledge, any employee or Affiliate of the Company or any agent or other person acting on behalf of the Company or any of its Subsidiaries has: (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government or regulatory official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting
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in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977 or UK Bribery Act 2010 , each as amended, or any other applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or any other applicable anti-bribery or anti-corruption laws (collectively, “Anti-Corruption Laws”); or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company and its Subsidiaries have instituted and maintain, and will continue to maintain, policies and procedures reasonably designed to promote and ensure compliance with all Anti-Corruption Laws and the terms hereunder. No action, suit or proceeding by or before any court or governmental or regulatory agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries or any of their respective officers or directors with respect to any Anti-Corruption Laws is pending or, to the Company’s knowledge or the knowledge of any of the Subsidiary Guarantors, threatened.
(z) Acknowledgment Regarding the Purchasers’ Purchase of Notes. The Company acknowledges and agrees that each Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the other Transaction Documents. The Company further acknowledges that each Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by the Purchaser or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Purchaser’s purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company.
(aa) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company nor any of its Subsidiaries to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
(bb) Private Placement. Assuming the accuracy of each Purchaser’s representations and warranties set forth in Section 3.2 hereof, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby.
(cc) Registration Rights. Other than the Purchasers, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.
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(dd) Investment Company. Neither the Company nor any Subsidiary Guarantor is, and after giving effect to the offering and sale of the Securities and the grant under the Security Agreement and the application of the proceeds thereof as described herein, none of them will be an “investment company” or any entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
(ee) Rule 506(d) Bad Actor Disqualification Representations and Covenants.
(i) No Disqualification Events. Neither the Company, nor any of its predecessors, Affiliates, any manager, executive officer, other officer of the Company participating in the offering, any beneficial owner (as that term is defined in Rule 13d-3 under the Exchange Act) of twenty percent (20%) or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity as of the date of this Agreement and on the Closing Date (each, a “Company Covered Person” and, together, “Company Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine (A) the identity of each person that is a Company Covered Person; and (B) whether any Company Covered Person is subject to a Disqualification Event. The Company will comply with its disclosure obligations under Rule 506(e).
(ii) Other Covered Persons. The Company is not aware of any person (other than any Company Covered Person) who has been or will be paid (directly or indirectly) remuneration in connection with the purchase and sale of the Notes who is subject to a Disqualification Event (each, an “Other Covered Person”).
(iii) Reasonable Notification Procedures. With respect to each Company Covered Person, the Company has established procedures reasonably designed to ensure that the Company receives notice from each such Company Covered Person of (A) any Disqualification Event relating to that Company Covered Person, and (B) any event that would, with the passage of time, become a Disqualification Event relating to that Company Covered Person; in each case occurring up to and including the Closing Date.
(iv) Notice of Disqualification Events. The Company will notify the Purchasers immediately in writing upon becoming aware of (A) any Disqualification Event relating to any Company Covered Person and (B) any event that would, with the passage of time, become a Disqualification Event relating to any Company Covered Person and/or Other Covered Person.
(ff) Compliance with Anti-Money Laundering Laws. The operations of the Company and its Subsidiaries, and each director and officer and, to the Company’s knowledge, each employee and Affiliate of the Company and each of its Subsidiaries, and each agent and other Person acting on behalf of the Company or any of its Subsidiaries,
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are and have been conducted at all times in compliance with the Currency and Foreign Transactions Reporting Act of 1970, Money Laundering Control Act of 1986, USA PATRIOT ACT, Bank Secrecy Act, UK Proceeds of Crime Act 2002, UK Terrorism Act 2000, each as amended, and applicable money laundering statutes and laws, including of all jurisdictions where the Company or any of its Subsidiaries conducts business, and the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental or regulatory agency (collectively, the “Anti-Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental or regulatory agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries or any of their respective officers or directors with respect to the Anti-Money Laundering Laws is pending or, to the Company’s knowledge or any of the Subsidiary Guarantors, threatened. The Company and its Subsidiaries have instituted and maintain, and will continue to maintain, policies and procedures reasonably designed to promote and ensure compliance with all Anti-Money Laundering Laws and the terms hereunder.
(gg) Shareholder Rights Plan. The Company is not party to any stockholder rights agreement, “poison pill” or similar anti-takeover agreement or plan. The Board of Directors has taken all necessary actions to ensure that no restrictions included in any “control share acquisition,” “fair price,” “moratorium,” “business combination” or other state anti-takeover law (including Section 203 of the DGCL) is, or as of the Closing Date will be, applicable to this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby (including the issuance of the Conversion Shares).
(hh) Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue the Conversion Shares pursuant to the terms of the Notes in accordance with the Transaction Documents is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.
(ii) 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 in the SEC Reports and is not so disclosed.
(jj) Security Interest in Collateral and Seniority. The Transaction Documents create legal and valid first priority security interest in and continuing Liens on all the Collateral in favor of each Purchaser, and upon filing financing statements such Liens will constitute perfected and continuing Liens on the Collateral that can be perfected by filing, securing the Obligations, enforceable against the applicable Note Party and all third parties. As of the Closing Date, no Indebtedness or other claim against the Company or its Subsidiaries is senior to the Notes in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other Permitted Liens.
(kk) Listing of Securities. All Conversion Shares have been approved, if so required, for listing or quotation on the Principal Market, subject only to notice of issuance.
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(ll) DTC Eligible. The Common Stock is DTC eligible and DTC has not placed a “freeze” or a “chill” on the Common Stock and the Company has no reason to believe that DTC has any intention to make the Common Stock not DTC eligible, or place a “freeze” or “chill” on the Common Stock.
(mm) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.
(nn) Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to the Company’s knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the SEC is contemplating terminating such registration. The Company has not, in the twelve (12) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market.
(oo) Insurance. Schedule 3.1(oo) sets forth a description of all material insurance maintained by or on behalf of the Note Parties as of the Closing Date. As of the Closing Date, all premiums in respect of such insurance have been paid to the extent then due. The insurance maintained by or on behalf of the Note Parties is adequate and is customary for companies engaged in the same or similar businesses operating in the same or similar locations.
(pp) Solvency. The Note Parties are, taken as a whole, Solvent, and no transfer of property is being made by any Note Party and no obligation is being incurred by any Note Party in connection with the transactions contemplated by this Agreement or the other Transaction Documents with the intent to hinder, delay or defraud either present or future creditors of such Note Party.
(qq) Beneficial Ownership Certification. As of the Closing Date, the information included in the Beneficial Ownership Certification delivered by any Note Party to KLIM on or before the Closing Date is true and correct in all material respects.
(rr) Environmental Matters. (i) No Note Party has received written notice of any claim with respect to any Environmental Liability or to the Company’s knowledge has incurred any Environmental Liability which, in either case, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect and (ii) except with respect to any other matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, no Note Party (A) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or
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other approval required under any Environmental Law, (B) has become subject to any Environmental Liability, (C) has received notice of any claim with respect to any Environmental Liability or (D) to the Company’s knowledge has incurred any Environmental Liability.
3.2 Representations and Warranties of each Purchaser. Each Purchaser, severally and not jointly, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:
(a) Authorization. Such Purchaser has full power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby and has taken all action necessary to authorize the execution and delivery of this Agreement and the other Transaction Documents to which it is a party, the performance of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby.
(b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to an effective registration statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of business.
(c) Accredited Investor Status; Investment Experience. At the time such Purchaser was offered the Securities it was, and as of the date hereof and as of the Closing Date it is, and on each date on which it converts any portion of the Notes it will be, an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.
(d) Experience of Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
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(f) Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and the Purchasers’ compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchasers set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchasers to acquire the Securities.
(g) Information. Such Purchaser has been afforded the opportunity to ask questions of the Company. Such Purchaser understands that its investment in the Securities involves a high degree of risk. Such Purchaser 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 its Securities. Such Purchaser is relying solely on its own accounting, legal and tax advisors, and not on any statements of the Company or any of its agents or representatives, for such accounting, legal and tax advice with respect to its acquisition of the Securities.
(h) No Governmental Review. Such Purchaser 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 an investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.
(i) Validity; Enforcement; No Conflicts. This Agreement and each Transaction Document to which such Purchaser is a party have been duly and validly authorized, executed and delivered on behalf of such Purchaser and shall constitute the legal, valid and binding obligations of such Purchaser enforceable against such Purchaser in accordance with their respective terms, subject to the Enforceability Exceptions. The execution, delivery and performance of this Agreement and the other Transaction Documents to which such Purchaser is a party and the purchase of the Notes by such Purchaser will not (i) conflict with or result in a violation of the Purchaser’s Organization Documents, (ii) conflict with, or constitute a material default (or an event which, with notice or lapse of time or both, would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which such Purchaser is a party, or (iii) violate in any material respect any law applicable to such Purchaser or by which any of such Purchaser’s properties or assets are bound or affected. Such Purchaser will not require approval or authorization from any governmental authority or agency, regulatory or self-regulatory agency or other third party in connection with the purchase of the Notes and the other transactions contemplated by this Agreement.
(j) Organization and Standing. Such Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction where it was formed.
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(k) Brokers or Finders. No brokerage or finder’s fees or commissions are or will be payable by such Purchaser to any broker, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Company shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section 3.1 that may be due in connection with the transactions contemplated by the Transaction Documents.
(l) Ability to Perform. There are no actions, suits, proceedings or investigations pending against such Purchaser or such Purchaser’s assets before any court or governmental agency (nor is there any threat thereof) that would impair in any way such Purchaser’s ability to enter into and fully perform its commitments and obligations under this Agreement and the Transaction Documents to which it is a party or the transactions contemplated hereby or thereby.
(m) No Conflicts with Sanctions Laws. Such Purchaser, nor, to the knowledge of such Purchaser, any directors, officers, or employees, nor any agent or other person acting on behalf of such Purchaser in connection with the purchase of the Notes is currently the subject or the target of any Sanctions, nor is such Purchaser located, organized or resident in a Sanctioned Country.
(n) Sufficient Funds. Such Purchaser represents and agrees that on the date hereof, Purchaser has access to sufficient available funds to pay the applicable Purchase Price, and on the Closing Date such Purchase Price would be required to be funded to the Company pursuant to Article 2, such Purchaser will have sufficient immediately available funds to pay the Purchase Price pursuant to Article 2.
(o) Such Purchaser acknowledges that it is not relying upon, and has not relied upon, any statement, representation or warranty made by any person, firm or entity (including the Company, any of its Affiliates or any of its or their respective officers, directors, employees, agents or representatives), other than the representations and warranties of the Company expressly set forth in this Agreement and the Transaction Documents, in making its investment or decision to invest in the Securities.
(p) Rule 506(d) Bad Actor Disqualification Representation. Such Purchaser is not subject to any of the Disqualification Events, except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). Such Purchaser will notify the Company immediately in writing upon becoming aware of (A) any Disqualification Event relating to such Purchaser and (B) any event that would, with the passage of time, become a Disqualification Event relating to such Purchaser.
ARTICLE 4
COVENANTS
4.1 Transfer Restrictions.
(a) Subject to compliance with the other provisions of this Section 4.1, the Purchasers may not pledge, sell, assign or otherwise transfer or dispose of, or enter into a swap or other contract or arrangement that transfers, in whole or in part, directly or indirectly, the consequences of ownership or beneficial ownership (as defined under Section 13(d) of the Exchange Act) of any Securities (each of the foregoing, a “Transfer”) without the written consent of the Company (such consent not to be unreasonably withheld or delayed), provided, however, that no such consent shall be required:
(i) for any Transfer of the Securities by a Purchaser to (1) any Affiliate of such Purchaser or KLIM or (2) any corporation, limited liability company, partnership, trust or other entity that is wholly owned, directly or indirectly, by such Purchaser or KLIM;
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(ii) for any Transfer of any Conversion Shares by a Purchaser pursuant to (1) any non-marketed offering taking the form of a block trade to financial institutions, qualified institutional buyers (as defined in Rule 144A under the Securities Act), institutional “accredited investors” (within the meaning of Rule 501(a) under the Securities Act), bought deals, over-night deals or similar transactions, (2) any marketed underwritten offering of Conversion Shares or (3) other broadly marketed or distributed resales or market sales of Conversion Shares through a broker or other intermediary to the extent permitted by applicable law; or
(iii) for any Transfer of the Securities by a Purchaser to any Person following the occurrence of a Specified Event of Default.
(b) Notwithstanding anything to the contrary in this Section 4.1, (i) no Transfer of any Note shall be permitted if, to the knowledge of the Purchaser, such Transfer is made to (A) a Disqualified Transferee, or (B) a Competitor of the Company, and (ii) no Transfer of any Securities shall be permitted if, to the knowledge of the Purchaser, following such Transfer, the transferee and its Affiliates would beneficially own in excess of 9.9% of the Company’s issued and outstanding shares of Common Stock.
(c) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any Transfer of Securities other than pursuant to an effective registration statement or Rule 144 or to a Person described in clauses 4.1(a)(i) or (a)(ii), the Company may require, at the Company’s expense, the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be satisfactory to the Company, to the effect that such Transfer does not require registration of such transferred Securities under the Securities Act.
(d) The Purchasers agree that so long as is required by this Section 4.1, any certificates or book entry records representing the Securities shall contain a restrictive legend in the following form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
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“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL IN A FORM ACCEPTABLE TO THE COMPANY.
(e) Certificates evidencing or book entries representing the Conversion Shares shall not contain any legend (including the legend set forth in Section 4.1(d)) hereof): (i) if such securities have been sold or transferred pursuant to an effective registration statement or (ii) following any sale of such Conversion Shares pursuant to Rule 144. For the avoidance of doubt, the Company shall pay all costs associated with such opinions and counsel to the Company shall provide all opinions with respect to any resales in the public markets pursuant to an effective registration statement or pursuant to Rule 144 at the sole cost of the Company. The Company agrees that at such time as such legend is no longer required under this Section 4.1(e), it will, no later than the earlier of (i) one Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by the Purchaser to the Company of a certificate (or stock power if issued in book entry form) representing Conversion Shares (such date, the “Legend Removal Date”), deliver or cause to be delivered to the Purchaser a certificate representing such shares that is free from all restrictive and other legends (or provide evidence of issuance in book entry form). Certificates for Conversion Shares subject to legend removal hereunder shall be transmitted to the Purchaser by crediting the account of the Purchaser’s prime broker with DTC as directed by the Purchaser. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s Principal Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Conversion Shares, as applicable, issued with a restrictive legend.
4.2 Non-Public Information. Notwithstanding anything to the contrary, this Section 4.2 shall not apply to any Purchaser that is, or whose Affiliate that is, an officer, director or employee of the Company or for any period that an employee of KLIM or its Affiliates is serving as a director of the Company. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents and until all the Liabilities are paid in full, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that constitutes, or that the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential in accordance with Section 4.22. The Company understands that each Purchaser may be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company, and a Purchaser receives such notice and has previously informed the Company it does not wish to receive such information pursuant to Section 4.14(b), the Company shall, within two (2) Trading Days of a written request from such Purchaser, disclose such material non-public information in a Current Report on Form 8-K.
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4.3 Standstill.
(a) KLIM agrees that from the date of this Agreement until the first anniversary of the date on which KLIM no longer has the right to nominate a KLIM Designee to the Board of Directors pursuant to Section 5.1, without the prior written approval of a majority of the disinterested members of the Board of Directors, KLIM shall not, directly or indirectly, and shall cause its Affiliates (including any Purchaser) not to, directly or indirectly:
(i) acquire, agree to acquire, or offer to acquire, by purchase or otherwise, any additional shares of Common Stock or other securities of the Company, other than Conversion Shares issuable or issued upon conversion of the Notes in accordance with the terms thereof;
(ii) make, engage in, or in any way, participate in any “solicitation” of “proxies” (as such terms are used in Regulation 14 of the Exchange Act) to vote, or seek to advise or influence any Person with respect to the voting of, any equity interests of the Company in favor of the election of any person as a director who is not nominated pursuant to the Transaction Documents or by the Board of Directors (or its nominating committee) or in opposition of any individual nominated or designated for appointment or election to the Board of Directors by the Company (including any “withhold,” “vote no” or similar campaign even if conducted as an exempt solicitation);
(iii) nominate any person as a director who is not nominated pursuant to the Transaction Documents or by the Board of Directors (or its nominating committee);
(iv) deposit any equity securities in a voting trust or similar contract or agreement or subject any equity securities to any voting agreement, pooling arrangement or similar arrangement, or grant any proxy with respect to any equity securities (in each case, other than to the Company or a Person specified by the Company in a proxy card (paper or electronic) provided to stockholders of the Company by or on behalf of the Company);
(v) make any public announcement with respect to, enter, agree to enter, propose or offer to enter into any merger, business combination, recapitalization, restructuring, change in control transaction or other similar extraordinary transaction involving the Company or any of its Subsidiaries, or purchase of a material portion of the assets, properties or equity securities of the Company, other than acquisitions of Conversion Shares pursuant to the Transaction Documents in accordance with the terms thereof;
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(vi) form, join or in any way participate in a “group” (as defined in Section 13(d)(3) of the Exchange Act), or knowingly advise, assist or encourage, or enter into any agreement with, any other Person, in connection with any action prohibited by this Section 4.3(a);
(vii) advise or knowingly assist or knowingly encourage or enter into any discussions, negotiations, agreements, or arrangements with any other Persons in connection with the matters prohibited by Section 4.3(a);
(viii) make public disclosure inconsistent with the requirements of this Section 4.3(a), or take any action that would reasonably be expected to require the Company to make any public disclosure with respect to the matters set forth in this Section 4.3(a); or
(ix) publicly disclose any intention, plan, or proposal with respect to any of the foregoing.
(b) Notwithstanding Section 4.3(a), the foregoing provisions of Section 4.3(a): (i) shall not restrict KLIM’s ability to make a confidential proposal to the Board of Directors that is not required to be publicly disclosed under applicable law, (ii) shall not, and are not intended to restrict in any manner how KLIM or its Affiliates votes their Conversion Shares or exercises any rights under this Agreement or any other Transaction Document, and (ii) shall not, and are not intended to restrict in any manner KLIM or its Affiliates (A) from purchasing, holding or trading any Notes, (B) in their respective capacity as a lender of the Company or any of its Affiliates (including exercising, protecting, preserving or enforcing any rights, interests or remedies and/or taking any other actions, in each case in such capacity), or (C) from making any public announcement or statement (each, a “Response”) in response to any public announcement, proposal, offer or solicitation made by any other Person, provided, that at least five (5) Business Days prior to making any such Response, KLIM or its Affiliates shall provide the Company with prior written notice of KLIM’s or its Affiliate’s intention to make the Response and a draft of such Response, and the Company shall have a reasonable opportunity to provide comments to the draft Response, which comments shall be considered by KLIM or its Affiliate (as applicable) in good faith if timely provided.
(c) Notwithstanding Section 4.3(a), the restrictions set forth in this Section 4.3 shall terminate and be of no further force and effect if: (i) the Company enters into a definitive agreement with respect to, or publicly announces that it plans to enter into, a transaction involving more than fifty percent (50%) of any class of the Company’s equity securities, or all or substantially all of the Company’s assets (whether by merger, consolidation, business combination, tender or exchange offer, recapitalization, restructuring, sale, equity issuance, or otherwise), (ii) any Person or group publicly announces or commences a tender or exchange offer to acquire more than fifty percent (50%) of any class of the Company’s equity securities, (iii) a change of a majority of the membership of the Board of Directors (excluding any change approved by a majority of the directors serving on Board of Directors prior to such change), or (iv) any Event of Default under the Notes has occurred and is continuing.
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4.4 Reservation of Shares.
(a) The Company covenants and agrees that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to the Required Minimum.
(b) The Company shall, if applicable: (i) in the time and manner required by the Principal Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer through DTC or another established clearing corporation, including by timely payment of fees to DTC or such other established clearing corporation in connection with such electronic transfer.
4.5 Securities Law Disclosure; Publicity. (i) No later than 9:30 am on the fourth (4th) Trading Day after the date hereof, the Company shall issue a Current Report on Form 8-K (the “Current Report”) disclosing the material terms of the transactions contemplated hereby, and including the Transaction Documents required to be included in such Current Report as exhibits thereto. The Company represents to the Purchasers that, as of the issuance of the first such Current Report, the Company shall have publicly disclosed all material, non-public information delivered to the Purchasers, if any, as of such time by the Company, or any of its respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. The Company shall afford each Purchaser and Akin as Purchasers’ counsel with a reasonable opportunity to review and comment upon, shall consult with them on the form and substance of, and shall consider in good faith all such comments from them on, any press release, SEC filing or any other public disclosure made by or on behalf of the Company relating to such Purchaser, the Transaction Documents and/or the transactions contemplated by any Document, prior to the issuance, filing or public disclosure thereof, and the Company shall not issue, file or publicly disclose any such information to which any Purchaser shall reasonably object, unless required by law. For the avoidance of doubt, the Company shall not be required to submit for review any such disclosure contained in periodic reports filed with the SEC under the Exchange Act if it shall have previously provided the same or substantially the same disclosure for review in connection with a previous filing. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the SEC or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with the filing of final Transaction Documents with the SEC and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).
4.6 Taxes and Liabilities. Until all the Liabilities are paid in full, the Company shall pay when due all of its material Taxes, assessments and other liabilities, except as contested in good faith and by appropriate proceedings diligently conducted and for which adequate reserves in conformity with GAAP have been established.
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4.7 Maintenance of Business; Company Names. Until all the Liabilities are paid in full, the Company shall use commercially reasonable efforts to (i) keep all material property and systems useful and necessary in its business in good working order and condition in all material respects, ordinary wear and tear excepted, (ii) subject to Section 4.11, preserve its existence, rights and privileges in the jurisdiction of its organization or formation 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 (other than such failure to qualify that would not be material to the Company), and (iii) not operate in any business other than a business substantially the same as the business as in effect on the date of this Agreement or any business substantially related or incidental thereto. Until all the Liabilities are paid in full, if the Company changes its name or does business under any other name, the Company shall give Purchasers written notice within five (5) Trading Days following such change.
4.8 Employee Benefit Plans, Etc. Until all the Liabilities are paid in full, the Company shall (i) maintain each employee benefit plan as to which it may have any liability in substantial compliance with all applicable requirements of law and regulations in all material respects, (ii) make all material payments and contributions required to be made pursuant to such plans in a timely manner, and (iii) neither agree nor contribute to any multi-employer plan and/or employee pension benefit plan in a manner that would materially increase its obligation to contribute to such plan.
4.9 Good Title. Until all the Liabilities are paid in full, the Company shall at all times maintain good and marketable title to all of its material assets necessary for the operation of its business.
4.10 Maintenance of Intellectual Property Rights. Until all the Liabilities are paid in full, the Company will take reasonable action necessary to maintain all of the Company-owned Intellectual Property Rights that are necessary or material to the conduct of its business in full force and effect, however the Company has and may decide in the future to abandon certain Company Intellectual Property Rights it deems are not in the best interest of the Company due to non-use or lack of any material commercial value.
4.11 Locations. Until all the Liabilities are paid in full, the Company shall give the Collateral Agent and the Purchasers written notice within five (5) Trading Days following a change in its jurisdiction of organization or within fifteen (15) days following the location of its principal place of business.
4.12 Negative Covenants. Until all the Liabilities are paid in full, the Company covenants and agrees that without the prior written consent of the Required Purchasers:
(a) Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, create, incur, guarantee or assume any Indebtedness, except for Permitted Indebtedness.
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(b) Restricted Payments on Indebtedness. Except as contemplated by the Transaction Documents, the Company shall not, and the Company shall cause each of its Subsidiaries not 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, whether by way of payment in respect of principal of (or premium, if any), or interest on, such Indebtedness, except for Permitted Indebtedness.
(c) Liens. The Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, create, incur, or assume any Liens or security interests with respect to any assets, whether now owned or hereafter acquired and owned, except for Permitted Liens.
(d) Restriction on Redemption and Cash Dividends. From and after the Closing Date, the Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, redeem, retire, repurchase, or declare or pay any dividend or distribution on any of its capital stock whether in cash, stock rights and/or property, other than (i) so long as each Permitted Distribution Condition is met, the declaration or payment of dividends or distributions in cash, in an amount not to exceed Free Cash Flow, (ii) repurchases of Common Stock from current or former officers, employees or directors of the Company and its Subsidiaries (or their permitted transferees or estates) upon their death, disability or termination of employment in an aggregate amount not to exceed $1,000,000 in any fiscal year of the Company, provided, that no Default or Event of Default under the Notes has occurred and is continuing or would result therefrom, (iii) (a) repurchases of Common Stock deemed to occur upon the exercise of stock options, warrants, restricted stock or other convertible or exchangeable securities, if such Common Stock represents a portion of the exercise, conversion or exchange price thereof, and (b) repurchases of Common Stock deemed to occur upon the withholding of a portion of the Common Stock granted or awarded to a current or former officer, director, employee or consultant to pay for the taxes payable by such person upon such grant or award (or upon vesting thereof) and (iv) dividends or distributions by Subsidiaries of the Company to the Company or any other Subsidiary and to each other owner of capital stock of such Subsidiary ratably according to their relative ownership interest of the relevant class of capital stock or as otherwise required by the applicable Organization Documents.
(e) Dissolutions and Bankruptcies. The Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, dissolve the Company or any Subsidiary of the Company; take any action that would result in a Bankruptcy Event; adopt a plan of liquidation of the Company or any of its Subsidiaries; take any action to commence any suit, case, proceeding or other action under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors seeking to have an order for relief entered with respect to the Company or any of its Subsidiaries, or seeking to adjudicate the Company or any of its Subsidiaries as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to the Company or any of its Subsidiaries; appoint a receiver, trustee, custodian or other similar official for the Company or any of its Subsidiaries, or for all or any material portion of the assets of the Company or any of its Subsidiaries; or make a general assignment for the benefit of the creditors of the Company or any of its Subsidiaries.
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(f) Amendments to the Organization Documents. The Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, effect any modification, termination, waiver, supplement, or amendment of any provision of any of its Organization Documents, the Transaction Documents, or otherwise make any changes to such documents (whether by merger, consolidation, conversion, division, or otherwise) in a manner that is materially adverse to the rights, powers, preferences, privileges, or benefits (including distributions, tax treatment, or voting powers) of, or the duties, liabilities, or obligations of, or restrictions upon, the Notes, the Conversion Shares, the Common Stock, or any holder of any of the foregoing.
(g) Board of Directors. The Company shall not increase the size of the Board of Directors to more than seven (7) directors.
(h) Burdensome Agreements. The Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, enter into or permit to exist any agreement or contract or obligation that restricts, or otherwise limits, (a) the Company’s ability to satisfy the Liabilities or issue the Conversion Shares or (b) make dividends or distributions of cash or Cash Equivalents to the Company from its Subsidiaries.
(i) Violation of Law. The Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, (i) violate any law, statute, ordinance, rule, regulation, judgment, decree, order, writ or injunction of any federal, state or local authority, court, agency, bureau, board, commission, department or governmental body if such violation would reasonably be expected to have a Material Adverse Effect; (ii) use the proceeds of the sale and issuance of the Notes, or lend, contribute or otherwise make available such proceeds to any Subsidiary, other Affiliate, joint venture partner or other Person, (I) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws or Anti-Money Laundering Laws or Anti-Terrorism Laws, (II) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or involving any Sanctioned Country or (III) in any manner that would result in the violation of any Sanctions, Anti-Corruption Laws or Anti-Money Laundering Laws by any Person (including any Person participating in the transactions contemplated hereunder, whether as underwriter, advisor lender, investor or otherwise); or (iii) fund all or part of any payment under this Agreement out of proceeds derived from criminal activity or activity or transactions in violation of any Anti-Corruption Laws, Anti-Money Laundering Laws, or Sanctions, or that would otherwise cause any Person (including KLIM or any Person participating in the transaction, whether as Purchaser, underwriter, advisor, investor or otherwise) to be in violation of any Anti-Corruption Laws, Anti-Money Laundering Laws, or Sanctions.
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(j) Transactions with Affiliates. Other than with a Person in its capacity as a Purchaser pursuant to this Agreement, the Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, enter into, amend, renew, extend, terminate, waive any right under, consummate, or be a party to, any transaction or series of related transactions with any officer, director, Affiliate and/or any Affiliate of the foregoing persons, except for (i) transactions made on an arms’ length basis and approved by the Audit Committee of the Board of Directors to the extent required by and in accordance with the Company’s Related Person Transaction Policy, (ii) customary compensation and indemnification of, and other employment arrangements with, directors, officers and employees of the Company or any Subsidiary in the ordinary course of business, (iii) transactions between or among Note Parties, (iv) investments in or Indebtedness extended to Immaterial Subsidiaries or Excluded Subsidiaries to the extent permitted by Sections 4.12(a) or 4.12(l) and subject to the capped amounts therein, (v) amendment, renewal, extension or termination of (a) the Transition Services Agreement, dated as of December 21, 2021, by and between the Company and Vector Group Ltd., (b) the Aircraft Lease Agreement, dated as of December 21, 2021, between VT Equipment Leasing LLC and the Company and (c) the Aircraft Lease Agreement, dated as of December 21, 2021, between VT Aviation Leasing LLC and the Company, in each case of clauses (a) – (c) if such amendment, renewal or extension is on substantially similar terms as in effect on the Closing Date and (vi) any other transactions in existence as of the Closing Date (including renewals or extensions thereof; provided, that such renewals or extensions are on substantially similar terms as in effect on the Closing Date) as set forth on Schedule 4.12(j).
(k) Taxes. The Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, (i) make or change any election with respect to the U.S. federal income tax classification of the Company or any Subsidiary, or (ii) make or change any Tax election, determination or decision that could reasonably be expected to have an adverse effect on the Purchasers or any holder the Notes or the Common Stock.
(l) Investments. The Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly, (i) form or acquire, (ii) make any capital contribution to, (iii) make any investment in, or purchase or commit to purchase any capital stock or other securities of or interests in, (iv) enter into any joint venture, partnership, or other similar arrangement with, or (v) otherwise have or maintain any interest in, any Person that is not a wholly-owned Subsidiary of the Company, except, in each case of clauses (i) – (v), (a) investments in any Excluded Subsidiary not to exceed $4,000,000 in the aggregate, (b) investments consisting of (x) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, (y) so long as no Event of Default exists or would exist after giving effect to such loan, loans to employees, officers, directors or consultants relating to the purchase of equity securities of Note Parties pursuant to employee stock purchase plans or agreements approved by any Note Party’s board of directors (or other governing body) and (z) non-cash loans to employees, officers, directors or consultants related to the purchase of equity interests, (c) investments in or extensions of Indebtedness to employees, individual service providers, real estate brokers or other agents of the Company or its Subsidiaries, including forgivable loans or retention arrangements extended in the ordinary course of business, and (d) other investments not to exceed $5,000,000 in the aggregate at any given time.
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(m) Investment Company. The Company shall not, and shall cause each of its Subsidiaries not to, conduct their respective businesses in a manner so that any of them will become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.
4.13 Liquidity Covenant. During any Liquidity Covenant Trigger Period and until all the Liabilities are paid in full, the Company shall maintain Liquidity equal to at least twenty million dollars ($20,000,000) at the end of each calendar month until the end of such Liquidity Covenant Trigger Period.
4.14 Financial Information.
(a) Subject to Section 4.22, the Company agrees to send the following to each Purchaser until all the Liabilities are paid in full:
(i) within ten (10) days after the end of each calendar month, a certificate executed by a financial officer of the Company (i) certifying as to whether a Default has occurred and is continuing and specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) for each month during which the covenant in Section 4.13 is tested pursuant to the terms herein, setting forth the Liquidity and the Cash Balance itemized for each day during such month and confirming whether the Note Parties have been in compliance with Section 4.13 for such month or, if not, describing any non-compliance and the steps, if any, being taken to cure it and (iii) setting forth the calculation of Free Cash Flow for such month; and
(ii) notices (other than notices delivered for immaterial administrative purposes) and information provided to any lender under the Permitted Revolving Facility (including, for the avoidance of doubt, any reports or information delivered to the administrative agent, trustee or other similar agent acting on behalf of such holders or lenders) at substantially the same times and in the same manner (the Company may fulfill its obligations under this Section 4.14(a)(ii) by causing each Purchaser to have access to any website by which the Company provides information to any lender under the Permitted Revolving Facility); provided, that, the Company shall have no obligation to deliver any such information or materials if such information or materials are publicly available at the time of delivery to the Purchasers; provided, further, that the Company shall have no obligation to and shall not deliver any such information or materials unless with respect to any applicable Purchaser, such Purchaser, by advance written notice to the Company, has elected to receive such information or materials (and such notice has not been rescinded or revoked in a subsequent written notice provided by such Purchaser to the Company).
(b) Notwithstanding the foregoing, a Purchaser may direct the Company in writing not to furnish some or all of such information to it and the Company agrees not to furnish such information to such Purchaser until directed otherwise in writing by such Purchaser. As of the date hereof, no Purchaser has so directed the Company not to furnish any such information.
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(c) The Company agrees to provide each Purchaser with any additional information, documentation or certifications reasonably requested by such Purchaser, including in connection with such Purchaser’s Tax compliance and reporting obligations.
4.15 Notices of Material Events. Until all the Liabilities are paid in full, the Company shall furnish to each Purchaser prompt (but in any event within any time period that may be specified below) written notice of the following:
(a) the occurrence of any Event of Default;
(b) receipt of any written notice of any investigation by a governmental authority or any litigation or proceeding commenced or threatened in writing against any Note Party that (i) in the good faith estimate of the Company could result in damages in excess of $5,000,000, (ii) alleges criminal misconduct by any Note Party, or (iv) asserts liability on the part of any Note Party in excess of $2,500,000 in respect of any tax, fee, assessment, or other governmental charge;
(c) any other development that results in, or would reasonably be expected to result in, a Material Adverse Effect;
(d) any change in the information provided in any Beneficial Ownership Certification delivered to the Collateral Agent and each Purchaser that would result in a change to the list of beneficial owners identified in such certification or any change in the organizational structure of the Note Parties;
(e) the cancellation of any insurance required pursuant to the Transaction Documents;
(f) any casualty or other insured damage to any material portion of the Collateral or the commencement of any action or proceeding for the taking of any material portion of the Collateral or interest therein under power of eminent domain or by condemnation or similar proceeding; and
(g) the occurrence of a “Default” or “Event of Default” (as such terms are defined and used in the loan documents governing any Permitted Revolving Facility), or the delivery or receipt of any notice of a “Default” or “Event of Default”, in connection with any Permitted Revolving Facility.
Each notice delivered under this Section 4.15 shall be accompanied by a statement of a Financial Officer or other executive officer of the Company setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
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4.16 Insurance. Until all the Liabilities are paid in full, each Note Party will maintain with financially sound and reputable carriers (a) insurance in such amounts and against such risks and such other hazards, as is customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations and (b) all insurance required pursuant to the Transaction Documents; provided, that, if after the Closing Date any Note Party that does not carry property insurance as of the Closing Date owns fixed assets in excess of $500,000, then such Note Party shall purchase property insurance in an amount reasonably satisfactory to each Purchaser and, in connection therewith, comply with the terms of the Transaction Documents with respect thereto. Until all the Liabilities are paid in full, the Company will furnish to each Purchaser, upon request, information in reasonable detail as to the insurance so maintained, but, except during the continuance of an Event of Default, it will do so no more frequently than annually.
4.17 Books and Records; Inspection Rights. Until all the Liabilities are paid in full, Each Note Party will (a) keep proper books of record and account in which full, true and correct entries in all material respects are made of all dealings and transactions in relation to its business and activities and (b) subject to Section 4.22, permit any representatives designated by the Collateral Agent and the Purchasers during normal business hours, upon reasonable prior notice, to visit and inspect its properties, conduct at the Note Party’s premises field examinations of the Note Party’s assets, liabilities, books and records, including examining and making extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants (in the presences of its officers), all at such reasonable times and as often as reasonably requested; provided, that unless an Event of Default exists or the Purchasers believe in good faith that an Event of Default may exist, the Collateral Agent and/or the Purchasers will not make the inspections and examinations pursuant to this clause (b) more than once per year without the prior consent of the Company. The Note Parties acknowledge that any Person referenced in clause (b) of the preceding sentence, after exercising its rights of inspection, may prepare and distribute to the Collateral Agent and/or the Purchasers certain reports pertaining to the Note Parties’ assets for internal use by the Purchasers; provided, that such Person and the Purchasers are subject to confidentiality provisions in Section 4.22.
4.18 Additional Collateral; Further Assurances.
Until all the Liabilities are paid in full:
(a) Subject to applicable requirements of law, each Note Party will cause each of its Subsidiaries (other than any Immaterial Subsidiary or Excluded Subsidiary, other than as set forth in clauses (f) or (g), as applicable) formed or acquired after the Closing Date within sixty (60) days (or such longer period approved by the Collateral Agent (at the direction of the Required Purchasers) in writing) after such formation or acquisition to become a Note Party by executing a joinder agreement (or such other documents performing similar functions as may be required by the Collateral Agent (at the direction of the Required Purchasers)); provided, that the Subsidiary is not a Sanctioned Person and such Subsidiary becoming a Note Party shall not cause a violation of Sanctions by any Person (including KLIM). In connection therewith, the Collateral Agent and the Purchasers shall have received all documentation and other information regarding such newly formed or acquired Subsidiaries as may be reasonably requested by KLIM or the Collateral Agent with respect to “know your customer” and Anti-Money Laundering Laws and Sanctions, including the PATRIOT Act (including a completed OFAC questionnaire
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and, if the Company qualifies as a “legal entity customer” under the Beneficial Ownership Regulations, a Beneficial Ownership Certification with respect to the Company). Upon execution and delivery thereof, and upon execution and delivery of a joinder agreement to the Subsidiary Guarantee, each such Person (i) shall automatically become a Subsidiary Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Transaction Documents and (ii) will grant Liens to secure the Notes in any property of such Note Party which constitutes Collateral.
(b) Each Note Party will execute and deliver, or cause to be executed and delivered, to the Collateral Agent and the Purchasers such documents, agreements and instruments, and will take or cause to be taken such further actions (including the delivery of legal opinions, filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries of the type required by the Transaction Documents, as applicable), which may be required by any requirement of law or which the Collateral Agent (at the direction of the Required Purchasers) may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Transaction Documents and to ensure perfection and priority of the Liens created or intended to be created by and in accordance with the Security Agreement, all at the expense of the Note Parties.
(c) With respect to all owned Real Estate Assets with a fee interest in real estate with a fair market value greater than $5,000,000 owned by a Note Party that is acquired after the Closing Date, the applicable Note Party shall within ninety (90) days thereafter (or such later date as approved by the Collateral Agent (at the direction of the Required Purchasers), deliver each of the following, in form and substance reasonably satisfactory to the Collateral Agent and the Required Purchasers:
(i) a mortgage on such property;
(ii) evidence that a counterpart of the mortgage has been recorded in the place necessary, in the Collateral Agent’s (at the direction of the Required Purchasers) reasonable judgment, to create a valid and enforceable Lien in favor of the Collateral Agent;
(iii) ALTA or other mortgagee’s title policy;
(iv) an ALTA survey prepared and certified to the Collateral Agent by a surveyor reasonably acceptable to the Collateral Agent (at the direction of the Required Purchasers);
(v) an opinion of counsel in the state in which such Real Estate Asset is located in form and substance and from counsel reasonably satisfactory to the Collateral Agent and the Required Purchasers;
(vi) if any such parcel of Real Estate Asset is determined by the Purchasers to be in a flood zone, a flood notification form signed by the Company and evidence that flood insurance is in place for the building and contents, all in form and substance satisfactory to the Required Purchasers; and
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(vii) such other information, documentation, and certifications as may be reasonably required by the Collateral Agent (at the direction of the Required Purchasers).
(d) If any material assets are acquired by any Note Party after the Closing Date (other than assets constituting Collateral under the Security Agreement that become subject to the Liens under the Security Agreement upon acquisition thereof), the Company will (i) notify each Purchaser and the Collateral Agent, and, if requested by the Collateral Agent (at the direction of the Required Purchasers), cause such assets to be subjected to a Lien securing the Obligations and (ii) take, and cause each applicable Note Party to take, such actions as shall be necessary or reasonably requested by the Collateral Agent (at the direction of the Required Purchasers) to grant and perfect such Liens created by and in accordance with the Security Agreement, all at the expense of the Note Parties.
(e) The Note Parties shall, from time to time execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take such actions, as the Collateral Agent and/or the Required Purchasers may reasonably request for the purposes of implementing or effectuating the provisions of this Agreement and the other Transaction Documents.
(f) In the event that any Immaterial Subsidiary later ceases to be an Immaterial Subsidiary, or in the event that Subsidiaries designated as Immaterial Subsidiaries at any time, in the aggregate, either (i) own or hold assets, when combined with the assets of all other Immaterial Subsidiaries that are not Note Parties, exceeding five percent (5.0%) of the consolidated total assets of the Company and its Subsidiaries or (ii) account for revenue, when combined with the revenue of all other Immaterial Subsidiaries that are not Note Parties, exceeding ten percent (10.0%) of the revenue of the Company and its Subsidiaries, in either case, as of the end of or for the fiscal quarter most recently ended for which financial statements have been, or are required to have been, disclosed in the SEC Reports and pursuant to Section 4.14, such Subsidiary shall no longer be an Immaterial Subsidiary and Company shall comply, or shall cause its Subsidiaries to comply, with Section 4.18 with respect to such Subsidiary such that, after such designation and compliance, the Subsidiaries designated by the Company as Immaterial Subsidiaries, in the aggregate (i) do not hold assets, when combined with the assets of all other Immaterial Subsidiaries that are not Note Parties, in excess of five percent (5.0%) of the consolidated total assets of the Company and its Subsidiaries and (ii) do not account for revenue, when combined with the revenue of all other Immaterial Subsidiaries that are not Note Parties, in excess of ten percent (10.0%) of the revenue of the Company and its Subsidiaries, in each case, as of the end of or for the fiscal quarter most recently ended for which financial statements have been, or are required to have been, disclosed in the SEC Reports and pursuant to Section 4.14.
(g) In the event that an Excluded Subsidiary becomes a wholly-owned Subsidiary and at any time thereafter is not an Immaterial Subsidiary, the Company shall cause such Excluded Subsidiary to become party to the Security Agreement and otherwise comply with this Section 4.18 with respect to thereto.
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4.19 Secured Obligation. For the avoidance of doubt, the obligations of the Company under the Transaction Documents are secured by the Collateral pursuant to the Security Agreement. Further, the term “Obligations” as defined in the Security Agreement shall include principal of, and interest on the Notes and the loans extended pursuant thereto.
4.20 Sanctions, Anti-Corruption Laws, Anti-Money Laundering Laws. Until all the Liabilities are paid in full, the Company shall, and shall cause each of its Subsidiaries to (i) comply with Sanctions, Anti-Corruption Laws and Anti-Money Laundering Laws, and (ii) review and update, considering the input of the Required Purchasers, during the ninety (90) days after the Closing Date and thereafter maintain the Company’s policies and procedures reasonably designed to promote compliance with all Sanctions, Anti-Corruption Laws and Anti-Money Laundering Laws.
4.21 Directors. David K. Chene shall be duly appointed to the Company’s Board of Directors immediately after the Closing.
4.22 Confidentiality. To the extent any material non-public information is provided pursuant to Sections 4.2, 4.14 or 4.17 to any Purchaser who has not previously informed the Company that it does not wish to receive such information, such Purchaser shall hold in confidence and not otherwise disclose to any Person, whatsoever, any such information. Such Purchaser shall take at least those measures that it takes to protect its own confidential information, but in no event less than a commercially reasonable degree of care, and shall be responsible to the Company for any disclosure or misuse of such information which results from a failure to comply with this Section 4.22.
4.23 Post-Closing. The Company shall (and, if applicable, cause the Note Parties to) take each of the actions set forth on Schedule 4.23 within the time period prescribed therefor on such schedule (as such time period may be extended by the Purchasers in their sole discretion exercised reasonably).
ARTICLE 5
RIGHT TO NOMINATE DIRECTOR
5.1 Nomination Condition. Upon the Closing, for so long as the Initial Investors’ Ownership Percentage is equal to or greater than 33.33% (the “Nomination Condition”), KLIM shall have the right to nominate one (1) Person to serve as a director on the Board of Directors (such Person, a “KLIM Designee”).
5.2 Nominating Procedure. The initial KLIM Designee shall be David K. Chene. The Company shall take all necessary actions to appoint such initial KLIM Designee to the Board of Directors immediately after the Closing. For so long as the Nomination Condition continues to be satisfied, the Company shall nominate the KLIM Designee set forth in Section 5.1 hereof as designated by KLIM in writing for appointment and/or election (or re-election, as applicable) as a director at the end of each term of the KLIM Designee as part of the slate proposed by the Company that is included in the proxy statement (or consent solicitation or similar document) of the Company relating to the election of the Board of Directors. The Company and the Board of
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Directors shall take customary and reasonable actions (which will include the solicitation of proxies) to obtain stockholder approval of the KLIM Designee as director of the Board of Directors, including (i) recommending that the stockholders of the Company vote “FOR” the election of the KLIM Designee and (ii) causing all shares of Common Stock represented by proxies granted to it (or any of its representatives) to be voted in favor of the election of the KLIM Designee as a director of the Company, to the extent permitted pursuant to such proxies. At such time as the Nomination Condition is no longer satisfied, the KLIM Designee shall offer to resign from the Board of Directors and any committees thereof effective immediately. From and after the date that the Nomination Condition is not satisfied, KLIM shall not have any rights under this Article 5.
5.3 KLIM Designee Qualifications. The KLIM Designee shall (a) be approved by a majority of the directors other than the KLIM Designee then serving on the Board of Directors (such approval not to be unreasonably withheld or delayed), (b) be subject to the Company’s Corporate Governance Guidelines, (c) be independent under the applicable rules of the Principal Market, and (d) make himself or herself reasonably available for interviews and consent to such reference and background checks or other investigations as the Board of Directors may reasonably request (and consistent with those performed on other directors of the Company) to determine the KLIM Designee’s eligibility and qualification to serve as a director on the Board of Directors.
5.4 Compensation/Indemnification of KLIM Designee. The KLIM Designee shall be entitled (a) to the same retainer, equity compensation and other fees or compensation, including travel and expense reimbursement, paid to the other directors of the Company for his or her service as a director on the Board of Directors and (b) to the same indemnification rights as other directors of the Company, and the Company shall maintain, in full force and effect, directors’ and officers’ liability insurance in reasonable amounts to the same extent it now indemnifies and provides insurance for the directors on the Board of Directors.
ARTICLE 6
CLOSING CONDITIONS
6.1 Closing Conditions of Purchasers and the Collateral Agent. Each Purchaser’s obligation to purchase the Notes at Closing is subject to the fulfillment of each and every one of the following conditions prior to or contemporaneously with the Closing (unless waived by such Purchaser in writing in its sole and absolute discretion): (a) Delivery of Transaction Documents. Each Purchaser and the Collateral Agent (as applicable) shall have received from the Company each of the following (together with all exhibits, schedules, and annexes to each of the following), in form and substance reasonably satisfactory to such Purchaser and its counsel and, where applicable, duly executed and recorded (to the extent required):
(i) this Agreement;
(ii) the Notes in such Purchaser’s name having the principal amount set forth on Schedule 1 hereto;
(iii) the Security Agreement;
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(iv) the Perfection Certificate;
(v) Collateral Agent Fee Letter; and
(vi) the Company’s wire instructions, on the Company’s letterhead and executed by the Chief Executive Officer or Chief Financial Officer.
(b) [Reserved.]
(c) Additional Conditions. The fulfillment of each and every one of the following conditions prior to or contemporaneously with the Closing:
(i) Representations and Warranties. Each of the representations and warranties made by the Company in or pursuant to the Transaction Documents and all Schedules and/or Exhibits to this Agreement and/or any of the other Transaction Documents shall be true and correct in all material respects on and as of the Closing Date as if made (or given) on and as of such date (except where such representation and warranty speaks of a specific date, in which case such representation and warranty shall be true and correct as of such date).
(ii) No Events of Default. No Event of Default nor any other event that, with the passage of time or the giving of notice or both, would become an Event of Default shall have occurred or would result from the sale of the Notes to the Purchasers or the performance of any other transaction set forth or contemplated by any of the Transaction Documents.
(iii) Compliance with Laws. The Company shall have complied with all applicable federal, state and local governmental laws, rules, regulations and ordinances in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, including the Company shall have obtained all permits and qualifications required by the Principal Market and any applicable state securities or “Blue Sky” laws for the offer and sale of the Securities by the Company to the Purchasers (if any). The Company shall have obtained approval of the Principal Market to list the Conversion Shares.
(iv) No Injunction. No statute, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened in writing or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of, or which would materially modify or delay the execution and performance of, the Transaction Documents and/or any of the transactions contemplated by the Transaction Documents.
(v) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any court or governmental authority shall have been commenced or threatened in writing, and no inquiry or investigation by any governmental authority shall have been commenced or threatened in writing, against the Company, or any of the officers, directors or Affiliates of the Company, seeking to restrain, prevent or change the Transaction Documents and/or any of the transactions contemplated by the Transaction Documents, or seeking material damages in connection with such Transaction Documents and/or transactions.
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(vi) No Material Adverse Effect. No condition, occurrence, state of facts or event constituting a Material Adverse Effect shall have occurred and be continuing.
(vii) No Suspension of Trading in or Notice of Delisting of Common Stock. Trading in the Common Stock shall not have been suspended and/or halted by the SEC, the Principal Market or FINRA. The Company shall not have received any final and non-appealable notice that the listing or quotation of the Common Stock on the Principal Market shall be terminated on a date certain (unless, prior to such date certain, the Common Stock is listed or quoted on any other Trading Market); trading in securities generally as reported on the Principal Market shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the U.S. or New York State authorities; there shall not have been imposed any suspension of electronic trading or settlement services by DTC with respect to the Common Stock that is continuing; the Company shall not have received any notice from DTC to the effect that a suspension of electronic trading or settlement services by DTC with respect to the Common Stock is being imposed or is contemplated (unless, prior to such suspension, DTC shall have notified the Company in writing that DTC has determined not to impose any such suspension); nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis that has had or would reasonably be expected to have a material adverse change in any U.S. financial, credit or securities market that is continuing.
(viii) Opinion. Each Purchaser and the Collateral Agent shall have received customary legal opinions covering each Note Party from (i) Sullivan & Cromwell, LLP, (ii) Porter Hedges LLP and (iii) Gunster, Yoakley & Stewart, P.A..
(ix) Secretary Certificates; Certified Certificate of Incorporation; Good Standing Certificates. Each Purchaser and the Collateral Agent shall have received (i) a certificate of each Note Party, dated the Closing Date and executed by its director, secretary or assistant secretary, which shall (A) certify the resolutions of its board of directors, managers, members or other body in form and substance reasonably satisfactory to each Purchaser, (B) identify by name and title and bear the signatures of the officers of such Note Party authorized to sign the Transaction Documents to which it is a party and, in the case of the Company, its financial officers, and (C) contain appropriate attachments, including the charter, articles or certificate of organization or incorporation of each Note Party certified by the relevant authority of the jurisdiction of organization of such Note Party and a true and correct copy of its bylaws or operating, management or partnership agreement, or other organizational or governing documents and (ii) a good standing certificate for each Note Party from its jurisdiction of organization or incorporation of each Note Party certified by the relevant authority of the jurisdiction of organization of such Note Party.
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(x) Closing Certificate. Each Purchaser and the Collateral Agent shall have received a certificate, signed by a financial officer of the Company, dated as of the Closing Date, stating that clauses (i) and (ii) of this Section 6.1(c) remain true and correct after giving effect to the Notes and other Transaction Documents.
(xi) Solvency Certificate. Each Purchaser and the Collateral Agent shall have received a solvency certificate signed by a financial officer dated the Closing Date in form and substance reasonably satisfactory to each Purchaser, attached hereto as Exhibit B.
(xii) Insurance. The Collateral Agent (for the benefit of the Purchasers) shall have received evidence of insurance coverage in form, scope and substance reasonably satisfactory to the Collateral Agent (at the direction of the Required Purchasers), in each case to the extent required by Section 4.16.
(xiii) Security Interests. The Note Parties shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such financing statement filings that are necessary in order to establish that the Collateral Agent will have (upon, and to the extent specified in the financing statements, such filing and recording) perfected first priority security interest in the Collateral created by and in accordance with the Security Agreement, which security interest in the Collateral is capable of perfection by such filing.
(xiv) Know Your Customer and Other Required Information. KLIM and the Collateral Agent shall have received, no later than three (3) Business Days prior to the Closing Date, all documentation, to include a duly executed IRS Form W-9 or such other applicable IRS Form and other information as has been reasonably requested in writing prior to the Closing Date by KLIM and the Collateral Agent with respect to “know your customer” and Anti-Money Laundering Laws and Sanctions, including the PATRIOT Act (including a completed OFAC questionnaire and, if the Company qualifies as a “legal entity customer” under the Beneficial Ownership Regulations, a Beneficial Ownership Certification with respect to the Company).
(xv) Collateral Agent’s Expenses and Fees. The Collateral Agent shall have received the Collateral Agent’s Expenses and all amounts due under the Collateral Agent Fee Letter in immediately available funds by wire transfer from the Company.
6.2 Closing Conditions of the Company. The obligation of the Company to sell and issue the Notes to the Purchasers at the Closing is subject to the fulfillment, to the Company’s reasonable satisfaction, prior to or contemporaneously with the Closing, of each of the following conditions (unless waived by the Company in writing in its sole and absolute discretion):
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(a) Delivery of Documents. The Company shall have received from each Purchaser and the Collateral Agent each of the following (together with all Exhibits, Schedules, and annexes to each of the following), in form and substance reasonably satisfactory to the Company and its counsel and, where applicable, duly executed and recorded (to the extent required):
(i) this Agreement; and
(ii) the Security Agreement.
(b) Approvals. The receipt by the Company of all governmental and third-party approvals necessary in connection with the execution and performance of the Transaction Documents and the transactions contemplated thereby, all of which consents/approvals shall be in full force and effect.
(c) Additional Conditions. The fulfillment of each and every one of the following conditions prior to or contemporaneously with the Closing:
(i) Representations and Warranties. Each of the representations and warranties made by the Purchasers in or pursuant to the Transaction Documents and all Schedules and/or Exhibits to this Agreement and/or any of the other Transaction Documents shall be true and correct in all material respects on and as of the Closing Date as if made (or given) on and as of such date (except where such representation and warranty speaks of a specific date, in which case such representation and warranty shall be true and correct as of such date).
(ii) Compliance with Laws. The Purchasers shall have complied with all applicable federal, state and local governmental laws, rules, regulations and ordinances in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, including any applicable state securities or “Blue Sky” laws.
(iii) No Injunction. No statute, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened in writing or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of or that would materially modify or delay any of the transactions contemplated by the Transaction Documents.
(iv) Receipt of the Purchase Price. The Company shall have received the Purchase Price from each Purchaser as set forth on Schedule 1 hereto (less the applicable pro rata portion of the Purchasers’ Expenses and the Upfront Fee).
ARTICLE 7
MISCELLANEOUS
7.1 No Waiver; Modifications In Writing. No failure or delay on the part of any Purchaser or the Collateral Agent in exercising any right, power or remedy pursuant to the Transaction Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof, or the exercise
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of any other right, power or remedy. No provision of the Transaction Documents may be waived, modified, supplemented or amended except in a written instrument signed by the Company and the Required Purchasers and the Collateral Agent. Any waiver of any provision of the Transaction Documents and any consent by any Purchaser to any departure by the Company from the terms of any provision of the Transaction Documents shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances.
7.2 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile or e-mail if sent during normal business hours of the recipient; if not, then on the next Business Day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt:
If to the Company:
Douglas Elliman Inc.
4400 Biscayne Boulevard
Miami, Florida 33137
Attn: Marc N. Bell
Email: mbell@dougcorp.com
With copies to:
(which shall not constitute notice):
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Alison S. Ressler; Alan J. Fishman
Email: resslera@sullcrom.com; fishmana@sullcrom.com
If to the Purchasers:
To the address on each Purchaser’s signature page.
With copies to:
(which shall not constitute notice):
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, NY 10036
Attn: Daniel Fisher, Zachary Wittenberg and Ryan Kim
Email: dfisher@akingump.com, zwittenberg@akingump.com,
kimr@akingump.com
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If to the Collateral Agent:
Alter Domus (US) LLC
225 W. Washington St., 9th Floor
Chicago, IL 60606
Attn: Emily Ergang Pappas, Cortland Successor Agent and Legal Department-Agency
Email: emily.ergangpappas@alterdomus.com;
cortlandsuccessoragent@alterdomus.com and legal_agency@alterdomus.com
With copies to:
(which shall not constitute notice)
Holland & Knight LLP
150 N. Riverside Plaza, Suite 2700
Chicago, IL 60606
Attn: Joshua Spencer
Email: Joshua.spencer@hklaw.com and alterdomus@hklaw.com
Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.
7.3 Costs, Expenses and Taxes. Notwithstanding anything to the contrary provided herein or elsewhere, (a) the Company agrees to pay (i) the Purchasers’ Expenses in accordance with Section 2.4(a) hereto, and (ii) the Collateral Agent’s Expenses in accordance with Section 2.4(b) hereto, and (b) the Company shall pay all reasonable and documented out of pocket costs and expenses of (i) the Purchasers in connection with any amendment, modification, waiver, or consent with respect to the Transaction Documents (including reasonable and documented out of pocket expenses for a single firm’s attorneys’ fees) and (ii) the Collateral Agent in connection with any amendment, modification, waiver or consent with respect to the Transaction Documents (including reasonable and documented out of pocket expenses for a single firm’s attorneys’ fees). In addition, the Company shall pay any and all stamp, transfer and other similar Taxes payable or determined to be payable in connection with the execution and delivery of the Transaction Documents and the Company agrees to hold the Purchasers and the Collateral Agent harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such Taxes. If any suit or proceeding arising from any of the foregoing is brought against any Purchaser or the Collateral Agent, the Company (i) to the extent and in the manner reasonably directed by the Purchaser, will resist and defend such suit or proceeding or cause the same to be resisted and defended by counsel reasonably approved by such Purchaser and (ii) indemnify and hold harmless the Collateral Agent. The obligations of the Company under this Section 7.3 shall survive the termination of this Agreement and the discharge of the other obligations of the Company under the Transaction Documents.
7.4 Purchasers’ Indemnity, Etc.
(a) In addition to the payment of expenses pursuant to Section 7.3 hereto, the Company agrees to indemnify, pay and hold each Purchaser, and such Purchaser’s Affiliates and their respective officers, directors, employees, agents, consultants, auditors, and attorneys of any of them (collectively called the “Indemnitees”) harmless from and
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against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) imposed on, incurred by, or asserted against that Indemnitee, in any manner relating to (i) any breach of any of the representations or warranties, or any failure to perform or comply with any covenants or agreements, made by the Company in this Agreement or in any other Transaction Documents or (ii) any proceeding instituted against any Indemnitee, in any capacity, by any stockholder of the Company who is not an Affiliate of such Indemnitee, with respect to any of the transactions contemplated by the Transaction Documents (unless such proceeding is based upon a breach of an Indemnitee’s representations or warranties, or any failure of an Indemnitee to perform or comply with any of its covenants or agreements, in this Agreement or in any other Transaction Documents, or any violations by an Indemnitee of state or federal securities or other laws, or any conduct by such Indemnitee which constitutes bad faith, fraud, gross negligence or willful misconduct) (the “Indemnified Liabilities”); provided, that the Company shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities directly resulting from the fraud, gross negligence or willful misconduct of that Indemnitee, as determined by a court of competent jurisdiction by a final and non-appealable judgment. In no event shall such Purchaser and/or any of its employees, agents, partners, Affiliates, members, equity and/or debt holders, managers, officers, directors and/or other related or similar type of Person, have any liability to the Company and/or any of its officers, directors, employees, agent, attorneys, Affiliates, consultants, equity and/or debt holders except for any actions or lack of actions of such persons that are found by a court of competent jurisdiction after the time for all appeals has passed to have resulted directly from such Person’s fraud, willful misconduct or gross negligence.
(b) If any proceeding with respect to an Indemnified Liability shall be brought or asserted against any Indemnitee, such Indemnitee shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnitee and the payment of all reasonable fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnitee to give such notice shall not relieve the Company of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Company. An Indemnitee shall have the right to employ separate counsel in any such proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnitee unless: (i) the Company has agreed in writing to pay such fees and expenses, (ii) the Company shall have failed promptly to assume the defense of such proceeding or to employ counsel reasonably satisfactory to such Indemnitee in any such proceeding, or (iii) the named parties to any such proceeding (including any impleaded parties) include both such Indemnitee and the Company, and counsel to the Indemnitee shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnitee and the Company (in which case, if such Indemnitee notifies the Company in writing that it elects to employ
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separate counsel at the expense of the Company, the Company shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel (together with any local counsel) shall be at the expense of the Company). The Company shall not be liable for any settlement of any such proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any pending proceeding in respect of which any Indemnitee is a party, unless such settlement includes an unconditional release of such Indemnitee from all liability on claims that are the subject matter of such proceeding.
7.5 Counterparts; Signatures. This Agreement may be executed in any number of counterparts, each of which counterparts, once executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same agreement. This Agreement and the Transaction Documents may be executed by any party to this Agreement or any of the Transaction Documents by original signature, facsimile and/or electronic signature.
7.6 Binding Effects; Assignment. This Agreement shall be binding upon, and inure to the benefit of, each Purchaser, the Collateral Agent, the Company and their respective successors, permitted assigns (including Permitted Transferees), representatives and heirs; provided, that such successor, permitted assign (including any Permitted Transferee), representative or heir is not a Sanctioned Person and the assignment to such Person shall not cause a violation of Sanctions by any Person (including KLIM). The Company shall not assign any of its rights nor delegate any of its obligations under the Transaction Documents without the prior written consent of each of the Purchasers.
7.7 Headings. Captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provision of this Agreement and shall not affect the construction of this Agreement.
7.8 Entire Agreement. This Agreement, together with the other Transaction Documents, contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and therein and supersedes all prior representations, agreements, covenants and understandings, whether oral or written, related to the subject matter of this Agreement and the other Transaction Documents.
7.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED EXCLUSIVELY IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS.
7.10 Severability of Provisions. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
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7.11 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
7.12 JURISDICTION; WAIVER. EACH PARTY HEREBY ACKNOWLEDGES THAT THIS AGREEMENT IS BEING SIGNED BY EACH OTHER PARTY IN PARTIAL CONSIDERATION OF SUCH OTHER PARTY’S RIGHT TO ENFORCE IN THE JURISDICTION STATED BELOW THE TERMS AND PROVISION OF THIS AGREEMENT AND THE TRANSACTION DOCUMENTS. EACH PARTY IRREVOCABLY CONSENTS TO THE EXCLUSIVE AND SOLE JURISDICTION IN THE BOROUGH OF MANHATTAN, NEW YORK AND VENUE IN ANY FEDERAL OR STATE COURT IN THE BOROUGH OF MANHATTAN, NEW YORK FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT THE BOROUGH OF MANHATTAN, NEW YORK IS NOT CONVENIENT. EACH PARTY HEREBY WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST ANY OTHER PARTY IN ANY JURISDICTION EXCEPT NEW YORK, NEW YORK. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THE TRANSACTION DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE SUBJECT OF THE TRANSACTION DOCUMENTS.
7.13 Survival. The representations and warranties of the Company and each Purchaser herein and/or in the other Transaction Documents shall survive the execution and delivery hereof and the Closing Date; the obligations, Liabilities, agreements and covenants of the Company and each Purchaser set forth herein and/or in the other Transaction Documents shall survive the execution and delivery hereof and the Closing Date, as shall all rights and remedies of the Company and each Purchaser set forth in this Agreement and/or in any of the other Transaction Documents.
7.14 No Integration; No Stockholder Approval. Neither the Company, nor any of its Affiliates, nor any person acting on behalf of the Company or such Affiliate, will sell, offer for sale, or solicit offers to buy or otherwise negotiate with respect to any security (as defined in the Securities Act) which will be integrated with the sale and/or issuance of any of the Securities in a manner which would require the registration of the Securities under the Securities Act, or require stockholder approval, under the rules and regulations of the Trading Market for the Common Stock. The Company will take all action that is appropriate or necessary to assure that its offerings of other securities will not be integrated for purposes of the Securities Act or the rules and regulations of the Trading Market, with the issuance of Securities contemplated herein.
7.15 Termination. This Agreement can be terminated by the mutual written consent of the Company and the Purchasers.
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ARTICLE 8
COLLATERAL AGENT
8.1 Appointment of Collateral Agent
(a) Collateral Agent. The Purchasers desire to designate a Person to act as their collateral agent and representative for and on their behalf with respect to all collateral matters and under the Transaction Documents. Accordingly, by execution of this Agreement, each Purchaser hereby irrevocably designates, authorizes and appoints Alter Domus (US) LLC to act as its collateral agent and representative for and on its behalf with respect to all collateral matters and under the Transaction Documents. Each Purchaser hereby grants to the Collateral Agent all such powers and authority as are necessary, desirable or appropriate to carry out the functions and duties delegated or assigned to the Collateral Agent hereunder and thereunder (including the authority to release Collateral from the Liens created under the Transaction Documents under the circumstances specifically provided herein and therein).
(b) Sub-Agents. The Collateral Agent may execute and perform its duties hereunder or under the other Transaction Documents, as the case may be, either directly or by or through any other Person designated by the Collateral Agent in a written notice signed by it and delivered to the Company and each Purchaser (such other Person being a “Sub-Agent”) provided, that the Collateral Agent shall not be responsible for any negligence or other misconduct on the part of any Sub-Agent unless it is determined by a court of competent jurisdiction in a final, non-appealable judgment that the Collateral Agent acted with gross negligence or willful misconduct in the selection of such Sub-Agent. In performing the duties delegated to it by the Collateral Agent, any Sub-Agent shall have the same rights and obligations as the Collateral Agent would have in performing any such duties.
(c) Benefits. The provisions of this Article 8 are solely for the benefit of the Purchasers and the Collateral Agent, and no Note Party or any other Person shall have any rights as a third party beneficiary of any such provisions. In performing its duties under this Agreement and the other Transaction Documents, the Collateral Agent shall act solely as a collateral agent and representative of the Purchasers as provided in this Section 8.1 and the Collateral Agent shall not have, or be deemed to have, by reason of this Agreement or otherwise, any duty (including any fiduciary duty) or obligation toward, or relationship of agency or trust with, any Note Party or any other Person.
8.2 Collateral Agent’s Duties. The Collateral Agent shall undertake to perform such functions and duties, and only such functions and duties, as are specifically set forth in this Agreement and the other Transaction Documents, respectively, and no implied covenants or obligations shall be read into this Agreement or any other Transaction Document against the Collateral Agent. The duties of the Collateral Agent shall be mechanical and administrative in nature, and the Collateral Agent shall not have, or be deemed to have, by reason of this Agreement
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or any other Transaction Document or otherwise, a fiduciary or trust relationship with respect to any Purchaser. Except as expressly set forth in this Agreement and any other Transaction Document, the Collateral Agent shall not have any duty to disclose, and shall not be liable for any failure to disclose, any information relating to any Note Party that is communicated to or obtained by the Collateral Agent or any of its Affiliates in any capacity. Neither the Collateral Agent, nor any of its Affiliates, nor any of its or their respective officers, partners, members, employees, attorneys, agents or representatives, shall be liable for any action taken or suffered by it or them or omitted to be taken by it or them hereunder or under any other Transaction Document, or in connection herewith or therewith, except for damages caused directly by the Collateral Agent’s gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. In no event shall the Collateral Agent be liable or otherwise responsible for (i) any actions taken, or omitted to be taken, by the Collateral Agent in accordance with the instructions of the Required Purchasers (or such other number or percentage of the Purchasers as shall be expressly provided for in this Agreement or in the other Transaction Documents) or (ii) any actions taken by, or omitted to be taken by, or any payments due from, any Note Party or any Affiliate thereof. For the avoidance of doubt and notwithstanding any other language to the contrary contained herein or in any other Transaction Document, the parties acknowledge and agree that no actions taken, or omitted to be taken, by the Collateral Agent in accordance with the instructions of the Required Purchasers (or such other number or percentage of the Purchasers as shall be expressly provided for in this Agreement or in the other Transaction Documents) shall be considered gross negligence or willful misconduct of the Collateral Agent.
In addition, the Collateral Agent shall have no obligation whatsoever to any Purchaser or any other Person to investigate, confirm or assure that property subject to the Liens created by the Transaction Documents exists or is owned by any Note Party or is cared for, protected or insured by any Note Party or has been encumbered, or whether any particular reserves are appropriate, or that the Liens (including Liens established under the laws of a jurisdiction outside the United States of America) granted to the Collateral Agent in or pursuant to the Transaction Documents have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or (except as otherwise expressly provided in this Agreement) to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Collateral Agent in this Agreement or any of the other Transaction Documents, it being understood and agreed that (a) in respect of property subject to the Liens created by the Transaction Documents, or any act, omission or event related thereto, the Collateral Agent may act in accordance with the directions of the Required Purchasers (or such other number or percentage of the Purchasers as shall be expressly provided for in this Agreement or in the other Transaction Documents), and (b) the Collateral Agent shall have no duty or liability whatsoever to any Purchaser, other than liability for its gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Each Purchaser hereby appoints each other Purchaser as its agent for the purpose of perfecting the Collateral Agent’s security interest for the benefit of the Secured Parties in assets which can be perfected by possession. Should any Purchaser obtain possession of any such property subject to the Liens created by the Transaction Documents, such Purchaser shall notify the Collateral Agent thereof and, promptly upon the Collateral Agent’s request therefor, shall deliver such property to the Collateral Agent or in accordance with the Collateral Agent’s instructions.
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8.3 Requests for Instructions. The Required Purchasers (or such other number or percentage of Purchasers as shall be expressly provided for in this Agreement or in the other Transaction Documents) may provide instructions to the Collateral Agent. If the Collateral Agent shall request instructions from the Required Purchasers (or such other number or percentage of the Purchasers as shall be expressly provided for in this Agreement or in the other Transaction Documents) with respect to any act or action (including a failure to act) in connection with this Agreement or any other Transaction Document, the Collateral Agent shall be entitled to refrain from such action or taking such action unless and until it shall have received instructions from the Required Purchasers (or such other number or percentage of the Purchasers) and it shall not incur any liability to any Person (including any Note Party) by reason of so refraining. The Collateral Agent shall be fully justified in failing or refusing to take any action hereunder or under any other Transaction Document (a) if such action would, in the opinion of the Collateral Agent, be contrary to law or the terms of this Agreement or any other Transaction Document or (b) if the Collateral Agent shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Without limiting the foregoing, no Purchaser shall have any right of action whatsoever against the Collateral Agent as a result of the Collateral Agent acting or refraining from taking any action hereunder or under any other Transaction Document in accordance with the instructions of the Required Purchasers (or such other number or percentage of Purchasers as shall be expressly provided for in this Agreement or in the other Transaction Documents).
8.4 Collateral Agent’s Reliance, Etc. Neither the Collateral Agent, nor any of its Affiliates, nor any of its or their respective officers, partners, members, employees, attorneys, sub-agents or representatives shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the other Transaction Documents, except for damages caused by its or their own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Collateral Agent (a) may, in all questions arising hereunder or under any other Transaction Document, consult with legal counsel (to include Company’s counsel), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or other experts, (b) makes no representation or warranty to any Purchaser and shall not be responsible to any Purchaser for any representations, warranties or statements made in or in connection with this Agreement or any other Transaction Document, (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Transaction Documents on the part of any Note Party or to inspect the property subject to the Liens created by the Transaction Documents (including the books and records) of any Note Party, (d) shall not be responsible to any Purchaser for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Transaction Document, or any instrument or document furnished pursuant hereto or thereto, and (e) shall incur no liability under or with respect to this Agreement or any other Transaction Document by acting upon any notice, consent, certificate or other instrument or writing (which may be physical or electronic) believed by it to be genuine and signed or sent by the Person or Persons purported to have signed or sent the same.
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8.5 Collateral Agent and Affiliates. The Collateral Agent and its Affiliates may lend money to, invest in, and generally engage in any kind of business with, any Note Party or any of their respective Affiliates or any other Persons who may do business with or own securities of any Note Party or any such Affiliates or Persons, all as if the Collateral Agent were not the Collateral Agent and without any duty to account therefor to the Purchasers. The Collateral Agent and its Affiliates may accept fees and other consideration from any Note Party for services in connection with this Agreement or otherwise without having to account for the same to the Purchasers.
8.6 Purchaser’s Decisions. Each Purchaser hereby acknowledges that it has, independently and without reliance upon the Collateral Agent or any other Purchaser and based on such documents and information as it has deemed appropriate, made its own credit and financial analysis of the Note Parties and its own decision to enter into this Agreement. Each Purchaser also acknowledges that it will, independently and without reliance upon the Collateral Agent or any other Purchaser and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Each Purchaser acknowledges the potential conflict of interest of each other Purchaser as a result of the Purchaser holding disproportionate interests in the Notes, and expressly consents to, and waives any claim based upon, any such conflict of interest.
8.7 Indemnification of Collateral Agent.
(a) Indemnification by the Company. The Company agrees to indemnify, pay and hold the Collateral Agent and its Affiliate and their respective officers, directors, employees, agents, consultants, auditors, and attorneys of any of them, and their successors and assigns (collectively, together with the Collateral Agent, the “Collateral Agent Parties”) harmless from and against any and all suits, actions, losses, claims, damages, liabilities, obligations, judgments, penalties, expenses and costs of every kind or nature whatsoever, including the reasonable fees and disbursements of counsel for such Collateral Agent Parties in connection with any investigative, administrative or judicial proceeding commenced or threatened (including those between or among the parties to this Agreement or in enforcing the provisions of this Section 8.7), which are or may be imposed upon, incurred by or asserted or awarded against the Collateral Agent or any other Collateral Agent Party in any way relating to or arising out of this Agreement or any other Transaction Document or any action taken or omitted to be taken by the Collateral Agent or any other Collateral Agent Party in connection herewith or therewith; provided, however, that the Company shall not be liable for any portion of such suits, actions, losses, claims, damages, liabilities, obligations, judgments, penalties, expenses and costs resulting primarily from the bad faith, gross negligence or willful misconduct of the Collateral Agent or the other Collateral Agent Parties as determined by a final non-appealable judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Company agrees to reimburse the Collateral Agent and the other Collateral Agent Parties promptly upon demand for any out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by the Collateral Agent or the other Collateral Agent Parties, as the case may be, in connection with the preparation, execution, delivery, administration, modification, amendment, restatement or enforcement of (whether through negotiations, legal proceedings or otherwise), or legal advice sought in respect of rights or responsibilities under, this Agreement and any other Transaction Document. If any proceeding for which the Company is required to indemnify the Collateral Agent Parties pursuant to this Section 8.7(a) shall be brought or asserted against any Collateral Agent Party, the Collateral Agent shall promptly notify the Company in writing. The Collateral Agent agrees to notify the Company prior to any Collateral Agent Party entering into any settlement related to any such proceeding.
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(b) Indemnification by Purchasers. To the extent not indemnified and reimbursed by the Company and without limiting the Company’s obligations in respect thereof, the Purchaser shall, severally and not jointly, based on their respective pro rata holdings of the Notes (for the avoidance of doubt, in the event all Obligations have been paid in full, each Purchaser’s pro rata holding of the Notes shall be determined as of the day immediately prior to the Obligations having been paid in full), indemnify, defend and hold harmless the Collateral Agent Parties from and against any and all suits, actions, losses, claims, damages, liabilities, obligations, judgments, penalties, expenses and costs of every kind or nature whatsoever, including all attorneys’ fees and disbursements and other fees and expenses incurred in, and the costs of preparing for, investigating or defending any matter (including those between or among the parties to this Agreement or in enforcing the provisions of this Section 8.7), which are or may be imposed upon, incurred by or asserted or awarded against the Collateral Agent or any other Collateral Agent Party in any way relating to or arising out of this Agreement or any other Transaction Document or any action taken or omitted to be taken by the Collateral Agent or any other Collateral Agent Party in connection herewith or therewith; provided, however, that no Purchaser shall be liable for any portion of such suits, actions, losses, claims, damages, liabilities, obligations, judgments, penalties, expenses and costs resulting primarily from the gross negligence or willful misconduct of the Collateral Agent or the other Collateral Agent Parties as determined by a final non-appealable judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, each Purchaser agrees to reimburse the Collateral Agent and the other Collateral Agent Parties, promptly upon demand, for its pro rata share of any out-of-pocket costs and expenses (including attorneys’ fees and disbursements) incurred by the Collateral Agent or the other Collateral Agent Parties, as the case may be, in connection with the preparation, execution, delivery, administration, modification, amendment, restatement or enforcement of (whether through negotiations, legal proceedings or otherwise), or legal advice sought in respect of rights or responsibilities under, this Agreement and any other Transaction Document, in each case to the extent the Collateral Agent or the other Collateral Agent Parties are not reimbursed for such costs or expenses by the Company.
(c) Survival. The obligations of the Company and the Purchasers under this Section 8.7 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement, the Notes or any other Transaction Document, the termination of this Agreement, and the resignation or removal of the Collateral Agent.
8.8 Successor Collateral Agent. The Collateral Agent may resign at any time by furnishing not less than 20 days’ prior written notice thereof to the Purchasers and the Company and may be removed at any time upon not less than 10 days’ prior written notice thereof from the Required Purchasers. Upon receipt by the Purchasers of any such notice of resignation or upon receipt by the Collateral Agent of any such notice of removal, the Required Purchasers shall have, with the prior consent of the Company (not to be unreasonably withheld or delayed), the right to appoint a Person to act as a successor Collateral Agent. If no successor Collateral Agent shall
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have been so appointed by the Required Purchasers (including as a result of non-consent by the Company) and shall have accepted such appointment within 20 days after the resigning Collateral Agent’s giving such notice of resignation or within 10 days after the Required Purchasers’ giving such notice of removal (as the case may be), the resigning or removed Collateral Agent may, on behalf of the Purchaser, appoint a Person to act as a successor Collateral Agent, which shall be a Purchaser, if a Purchaser is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution if such commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least US $1,000,000,000. If no successor Collateral Agent has been appointed pursuant to the foregoing sentence within 20 days after the date such notice of resignation was given by the resigning Collateral Agent or within 10 days after the date such notice of removal was given by the Required Purchasers (as the case may be), such resignation or removal shall become effective and the Required Purchasers shall thereafter perform all duties of such resigning or removed Collateral Agent hereunder and under the other Transaction Documents until such time, if any, as the Required Purchasers appoint a successor Collateral Agent as provided above. Upon the acceptance by any Person of any appointment as the successor Collateral Agent hereunder, such successor Collateral Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Collateral Agent. Upon the earlier of the acceptance by any Person of any appointment as a successor Collateral Agent hereunder or the effective date of resignation of the resigning Collateral Agent or removal of the Collateral Agent (as applicable), the resigning or removed Collateral Agent shall be discharged from its duties and obligations under this Agreement and the other Finance Documents, except that any indemnity rights or other rights in favor of such resigning or removed Collateral Agent or other Collateral Agent Parties shall continue in their favor. After the resignation or removal of any Collateral Agent hereunder, the provisions of this Article 8 and Section 7.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent under this Agreement and the other Transaction Documents.
8.9 Dissemination of Information. Each Purchaser acknowledges that the Company is required to provide certain financial and other information to the Purchasers in accordance with this Agreement and agrees that the Collateral Agent shall not have a duty to provide any of the same to such Purchaser.
8.10 Actions in Concert. Notwithstanding anything to the contrary, the Collateral Agent and each Purchaser hereby agrees that (a) no Purchaser shall have any right individually to take any action to protect or enforce its rights under or arising out of any Transaction Document, including without limitation, the exercise of any rights of setoff, exercise of any rights upon any of the property subject to the Liens created by the Transaction Documents (it being understood and agreed that all powers, rights and remedies under the Transaction Documents may be exercised solely by the Collateral Agent for the benefit of the Collateral Agent and the Purchasers in accordance with the terms thereof), (b) in the event of a foreclosure by the Collateral Agent on any of the property subject to the Liens created by the Collateral Documents pursuant to a public or private sale, the Collateral Agent or any Purchaser may be the purchaser of any or all of such property at any such sale and (c) the Collateral Agent, as Collateral Agent for and representative of the Purchasers (but not any Purchaser or Purchasers in its or their respective individual capacities unless the Required Purchasers (or such other number or percentage of the holders of
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the Notes as shall be expressly provided for in this Agreement or in the other Transaction Documents) shall otherwise agree in writing) shall be entitled (either directly or through one or more acquisition vehicles), for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the property subject to the Liens created by the Collateral Documents to be sold (i) at any public or private sale, (ii) at any sale or foreclosure conducted by the Collateral Agent or the Purchasers (whether by judicial action or otherwise) in accordance with applicable law or (iii) any sale conducted pursuant to the provisions of any bankruptcy law, to use and apply all or any of the obligations under the Transaction Documents as a credit on account of the purchase price for any property subject to the Liens created by the Transaction Documents payable by the Collateral Agent at such sale. Any act or action of the Collateral Agent pursuant to this Section 8.10 shall be taken at the written direction of the Required Purchasers; provided that any such act or action effecting the release of the Liens on all or substantially all of the Collateral shall be taken only at the written direction of each Purchaser of a Note at the time outstanding.
8.11 Defaults. The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Collateral Agent shall have received a written notice from the Company or a Purchaser specifying that a Default or Event of Default shall have occurred and is continuing and which conspicuously states that such written notice is a “notice of default.” In the event the Collateral Agent receives such a notice of the occurrence of a Default or Event of Default, it shall give prompt notice thereof to the Purchasers. The Collateral Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Required Purchasers (or such other number or percentage of Purchasers as shall be expressly provided for in this Agreement or in the other Transaction Documents); provided, however, that unless and until the Collateral Agent shall have received such directions, it may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Purchasers (and shall provide the Purchasers with notice of any action taken by the Collateral Agent following any Event of Default), except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Required Purchasers or all Purchasers, as is required in such circumstance.
8.12 No Bonds. The Collateral Agent shall not be required to post any bond.
8.13 Obligation to Make Payments in Dollars. All payments to be made by the Company or any other Note Party of principal, interest, fees or other obligations under any Transaction Document shall be made in Dollars in same day funds, and no obligation of any Note Party to make any such payment shall be discharged or satisfied by any payment other than payments made in United States Dollars in same day funds.
8.14 Loss of Value The Collateral Agent shall not be liable or responsible for any loss or diminution in value of any of the property subject to the Liens created by the Collateral Documents, by reason of the act or omission of any Person.
8.15 Transferees of Notes. Each Purchaser, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Article 8 as though it were a party to this Agreement.
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[BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written.
| COMPANY: DOUGLAS ELLIMAN INC. | ||
| By: | /s/ J. Bryant Kirkland III | |
| Name: | J. Bryant Kirkland III | |
| Title: | Senior Vice President and Chief Financial Officer | |
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written.
| KENNEDY LEWIS INVESTMENT MANAGEMENT LLC | ||
| By: | /s/ Anthony Pasqua | |
| Name: | Anthony Pasqua | |
| Title: | Authorized Signatory | |
PURCHASER SIGNATURE PAGES TO DOUGLAS ELLIMAN INC. SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| Name of Purchaser: | KLIM Delta HQC3 LP | |||
| Signature of Authorized Signatory of Purchaser: | /s/ Anthony Pasqua | |||
| Name of Authorized Signatory: | Anthony Pasqua | |||
| Title of Authorized Signatory: | Authorized Signatory | |||
PURCHASER SIGNATURE PAGES TO DOUGLAS ELLIMAN INC. SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| Name of Purchaser: | KLCP Fund III (EU) Master AIV LP | |||
| Signature of Authorized Signatory of Purchaser: | /s/ Anthony Pasqua | |||
| Name of Authorized Signatory: | Anthony Pasqua | |||
| Title of Authorized Signatory: | Authorized Signatory | |||
Exhibit 10.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL IN A FORM ACCEPTABLE TO THE COMPANY.
| Original Issue Date: July 2, 2024 | Initial Principal Amount: $ |
Form of
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
DUE JULY 2, 2029
THIS SENIOR SECURED CONVERTIBLE PROMISSORY NOTE is the duly authorized and validly issued convertible promissory note of Douglas Elliman Inc., a Delaware corporation (the “Company”), having its principal place of business at 4400 Biscayne Boulevard, Miami, Florida 33137, designated as its Senior Secured Convertible Promissory Note due July 2, 2029 (the “Note”).
FOR VALUE RECEIVED, the Company promises to pay to ____________ or its registered permitted assigns (the “Holder”) the principal sum of $___________, plus any principal amount added thereto as interest paid in kind in accordance with Section 2 below, on July 2, 2029 (the “Maturity Date”), or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note (as such amount may be increased from time to time by the amount of interest paid in kind) in accordance with the provisions hereof. This Note is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement (as defined below) and (b) the following terms shall have the following meanings:
“Additional MW Shares” shall have the meaning set forth in Section 5(d)(i).
“Affiliate” of any Person means any other Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such first Person, as such terms are used in and construed under Rule 405 under the Securities Act; provided that in no event shall the Company, any of its Subsidiaries, or any of the Company’s other controlled Affiliates be deemed to be Affiliates of the Holder or any of its Affiliates for purposes of this Note.
“Antitrust Laws” shall have the meaning set forth in Section 4(e).
“As-Converted Amount” means an amount equal to the sum of (a) the fair market value of the Conversion Shares to be received by the Holder upon conversion of this Note, calculated as if the entire Outstanding Balance of this Note had been converted into Common Stock immediately prior to the date on which an applicable Major Transaction occurs or becomes effective plus (b) without duplication, the fair market value of any Additional MW Shares issuable to the Holder in connection with such Major Transaction pursuant to the terms hereof. The fair market value of each share of Common Stock comprising the Conversion Shares shall equal the Current Market Price therefor as of the Major Transaction Valuation Date with respect to the applicable Major Transaction.
“Attribution Parties” means, collectively, the following Persons: (i) any investment vehicle, including any funds, feeder funds, or managed accounts, currently or from time to time after the date of this Note, 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, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder or any Attribution Parties and (iv) any other Persons whose beneficial ownership of the Common Stock would or could be aggregated with the Holder’s and/or any other Attribution Parties for purposes of Section 13(d) or Section 16 of the Exchange Act. For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Beneficial Ownership Limitation.
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Board of Directors” means the board of directors of the Company.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Company Redemption” shall have the meaning set forth in Section 7.
“Company Redemption Notice” shall have the meaning set forth in Section 7.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof (including, if this Note is converted after the Company’s delivery of a Company Redemption Notice or the delivery of a Mandatory Repayment notice with respect to a Major Transaction, the Additional MW Shares).
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“Current Market Price” means, for each share of Common Stock as of any applicable record date for any issuance, distribution, dividend or other action or as of the Major Transaction Valuation Date with respect to any Major Transaction or as of the date a Company Redemption Notice is given, the arithmetic average of the VWAP per share of Common Stock for each of the ten (10) consecutive Trading Days ending on the Trading Day before the record date with respect to such issuance, distribution, dividend or other action or such Major Transaction Valuation Date or such Company Redemption Notice date, as the case may be, appropriately adjusting any VWAP to take into account the occurrence during such period of, or of the record date or ex-dividend date for, any event described in Section 5(a).
“Distribution Transaction” shall have the meaning set forth in Section 5(a)(iii).
“DTC” means the Depository Trust Company.
“DTC/FAST Program” means DTC’s Fast Automated Securities Transfer Program.
“Event Effective Date” shall have the meaning set forth in Section 5(d)(i)(1).
“Event of Default” shall have the meaning set forth in Section 6(a).
“Excess Shares” has the meaning set forth in Section 4(d).
“Expiration Date” shall have the meaning set forth in Section 5(a)(v).
“Fixed Interest Payment Date” shall have the meaning set forth in Section 2(a).
“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.
“IRS” means the U.S. Internal Revenue Service.
“Late Fees” shall have the meaning set forth in Section 2(c).
“Major Transaction” means the occurrence after the date hereof of any of (a) a Person or Group has become the direct or indirect beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of in excess of fifty percent (50%) of the aggregate voting power of the then-issued and outstanding voting securities of the Company (other than by means of conversion of the Notes), (b) the Common Stock, or, in the case of a merger, consolidation or other similar transaction, the equity securities of the Successor Entity, shall cease to be listed on a Trading Market, (c) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction (in their capacity as such) own less than fifty percent (50%) of the aggregate voting power of the Company or the successor entity of such transaction, (d) the Company sells or transfers all or substantially all of its assets to one or more third parties, (e) the Company sells or transfers all or substantially all of the Property Management Business to one or more third parties or (f) the stockholders of the Company approve any plan or proposal for liquidation, dissolution or winding up of the Company.
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“Major Transaction Make-Whole Premium” means the sum of the present values of the remaining scheduled payments of interest on the Notes through the Maturity Date (assuming all such interest is paid in full in cash and excluding interest accrued to the date of the Mandatory Repayment) discounted to the date of the Mandatory Repayment on a semi-annual basis (assuming a three hundred sixty (360)-day year, consisting of twelve (12) thirty (30) calendar day periods) at the Treasury Rate plus 50 basis points.
“Major Transaction Valuation Date” means, with respect to any Major Transaction, the later of (i) the date on which the Major Transaction occurs or becomes effective and (ii) the date ten (10) consecutive Trading Days after the date on which the Major Transaction is first publicly announced.
“Mandatory Repayment” shall have the meaning set forth in Section 8(a).
“Mandatory Repayment Price” means an amount equal to the greater of (i) the Redemption Premium and (ii) the As-Converted Amount.
“MW Share Price” has the meaning set forth in Section 5(d)(i)(2).
“MW Table” has the meaning set forth in Section 5(d)(i).
“Note Register” shall have the meaning set forth in Section 3(c).
“Notes” means the Senior Secured Convertible Promissory Notes due July 2, 2029 originally issued by the Company on the Original Issue Date pursuant to the Purchase Agreement and any Notes thereafter issued by the Company in exchange or substitution for any Notes.
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“NYSE” means the New York Stock Exchange.
“Optional Repayment Major Transaction” means a Major Transaction that is a Major Transaction solely arising under clause (b) or (e) of the definition of Major Transaction.
“Original Issue Date” means the date of the first issuance of the Notes, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence any Note.
“Outstanding Balance” shall have the meaning set forth in Section 4(c)(i).
“Portfolio Interest Certificate” has the meaning set forth in Section 2(d).
“Property Management Business” means the business of Residential Management Group, LLC as of the date hereof.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of July 2, 2024, by and among the Company and the Purchasers, as amended, modified or supplemented from time to time in accordance with its terms.
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“Qualifying Major Transaction” means any Major Transaction if (but only if):
(i) such Major Transaction is not an Optional Repayment Major Transaction as to which one or more Holders of Notes have declined the Mandatory Repayment;
(ii) the Company has given the Holders at least fifteen (15) calendar days prior written notice of the Mandatory Repayment;
(iii) the Company has delivered the Conversion Shares in full for any Notes converted after the date of delivery of the Mandatory Repayment notice with respect to such Major Transaction, provided, that the Share Delivery Date for any such Notes converted is no later than the date on which such Major Transaction occurs or becomes effective; and
(iv) the Company has paid the Mandatory Repayment Price on all the outstanding Notes in full on the date on which such Major Transaction occurs or becomes effective.
“Redemption Amount” shall have the meaning set forth in Section 7.
“Redemption Premium” means the sum of the Redemption Price plus the Major Transaction Make-Whole Premium.
“Redemption Price” shall have the meaning set forth in Section 7.
“Reference Property” shall have the meaning set forth in Section 9(a)(i).
“Registration Statement” means a registration statement covering the resale of the Conversion Shares by each Holder.
“Required Holders” means such Holders holding a majority of the then outstanding principal amount (as such amount may be increased from time to time by the amount of interest paid in kind) under all Notes, which shall be the same threshold as the Required Purchasers under the Purchase Agreement.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
“Share Exchange Event” shall have the meaning set forth in Section 9(a).
“Successor Entity” shall have the meaning set forth in Section 9(a).
“Successor Event” shall have the meaning set forth in Section 9(a).
“Tender/Exchange Offer Valuation Period” shall have the meaning set forth in Section 5(a)(v).
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“Treasury Rate” means, with respect to any Major Transaction Make-Whole Premium, the yield determined by the Company after 4:15 p.m., New York City time (or after such time as yields on U.S. government securities are posted daily by the Board of Governors), on the Trading Day immediately preceding the Major Transaction Valuation Date based upon the yield or yields for the most recent day that appear after such time on such day in the most recent statistical release published by the Board of Governors designated as “Selected Interest Rates (Daily)—H.15” (or any successor designation or publication) (“H.15”) under the caption “U.S. government securities—Treasury constant maturities—Nominal” (or any successor caption or heading) (“H.15 TCM”). In determining the Treasury Rate, the Company shall select, as applicable: (1) the yield for the Treasury constant maturity on H.15 exactly equal to the period from the Major Transaction Valuation Date to the Maturity Date (the “Remaining Life”); or (2) if there is no such Treasury constant maturity on H.15 exactly equal to the Remaining Life, the two yields—one yield corresponding to the Treasury constant maturity on H.15 immediately shorter than and one yield corresponding to the Treasury constant maturity on H.15 immediately longer than the Remaining Life—and shall interpolate to the Maturity Date on a straight-line basis (using the actual number of days) using such yields and rounding the result to three decimal places; or (3) if there is no such Treasury constant maturity on H.15 shorter than or longer than the Remaining Life, the yield for the single Treasury constant maturity on H.15 closest to the Remaining Life.
“Unanticipated Event” shall have the meaning set forth in Section 5(f).
“U.S. Person” means a “United States person” as defined in Section 7701(a)(30) of the Code.
“VWAP” per share of Common Stock on any Trading Day means the per share volume-weighted average price as displayed under the heading Bloomberg VWAP on Bloomberg (or, if Bloomberg ceases to publish such price, any successor service reasonably chosen by the Company) page “LLAP <equity> AQR” (or its equivalent successor if such page is not available) in respect of the period from the open of trading on the relevant Trading Day until the close of trading on such Trading Day (or if such volume-weighted average price is unavailable, the market price of one share of Common Stock on such Trading Day determined, using a volume-weighted average method).
Section 2. Interest.
(a) Payment of Interest. The Company shall pay interest to the Holder semi-annually on the principal amount of this Note (as such amount may be increased from time to time by the amount of interest paid in kind thereon) at a rate equal to, at the Company’s option (provided that such option shall be exercised in the same manner with respect to all Notes then outstanding): (x) seven percent (7.00%) per annum, to the extent paid in cash, or (y) if no Event of Default has occurred or is continuing, eight percent (8.00%), to the extent paid in kind (the “PIK Option”). Interest that is accrued during the PIK Option shall be, when due and payable, paid by capitalizing such interest (rounded down to the nearest $1.00) and adding such capitalized interest (rounded down to the nearest $1.00) to the then-outstanding principal amount of this Note, and any interest to be so capitalized pursuant to this clause shall be capitalized and added to the then-outstanding principal amount on the day on which interest shall be payable and, thereafter, shall bear interest as provided hereunder as if it had originally been part of the outstanding principal amount of this Note (in each case, which such interest rate may be increased as provided elsewhere herein). Interest provided for in this Section 2(a) shall be due and payable on the last calendar day of each
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of November and May and on the Maturity Date (the “Fixed Interest Payment Date”); provided, however, notwithstanding anything to the contrary provided herein or elsewhere, interest accrued but not yet paid will be due and payable upon any prepayment and/or acceleration whether as a result of an Event of Default or otherwise (or, upon any conversion, included as part of the Outstanding Balance being converted) with respect to the principal amount being so prepaid and/or accelerated or converted. With respect to the Company’s election as to method of payment of interest due on a Fixed Interest Payment Date, in the absence of written notice to the holder hereof of such election prior to 5 p.m. ET on such date, the Company shall be deemed to have elected to pay such amount in kind if such amount has not been paid in full in cash prior to such time.
(b) Interest Calculations. Interest shall be calculated on the basis of a three hundred sixty (360)-day year, consisting of twelve (12) thirty (30) calendar day periods, and shall accrue commencing on the Original Issue Date until payment in full of the outstanding principal (as such amount may be increased from time to time by the amount of interest paid in kind), together with all accrued and unpaid interest and other amounts (including any make-whole premium) which may become due hereunder. Interest hereunder will be paid to the Person in whose name this Note is registered in the Note Register.
(c) Late Fees. All overdue accrued and unpaid interest or other amounts to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of (i) the rate per annum of interest payable in cash as specified in Section 2(a) plus 1.00% per annum or (ii) the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest or other amount is due hereunder through and including the date of actual payment in full.
(d) Withholding. The Company may withhold from amounts payable to the Holder under this Note as required by applicable law. Notwithstanding the foregoing, the Company agrees that no withholding shall be required under the Code absent a change in law after the date hereof, provided that the Holder has provided the Company with:
(i) if the Holder is a U.S. Person, an IRS Form W-9; or
(ii) if the Holder is not a U.S. Person, either:
(1) an IRS Form W-8BEN or W-8BEN-E, as applicable, together with a certificate establishing that no withholding is required as a result of either Section 871(h) of the Code or Section 881(c) of the Code (a “Portfolio Interest Certificate”); or
(2) an IRS Form W-8IMY, accompanied by IRS Forms W-9 or W-8 required to be attached thereto, together with a Portfolio Interest Certificate from such Holder’s applicable beneficial owners.
(e) All amounts payable under this Note shall be paid in U.S. dollars by wire transfer of immediately available funds to such account at such bank as the Holder shall notify the Company from time to time.
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Section 3. Registration of Transfers and Exchanges.
(a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, and is eligible for registration of transfer into one or more Notes of an equal aggregate principal amount registered in the names of one or more other or additional Holders, subject to the restrictions set forth in the Purchase Agreement and so long as each exceeds $200,000 and integral multiples of $1.00 in excess thereof, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.
(b) Investment Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance therewith, as well as with applicable federal and state securities laws and regulations.
(c) Reliance on Note Register. The Company shall keep at its principal office a register in which the Company shall record the name and address of the Holder as holder of this Note on the Original Issue Date and of any assignments or transfers of this Note to the Holder’s assigns and transferees (the “Note Register”). The entries in the Note Register shall be conclusive absent manifest error. The new holder or holders upon an assignment or transfer shall be subject to the terms and conditions specified herein. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. It is the intention of the parties that this Note shall be issued in “registered form” within the meaning of Section 163(f) of the Code, and the Company shall take all steps necessary to effectuate such treatment.
Section 4. Conversion.
(a) Voluntary Conversion. At any time and from time to time, commencing on the Original Issue Date until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into validly issued, fully paid and non-assessable shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the portion of the Outstanding Balance of the Note (and corresponding portion thereof constituting principal) to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire Outstanding Balance has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to such portion of the applicable Outstanding Balance being converted
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that constitutes principal. The Holder and the Company shall maintain a Conversion Schedule showing the principal amount(s) and/or any other amounts due under this Note converted and the date of such conversion(s). The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof (as such amount may be increased from time to time by the amount of interest paid in kind).
(b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $1.50, subject to adjustment as set forth herein (the “Conversion Price”). For avoidance of doubt, all references in this Note to the Conversion Price shall be construed to include adjustments as set forth herein.
(c) Mechanics of Conversion.
(i) Conversion Shares Issuable upon a Conversion. The number of Conversion Shares issuable upon a conversion hereunder shall be equal to the sum of (A) an amount determined by dividing (1) the sum of (x) the outstanding principal amount of this Note to be converted as provided in the applicable Notice of Conversion (as such amount may be increased from time to time by the amount of interest paid in kind), (y) accrued and unpaid interest thereon (as if the Company elected the PIK Option for amounts owed since the most recent Fixed Interest Payment Date to, but not including, the Conversion Date) and (z) any other amount due under this Note and the other Transaction Documents in respect of the portion of the Note to be converted (the sum of (x), (y) and (z), the “Outstanding Balance”), by (2) the Conversion Price, and (B) any Additional MW Shares, if any.
(ii) Delivery of Certificate upon Conversion. Not later than two (2) Trading Days after any Conversion Date (the “Share Delivery Date”), the Company shall, at its expense, deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares (or a book entry account statement from the Company’s transfer agent representing the Conversion Shares), which, on or after the date on which (x) the resale of such Conversion Shares are covered by and such Conversion Shares have been sold pursuant to an effective Registration Statement or (y) such Conversion Shares have been sold under Rule 144 shall be free of restrictive legends and trading restrictions representing the number of Conversion Shares being acquired and sold, as the case may be, upon the conversion of this Note. All certificates (or account statements) evidencing a book-entry interest in the Conversion Shares required to be delivered by the Company under this Section 4(c) that do not bear a restrictive legend shall be delivered electronically through DTC or another established clearing corporation performing similar functions, unless the Company or its transfer agent does not have an account with DTC and/or is not participating in the DTC/FAST System, in which case the Company shall issue and deliver to the address as specified in such Notice of Conversion a certificate or certificates, registered in the name of the Holder or its designee, for the number of Conversion Shares to which the Holder shall be entitled. If the Conversion Shares are not being sold pursuant to an effective Registration Statement or under Rule 144, the Conversion Shares, including certificates (or account statements) evidencing a book-entry interest therein, shall be delivered to the Holder by the Company’s transfer agent and shall bear a restrictive legend in the following form, as appropriate:
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“THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL IN A FORM ACCEPTABLE TO THE COMPANY.”
(iii) Obligation Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance that might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.
(iv) Reservation of Shares Issuable upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to the Required Minimum for the sole purpose of issuance upon conversion of this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
(v) Regulatory Compliance. If any Common Stock to be reserved for the purpose of conversion of this Note requires registration or listing with or approval of any governmental authority, national securities exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, secure such registration, listing or approval, as the case may be.
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(vi) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share that the Holder would otherwise be entitled to purchase upon such conversion, the Company shall, at the Company’s election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price, or round up to the next whole share.
(vii) Transfer Taxes and Expenses. The issuance of Common Stock (including any certificates in respect thereof) on conversion of this Note shall be made without charge to the Holder hereof for any transfer, documentary, issuance, stamp or similar taxes and all other costs and expenses that may be payable in respect of the issue or delivery of such Common Stock (including, without limitation, fees and expenses of any transfer agent that may be payable with respect thereto).
(d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, and any such conversion shall be null and void and treated as if never made, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Attribution Parties) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock that are issuable upon (i) conversion of the remaining, unconverted Outstanding Balance of this Note beneficially owned by the Holder or any of its Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Attribution Parties) and of which principal amount of this Note is convertible shall be the sole responsibility of the Holder, and the submission of a Notice of Conversion in compliance with the limitation contained in this Section 4(d) shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Attribution Parties) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this Section 4(d). In addition, a determination as to group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the SEC, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock
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outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. In the event that the issuance of shares of Common Stock to a Holder upon conversion of this Note results in such Holder together with its Attribution Parties being deemed to beneficially own, in the aggregate, more than the Beneficial Ownership Limitation, the number of shares so issued by which such Holder’s and the other Attribution Parties’ aggregate beneficial ownership exceeds the Beneficial Ownership Limitation (the “Excess Shares”) shall be deemed null and void and shall be cancelled ab initio, and such Holder and its Attribution Parties shall not have the power to vote or to transfer the Excess Shares, and any portion of the Note so converted shall be reinstated in full. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Beneficial Ownership Limitation provisions of this Section 4(d) shall cease to apply (i) during the thirty (30) calendar day period following the Company’s delivery of a Company Redemption Notice; provided, that immediately following such period, the Beneficial Ownership Limitation provisions of this Section 4(d) shall apply in full, and (ii) upon the payment of the Mandatory Repayment Price, if such Mandatory Repayment Price is paid in shares of Common Stock. The Holder, upon not less than sixty-one (61) days’ prior written notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d); provided, that the Beneficial Ownership Limitation in no event exceeds 24.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. Any such increase or decrease will not be effective until the sixty-first (61st) day after such notice is delivered to the Company. Without limiting the interpretation of any other section of this Note, the Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph may not be waived except as set forth in the following sentences of this Section 4(d) and shall apply to a successor holder of this Note. Notwithstanding any provision of this Section 4(d), (i) the Holder and (ii) subject to the next sentence, a majority of the members of the Board of Directors may together agree to waive the provisions of this Section 4(d). If persons affiliated with the Holder or its Attribution Parties constitute a majority of the members of the Board of Directors, the consent in (ii) shall instead be provided by a majority of the members of the Board of Directors that are not affiliated with the Holder or its Attribution Parties.
(e) Antitrust and Foreign Investment Laws. The Company shall only issue Common Stock upon conversion of this Note or otherwise pursuant to the terms of this Note to the extent the issuance of such Common Stock would not exceed the aggregate amount of Common Stock that the Company may issue without violating the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any antitrust laws of other jurisdictions or any foreign investment laws applicable in connection with the issuance of the Common Stock upon conversion of this Note (the “Antitrust Laws”), except that such limitation shall not apply in the event that (i) the
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Holder (and, if applicable, the Company or any of its Subsidiaries) obtains the necessary regulatory approvals as required by any applicable antitrust laws or foreign investment laws or (ii) the Holder (and, if applicable, the Company or any of its Subsidiaries) obtains a written opinion from counsel to the Holder (or, in the case of the Company or its Subsidiaries, counsel to the Company) that such approval(s) are not required. Until written notification to the Company from the Holder of the circumstances set forth in clauses (i) or (ii) of the preceding sentence, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that issuance of the Conversion Shares upon such Notice of Conversion would not cause the Company to violate the Antitrust Laws.
(f) No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, impair its performance of any of the terms to be observed or performed hereunder by the Company.
Section 5. Anti-Dilution Protection
(a) Certain Adjustments. The Conversion Price shall be subject to adjustment from time to time, without duplication, upon the occurrence of any of the following events. For purposes of this Section 5(a), “effective date” means the first date on which the shares of Common Stock trade on the applicable Trading Market, regular way, reflecting the relevant share split or share combination or reclassification, as applicable.
(i) The Company issues shares of Common Stock as a dividend or distribution to all or substantially all holders of Common Stock, or a subdivision or combination of Common Stock or a reclassification of Common Stock into a greater or lesser number of shares of Common Stock, in which event the Conversion Price shall be adjusted based on the following formula:
CP1 = CP0 x (OS0 / OS1)
CP0 = the Conversion Price in effect immediately prior to the close of business on (i) the record date for such dividend or distribution or (ii) the effective date of such subdivision, combination or reclassification.
CP1 = the new Conversion Price in effect immediately after the close of business on (i) the record date for such dividend or distribution or (ii) the effective date of such subdivision, combination or reclassification.
OS0 = the number of shares of Common Stock outstanding immediately prior to the close of business on (i) the record date for such dividend or distribution or (ii) the effective date of such subdivision, combination or reclassification.
OS1 = the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, the completion of such event.
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Any adjustment made pursuant to this clause (i) shall be effective immediately prior to the open of business on the Trading Day immediately following the record date, in the case of a dividend or distribution, or the effective date, in the case of a subdivision, combination or reclassification. If any such event is announced or declared but does not occur, the Conversion Price shall be readjusted, effective as of the date on which the Board of Directors announces that such event shall not occur, to the Conversion Price that would then be in effect if such event had not been declared.
(ii) The Company, by dividend or otherwise, distributes to all or substantially all holders of its shares of Common Stock (other than cash in lieu of fractional shares), cash, shares of any class of capital stock, evidences of its indebtedness, assets, other property or securities, but excluding (A) dividends or distributions referred to in Section 5(a)(i), (B) rights, options or warrants distributed in connection with a stockholder rights plan referred to in Section 5(b), (C) Distribution Transactions as to which Section 5(a)(iii) shall apply or (D) options or warrants referred to in Section 5(a)(iv) (any of such shares of capital stock, indebtedness, assets or property that are not so excluded are hereinafter called the (“Distributed Property”)), in which event the Conversion Price shall be adjusted based on the following formula:
CP1 = CP0 x [(SP0 - FMV) / SP0]
CP0 = the Conversion Price in effect immediately prior to the close of business on the record date for such dividend or distribution.
CP1 = the new Conversion Price in effect immediately after the close of business on the record date for such dividend or distribution.
SP0 = the Current Market Price as of the record date for such dividend or distribution.
FMV = the fair market value of the portion of Distributed Property (or, with respect to dividends or distributions paid exclusively in cash, the amount in cash) distributed with respect to each outstanding share of Common Stock on the record date for such dividend or distribution.
If any such event is declared but does not occur, the Conversion Price shall be readjusted, effective as of the date on which the Board of Directors announces that such event shall not occur, to the Conversion Price that would then be in effect if such event had not been declared.
(iii) The Company effects any transaction by which a Subsidiary of the Company ceases to be a Subsidiary of the Company by reason of the distribution of such Subsidiary’s equity securities to holders of Common Stock, whether by means of a spin-off, split-off, redemption, reclassification, exchange, stock dividend, share distribution, rights offering or similar transaction (each, a “Distribution Transaction”), in which event the Conversion Price in effect immediately prior to the close of business on the tenth (10th) full Trading Day immediately following, and including, the effective date of the Distribution Transaction shall be adjusted based on the following formula:
CP1 = CP0 x [MP0 / (FMV + MP0)]
CP0 = the Conversion Price in effect immediately prior to the close of business on the tenth (10th) full Trading Day immediately following, and including, the effective date of the Distribution Transaction.
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CP1 = the new Conversion Price in effect immediately after the close of business on the tenth (10th) full Trading Day immediately following, and including, the effective date of the Distribution Transaction.
FMV = the arithmetic average of the volume-weighted average prices for a share of the capital stock or other interest distributed to holders of Common Stock on the principal United States securities exchange or automated quotation system on which such capital stock or other interest trades, as reported by Bloomberg, L.P. (or, if Bloomberg ceases to publish such price, any successor service reasonably chosen by the Company) in respect of the period from the open of trading on the relevant Trading Day until the close of trading on such Trading Day (or if such volume-weighted average price is unavailable, the market price of one share of such capital stock or other interest on such Trading Day determined, using a volume-weighted average method, by a nationally recognized investment banking firm (unaffiliated with the Company) retained by the Company for such purpose), for each of the ten (10) consecutive full Trading Days commencing with, and including, the effective date of the Distribution Transaction.
MP0 = the arithmetic average of the VWAP per share of Common Stock for each of the ten (10) consecutive full Trading Days commencing with, and including, the effective date of the Distribution Transaction, appropriately adjusting any VWAP to take into account the occurrence during such period of, or the record date or ex-dividend date for, any event described in Section 5(a).
Such adjustment shall occur on the tenth (10th) full Trading Day immediately following, and including, the effective date of the Distribution Transaction.
(iv) The Company, by dividend or otherwise, distributes to all or substantially all holders of Common Stock rights, options or warrants (other than rights, options or warrants distributed in connection with a stockholder rights plan (in which event the provisions of Section 5(b) shall apply)) entitling them to subscribe for or purchase shares of Common Stock at a price per share of Common Stock that is less than the Current Market Price as of the record date for such issuance, in which event the Conversion Price shall be decreased based on the following formula:
CP1 = CP0 x (OS0+Y) / [(OS0+X)]
CP0 = the Conversion Price in effect immediately prior to the close of business on the record date for such dividend, distribution or issuance.
CP1 = the new Conversion Price in effect immediately following the close of business on the record date for such dividend, distribution or issuance.
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OS0 = the number of shares of Common Stock outstanding immediately prior to the close of business on the record date for such dividend, distribution or issuance.
X = the total number of shares of Common Stock issuable pursuant to such rights, options or warrants.
Y = the number of shares of Common Stock equal to the aggregate price payable to exercise such rights, options or warrants divided by the Current Market Price as of the record date for such dividend, distribution or issuance.
Any adjustment made pursuant to this clause (iv) shall become effective immediately following the close of business on the record date for such dividend, distribution or issuance. In the event that such rights, options or warrants are not so issued, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to issue such rights, options or warrants, to the Conversion Price that would then be in effect if such dividend, distribution or issuance had not been declared. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights, options or warrants upon the exercise of such rights, options or warrants, the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the dividend, distribution or issuance of such rights, options or warrants been made on the basis of the delivery of, and the receipt of the exercise price with respect to, only the number of shares of Common Stock actually delivered pursuant to such rights, options or warrants.
(v) If the Company or any of its Subsidiaries makes a payment in respect of a tender offer or exchange offer for shares of Common Stock (other than solely pursuant to an odd-lot tender offer pursuant to Rule 13e-4(h)(5) under the Exchange Act), and the value (determined as of the Expiration Time (as defined below) by the Board of Directors in good faith) of the cash and other consideration paid per share of Common Stock in such tender or exchange offer exceeds the last reported sale price per share of Common Stock on the Trading Day immediately after the last date (the “Expiration Date”) on which tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended), then the Conversion Price will be increased based on the following formula:
CP1 = CP0 x (OS0 x SP) / (AC + (SP x OS1)):
CP0 = the Conversion Price in effect immediately before the close of business on the last Trading Day of the Tender/Exchange Offer Valuation Period for such tender or exchange offer.
CP1= the Conversion Price in effect immediately after the close of business on the last Trading Day of the Tender/Exchange Offer Valuation Period.
AC = the aggregate value (determined as of the time (the “Expiration Time”) such tender or exchange offer expires by the Company’s Board of Directors) of all cash and other consideration paid for shares of Common Stock purchased or exchanged in such tender or exchange offer.
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OS0 = the number of shares of Common Stock outstanding immediately before the Expiration Time (including all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer).
OS1 = the number of shares of Common Stock outstanding immediately after the Expiration Time (excluding shares of Common Stock accepted for purchase or exchange in such tender or exchange offer).
SP = the average of the VWAP per share of Common Stock over the ten (10) consecutive Trading Day period (the “Tender/Exchange Offer Valuation Period”) beginning on, and including, the Trading Day immediately after the Expiration Date, appropriately adjusting any VWAP to take into account the occurrence during such period of, or the record date or ex-dividend date for, any event described in Section 5(a).
provided, however, that the Conversion Price will in no event be adjusted down pursuant to this Section 5(a)(v), except to the extent provided in this paragraph. Notwithstanding anything to the contrary in this Section 5(a)(v), if the Conversion Date for this Note to be converted occurs during the Tender/Exchange Offer Valuation Period for such tender or exchange offer, then, solely for purposes of determining the Conversion Price for such conversion, such Tender/Exchange Offer Valuation Period will be deemed to consist of the Trading Days occurring in the period from, and including, the Trading Day immediately after the Expiration Date to, and including, such Conversion Date. To the extent such tender or exchange offer is announced but not consummated (including as a result of the Company being precluded from consummating such tender or exchange offer under applicable law), or any purchases or exchanges of shares of Common Stock in such tender or exchange offer are rescinded, the Conversion Price will be readjusted to the Conversion Price that would then be in effect had the adjustment been made on the basis of only the purchases or exchanges of shares of Common Stock, if any, actually made, and not rescinded, in such tender or exchange offer.
(b) Rights Distributions Pursuant to Stockholder’s Rights Plans.
(i) To the extent that the Company adopts a rights plan (i.e., a poison pill) and such plan is in effect upon conversion of the Note or a portion thereof, the Company shall make provision such that the Holder shall receive, in addition to, and concurrently with the delivery of, the shares of Common Stock due upon conversion, the rights described in such plan, unless, prior to the Conversion Date, the rights have (i) become exercisable or (ii) separated from the shares of Common Stock (the first of such events to occur, a “Trigger Event”), in which case the Conversion Price shall be adjusted automatically effective at the time of such Trigger Event as if the Company distributed to all holders of shares of Common Stock Distributed Property as described in Section 5(a)(iii) above, subject to readjustment in the event of the expiration, termination or redemption of such rights. Notwithstanding the foregoing, to the extent any such stockholder rights are exchanged by the Company for shares of Common Stock or other property or securities, the Conversion Price shall be appropriately readjusted as if such stockholder rights had not been issued, but the Company had instead issued such shares of Common Stock or other property or securities as a dividend or distribution of shares of Common Stock pursuant to Section 5(a)(i) or Section 5(a)(iii), as applicable.
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(ii) To the extent that such rights are not exercised prior to their expiration, termination or redemption, the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the occurrence of the Trigger Event been made on the basis of the issuance of, and the receipt of the exercise price with respect to, only the number of shares of Common Stock actually issued pursuant to such rights. Notwithstanding the foregoing, to the extent any such rights are exchanged by the Company for shares of Common Stock, the Conversion Price shall be appropriately readjusted as if such rights had not been issued, but the Company had instead issued the shares of Common Stock issued upon such exchange as a dividend or distribution of shares of Common Stock subject to Section 5(a)(i).
(c) Conversion Floor. In the event that any adjustment to the Conversion Price pursuant to any provision of this Section 5 would require the Company to seek stockholder approval pursuant to NYSE rules or the NYSE rules would otherwise require any issuances or transactions contemplated by the Note to require stockholder approval, the Company shall use its reasonable best efforts to hold a special meeting of its stockholders within one hundred and twenty (120) days following the effective date of the corporate action that would have triggered the adjustment to obtain approval for any issuances of Common Stock pursuant to such adjustment to the Conversion Price or any other approval required under NYSE rules relating to the transactions contemplated by the Note and the proxy statement related to such special meeting will include a recommendation by the Company’s Board of the Directors that the stockholders of the Company vote in favor of such proposal. If the stockholders of the Company do not approve such issuance of Common Stock pursuant to such adjustment or any other approvals required under NYSE rules relating to the transactions contemplated by the Note, the Company will use its reasonable best efforts to obtain stockholder approval at the next annual meeting of stockholders and each subsequent annual meeting thereafter. Prior to obtaining any stockholder approval that may be contemplated by this Section 5(c), the Conversion Price shall be deemed to be equal to no less than $1.22 (subject to adjustment for any stock split, stock dividend, reverse stock split, combination or similar transaction).
(d) Make-Whole Adjustment.
(i) At any time following (a) the Company’s delivery of a Company Redemption Notice or (b) the delivery of a Mandatory Repayment notice with respect to a Major Transaction, the Company shall be required to issue, in addition to the shares of Common Stock otherwise issuable upon conversion of the Note, such additional number of shares of Common Stock (the “Additional MW Shares”) as described below and subject to the Holder’s election to receive cash in lieu of Additional MW Shares in connection with such Major Transaction pursuant to Section 8 below. The number of Additional MW Shares, if any, shall be determined by reference to the table attached to Schedule 2 hereto (the “MW Table”), based on:
(1) the date on which the Company Redemption Notice is delivered or the date on which the Major Transaction occurs or becomes effective, as applicable (the “Event Effective Date”); and
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(2) (A) unless clause (B) applies, the Current Market Price as of the Major Transaction Valuation Date of the Major Transaction or the date on which the Company Redemption Notice is given to the Holder hereof, or (B) if the Major Transaction is a Share Exchange Event, the fair market value of the Reference Property into which each one share of Common Stock is converted or exchanged in the Share Exchange Event pursuant to the Major Transaction (the “MW Share Price”).
(ii) The MW Share Prices set forth in the column headings of the MW Table shall be adjusted as of any date on which the Conversion Price is otherwise adjusted. The adjusted MW Share Prices shall equal (i) the MW Share Prices applicable immediately prior to such adjustment, multiplied by (ii) a fraction, the numerator of which is the Conversion Price as so adjusted, and the denominator of which is the Conversion Price immediately prior to such adjustment giving rise to the MW Share Prices adjustment. The number of Additional MW Shares within the MW Table shall be adjusted at the same time as the MW Share Prices set forth in the column headings are adjusted and by multiplying such amounts by the reciprocal of the fraction by which such MW Share Prices are adjusted.
(iii) The exact MW Share Price or Event Effective Date may not be set forth in the MW Table, in which case:
(1) if the MW Share Price is between two MW Share Prices in the MW Table or the Event Effective Date is between two Event Effective Dates in the MW Table, the number of Additional MW Shares shall be determined by a straight-line interpolation between the number of Additional MW Shares set forth for the higher and lower MW Share Prices and the earlier and later Event Effective Dates in the MW Table, as applicable, based on a 365- or 366-day year, as the case may be;
(2) if the MW Share Price is greater than $5.50 per share (subject to adjustment in the same manner as the MW Share Prices set forth in the column headings of the MW Table), no Additional MW Shares shall be issued; and
(3) if the MW Share Price is less than $1.22 per share (subject to adjustment in the same manner as the MW Share Prices set forth in the column headings of the MW Table), no Additional MW Shares shall be issued.
(iv) The Company shall provide notice in writing of an anticipated Major Transaction to all Holders of the Notes no later than the 15th Trading Day prior to the date on which a Major Transaction is anticipated to become effective.
(e) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
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(f) Unanticipated Events. On the occurrence of any reclassification of, or other change in, the outstanding shares of Common Stock or any other event not addressed in this Section 5 or Section 9(a) (each, an “Unanticipated Event”), the parties will, in good faith, and subject in any event to Section 5(c), make such further adjustments and changes and take all necessary actions, subject to the approval of the Holder, so as to ensure that the Holder receives, upon the conversion of this Note occurring at any time after the earlier of (x) if holders of shares of Common Stock are entitled to participate in such Unanticipated Event, the record date for determining the particular holders so entitled to participate therein, and (y) the date of the occurrence of the Unanticipated Event, such shares, securities, rights, cash or property that the Holder would have received if, immediately prior to such earlier date, the Holder had been the registered holder of the number of shares of Common Stock to which the Holder would be entitled upon the conversion of this Note into shares of Common Stock.
(g) Cumulative Adjustments. The adjustments provided for in this Section 5 are cumulative and will be made successively whenever an event referred to therein occurs.
(h) Dispute Resolution. If at any time a question or dispute arises with respect to the adjustments provided for in this Section 5 such question or dispute will be conclusively determined by a firm of nationally recognized chartered professional accountants appointed by the Company and reasonably acceptable to the Majority Holders. The Company shall afford such accountants reasonable access to all necessary records of the Company and such determination will be binding upon the Company and the Holders. The expenses of such accountants shall be borne solely by the Holder.
(i) Notice to the Holder.
(i) Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
(ii) Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding-up of the affairs of the Company, or (F) the Company or any of its Subsidiaries shall announce a tender offer or exchange offer for shares of Common Stock, then, in each case, the Company shall cause
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to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least ten (10) calendar days prior to the applicable record or effective date hereinafter specified, a notice, stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, or (z) the date on which such tender offer or exchange offer commences, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that (A) the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice and (B) that the filing of such information with the SEC pursuant to a Current Report on Form 8-K shall be deemed delivery to the Holders pursuant to this Section 5(i). To the extent that any notice provided under this Section 5(i) constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall, within four (4) Trading Days, file such information with the SEC pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 6. Events of Default.
(a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(i) any default in the payment of (A) the principal amount of the Note (as such amount may be increased from time to time by the amount of interest paid in kind) or (B) interest, Late Fees and other amounts owing to the Holder on the Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise), which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within five (5) Trading Days;
(ii) the Company shall fail to observe or perform any other material covenant or agreement contained in the Note or Purchase Agreement (other than a breach by the Company of its obligations (x) to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (ix) below, (y) under Section 8 hereof, which breach is addressed in clause (iv) below, and (z) other than a breach under Section 4.13 of the Purchase Agreement, which breach is addressed in clause (iii) below), which failure is not cured, if possible to cure, within thirty (30) calendar days;
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(iii) the Company shall fail to observe or perform any covenant contained in Section 4.13 of the Purchase Agreement;
(iv) the Company shall fail to observe or perform any covenant contained in Section 8;
(v) a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under any of the Transaction Documents, provided that if no grace or cure period is provided in the applicable Transaction Document, such default or event of default is not cured, if possible to cure, within thirty (30) calendar days;
(vi) any representation or warranty made in this Note, any other Transaction Document, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;
(vii) any Note Party shall be subject to a Bankruptcy Event;
(viii) the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within ten (10) Trading Days;
(ix) the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the second (2nd) Trading Day after a Share Delivery Date pursuant to Section 4(c)(ii);
(x) the Company fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act such that it is not in compliance with Rule 144(c)(1) which failure is not cured, if possible to cure, within thirty (30) calendar days; and
(xi) subject to any applicable “cooling off” or “waiting period” required by the applicable intercreditor agreement, an Event of Default has occurred under any Permitted Revolving Facility.
(b) Remedies upon Event of Default. If any Event of Default occurs, then at the Holder’s election, the outstanding principal amount of this Note, plus accrued but unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become immediately due and payable. If the Company has elected the PIK Option, immediately upon any Event of Default, the PIK Option shall automatically and immediately terminate and all interest shall be due and payable in cash in accordance with the terms herein. After the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the rate per annum of interest payment in cash as specified in Section 2(a) plus 1.00% per annum. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by the Holder at any
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time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 6(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Notwithstanding anything in this Section 6 to the contrary, the Holder’s rights upon and during the continuation of an Event of Default shall be subject to the terms of an intercreditor agreement with the agent or lenders for any Permitted Revolving Facility, including any “cooling off” or “waiting period” required thereby.
Section 7. Redemption.
On and after July 2, 2027, the Company shall have the right to redeem all, or any part, of the principal amount then remaining under this Note and all other outstanding Notes, pro rata among all such outstanding Notes in accordance with the respective principal amounts thereof (including interest paid in kind thereon), subject to the maximum amounts and at the time set forth in the schedule below, on a Redemption Date (each, a “Company Redemption”); provided, however, that notwithstanding anything to the contrary herein, the Company shall not be entitled to redeem Notes in excess of the Redemption Amount in any rolling six (6) month period.
| Time Period |
Maximum Aggregate Principal Amount of all Notes Redeemable in all | |
| On and after July 2, 2027. | Up to the amount equal to the sum of (x) one-third (1/3rd) of the original principal amount of all Notes outstanding on the Original Issue Date plus (y) one-third (1/3rd) of the interest previously paid in kind on or prior to the applicable Redemption Date (such sum of (x) and (y), the “Redemption Amount”), if the last reported sale price of the Common Stock equals or exceeds 200% of the Conversion Price then in effect for at least twenty (20) Trading Days (whether or not consecutive). | |
| On and after January 2, 2028. | Up to the Redemption Amount, if the last reported sale price of the Common Stock equals or exceeds 225% of the Conversion Price then in effect for at least twenty (20) Trading Days (whether or not consecutive). | |
| On and after July 2, 2028 and thereafter. | Up to the Redemption Amount, if the last reported sale price of the Common Stock equals or exceeds 250% of the Conversion Price then in effect for at least twenty (20) Trading Days (whether or not consecutive). | |
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in each case, measured during any thirty (30) consecutive Trading Day period ending on, and including, the Trading Day immediately before the date the Company Redemption Notice (as defined below) is sent.
In each case, subject to the schedule and limitations set forth above, the portion of this Note and all other outstanding Notes subject to redemption pursuant to this Section 7 shall be redeemed by the Company in cash at a price (each, a “Redemption Price”) equal to the outstanding principal being redeemed, together with all accrued and unpaid interest and other amounts due to the Holder pursuant to the Transaction Documents. The Company may exercise its right to redeem under this Section 7 by delivering a written notice thereof by electronic mail to the Holder (the “Company Redemption Notice”). The Company Redemption Notice shall (x) state the date on which the Company Redemption shall occur (the “Redemption Date”), which date such Company Redemption Notice is delivered shall be thirty (30) calendar days prior to the applicable Redemption Date, and (y) state the aggregate principal amount of the Notes which are being redeemed in such Company Redemption. The Company shall honor any Notice of Conversion received from the Holder until the Trading Day immediately preceding the Redemption Date, and all principal amounts converted by the Holder after the date the Company Redemption Notice is delivered shall reduce the Redemption Amount of the Notes required to be redeemed on the Redemption Date.
Section 8. Major Transaction Mandatory Repayment.
(a) Upon the occurrence of a Major Transaction, the Company shall be required to repay all, but not less than all, of the Notes (the “Mandatory Repayment”) on the date on which such Major Transaction occurs or becomes effective, at a price equal to the Mandatory Repayment Price. The Company shall give the Holder at least fifteen (15) calendar days’ prior written notice of any Mandatory Repayment, during which time the Holder shall have the right to (i) convert any portion of the Note into Conversion Shares and/or (ii) solely in the event of an Optional Repayment Major Transaction, notify the Company in writing that the Holder is declining the Mandatory Repayment with respect to its Note (and in such event, the Holder shall continue to hold the Note and have all the rights and benefits under the Note), which notice shall be irrevocable with respect to such event giving rise to an Optional Repayment Major Transaction.
(b) The Mandatory Repayment Price shall be payable by the Company to the Holder (i) in cash, in the event the Redemption Premium is greater than the As-Converted Amount, or (ii) in cash or in Common Stock, at the Holder’s election notified to the Company within five (5) Business Days after the notice of Mandatory Repayment is received by the Holder, in the event that the As-Converted Amount is greater than the Redemption Premium. The Holder will be deemed to have elected the Mandatory Repayment Price be paid in Common Stock if the Company does not receive the notice specified in the immediately preceding sentence by the fifth (5th) Business Day after the Holder receives notice of the Mandatory Prepayment.
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Section 9. Miscellaneous.
(a) Successor Entity. In the case of any Major Transaction (other than a Qualifying Major Transaction) or any other consolidation, merger, sale, conveyance, transfer, lease, recapitalization, reclassification or change of the shares of Common Stock (other than a share split or share combination solely of shares of Common Stock) or other transaction (other than a Qualifying Major Transaction), the result of which (x) the shares of Common Stock are converted into, or exchanged for, shares of capital stock, cash or other property or assets (a “Share Exchange Event”) or (y) a Person other than the Company (the “Successor Entity”) is the survivor (a “Successor Event”), then: (A) if clause (x) applies:
(i) at the effective time of the Share Exchange Event, the right to convert each portion of the Outstanding Balance equal to the Conversion Price into one share of Common Stock will be changed into the right to convert each such portion of the Outstanding Balance equal to the Conversion Price into the kind and amount of shares of stock, other securities or other property or assets (including cash) or any combination thereof that a holder of one share of Common Stock immediately prior to such Share Exchange Event would have owned or been entitled to receive as a result of such Share Exchange Event (the “Reference Property”); and
(ii) at or prior to the effective time of such Share Exchange Event, the Company (or the Successor Entity) and any other issuer of securities constituting Reference Property shall execute and deliver to the Holder a supplemental agreement providing for such change in the right to convert each portion of the Outstanding Balance equal to the Conversion Price into Reference Property in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay), and
(B) if clause (y) applies, the Company shall cause the Successor Entity to assume 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 9(a) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Major Transaction or other transaction contemplated hereby and shall, at the option of the Holder, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note, and which is reasonably satisfactory in form and substance to the Holder.
Upon the occurrence of any such Major Transaction or other transaction contemplated hereby referred to in clause (y) of the preceding sentence, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Major Transaction or other transaction contemplated hereby, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
Such supplemental agreement described in clause (A) of the first paragraph of this Section 9(a) shall provide for anti-dilution and other adjustments, and covenants for protection of the interests of the holder of this Note, in respect of the Reference Property that shall be as nearly equivalent as is practicable to the adjustments and covenants provided for in this Note in respect of Common Stock.
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The Company shall not become a party to any Share Exchange Event or Successor Event unless its terms are consistent with this Section 9(a).
The above provisions of this Section 9(a) shall similarly apply to successive Share Exchange Events or Successor Events.
Notwithstanding the Conversion Price adjustment provisions described in Section 5(a), no adjustment to the Conversion Price shall be made pursuant to such provisions in the event of any dividend, distribution, share split, share combination or issuance upon a Share Exchange Event to which the provisions under this Section 9(a) apply.
(b) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by electronic mail or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above or such other address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(b). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by electronic mail or sent by a nationally recognized overnight courier service addressed to the Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile or electronic mail prior to 5:00 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or electronic mail on a day that is not a Trading Day or later than 5:00 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by United States nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
(c) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and accrued interest on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company.
(d) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note (as such amount may be increased from time to time by the amount of interest paid in kind) so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.
(e) GOVERNING LAW; JURISDICTION; WAIVER. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED EXCLUSIVELY IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS.
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EACH PARTY HEREBY ACKNOWLEDGES THAT THIS AGREEMENT IS BEING SIGNED BY EACH OTHER PARTY IN PARTIAL CONSIDERATION OF SUCH OTHER PARTY’S RIGHT TO ENFORCE IN THE JURISDICTION STATED BELOW THE TERMS AND PROVISION OF THIS AGREEMENT AND THE TRANSACTION DOCUMENTS. EACH PARTY IRREVOCABLY CONSENTS TO THE EXCLUSIVE AND SOLE JURISDICTION IN THE BOROUGH OF MANHATTAN, NEW YORK AND VENUE IN ANY FEDERAL OR STATE COURT IN THE BOROUGH OF MANHATTAN, NEW YORK FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT THE BOROUGH OF MANHATTAN, NEW YORK IS NOT CONVENIENT. EACH PARTY HEREBY WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST ANY OTHER PARTY IN ANY JURISDICTION EXCEPT NEW YORK, NEW YORK. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THE TRANSACTION DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE SUBJECT OF THE TRANSACTION DOCUMENTS.
(f) Amendment; Waiver. Any provision of the Notes may be amended by a written instrument executed by the Company and the Majority Holders, which amendment shall be binding on all successors and assigns; provided, however, that no such amendment shall be effective without the consent of each holder of any Note affected thereby if such amendment shall change the Maturity Date of, or installment of interest on, or reduce the principal amount of or rate of interest or Redemption Premium on, or change the place of payment of, or currency in which any amount is payable on, change the amount of Conversion Shares (or, from and after a Share Exchange Event, the Reference Property) receivable upon conversion of or otherwise adversely affect the right to convert, this Note or modify this Section 9(f). Any provision of this Note may be waived by the party seeking enforcement thereof, which waiver shall be binding on all successors and assigns. Any waiver by the Company or the Holder must be in writing. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. For purposes of this Section 9(f) and the other provisions hereof, any Notes held by the Company or any Subsidiary thereof or that have been converted or redeemed or repaid shall be deemed not “outstanding.”
(g) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.
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(h) Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such power as though no such law has been enacted.
(i) 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 (including, without limitation, the security agreements referenced in the Purchase Agreement), 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. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. 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 such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note.
(j) Next Business Day or Trading Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day or Trading Day, as applicable, such payment shall be made on the next succeeding Business Day or Trading Day, as applicable.
(k) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.
(l) Secured Obligation. The obligations of the Company under this Note are secured by assets of the Company and each Note Party pursuant to the Security Agreement, dated as of the date hereof, between the Company and the Secured Parties (as defined therein).
(m) Surrender of Note. Upon the payment (or conversion) in full of the outstanding principal amount of this Note (as such amount may be increased from time to time by the amount of interest paid in kind), plus accrued but unpaid interest and other amounts (including any make-whole premium) owing in respects thereof, the Holder shall promptly surrender this Note to or as directed by the Company.
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(n) Tax Treatment. The Company shall treat this Note as indebtedness for U.S. federal income tax purposes and shall not take any position inconsistent with such treatment unless (i) otherwise required by a change in applicable law or a “determination” as defined in Section 1313(a) of the Code and (ii) advance written notice of such inconsistent position has been provided to the Holder.
*********************
(Signature Pages Follow)
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.
| DOUGLAS ELLIMAN INC. | ||
| By: |
||
| Name: Title: | ||
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert the Senior Secured Convertible Promissory Note due July 2, 2029, of Douglas Elliman Inc., a Delaware corporation (the “Company”), into shares of common stock of the Company (the “Common Stock”), according to the conditions hereof, as of the date written below.
[The undersigned agrees to comply with any applicable prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock, if the resale of any such shares of Common Stock is covered by and is being sold pursuant to an effective Registration Statement.]1
Conversion calculations:
Date to Effect Conversion:
Outstanding Balance of Note to be Converted:
Principal Balance of Note to be Converted:
Number of Shares of Common Stock to be Issued (does not include any Additional MW Shares that may also be issuable):
Signature:
Name:
Delivery Instructions:
| 1 | Note: Converting holder to specify. |
SCHEDULE 1
CONVERSION SCHEDULE
This Senior Secured Convertible Promissory Note due on July 2, 2029, in the principal amount of $__________ (as such amount may be increased from time to time by the amount of interest paid in kind) is issued by Douglas Elliman Inc., a Delaware corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Note.
Dated:
| Date of Conversion (or for first entry, Original Issue Date) |
Amount of Conversion |
Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount) (as such amount may be increased from time to time by the amount of interest paid in kind) |
SCHEDULE 2
MW TABLE
| Year | $1.22 | $1.30 | $1.50 | $1.75 | $2.00 | $2.50 | $3.00 | $3.75 | $5.50 | |||||||||
| 7/1/2024 | 150.4150 | 150.4150 | 150.4150 | 150.4150 | 135.3833 | 98.7733 | 76.6333 | 56.2400 | 32.7697 | |||||||||
| 7/1/2025 | 150.4150 | 150.4150 | 150.4150 | 147.7333 | 120.3833 | 86.2533 | 66.2666 | 48.3466 | 28.1878 | |||||||||
| 7/1/2026 | 150.4150 | 150.4150 | 150.4150 | 127.4476 | 101.5833 | 70.7733 | 53.6000 | 38.8266 | 22.7333 | |||||||||
| 7/1/2027 | 150.4150 | 150.4150 | 139.0000 | 100.8190 | 77.1833 | 51.2133 | 38.0333 | 27.4133 | 16.3151 | |||||||||
| 7/1/2028 | 150.4150 | 150.4150 | 100.3333 | 63.8476 | 44.2333 | 26.6533 | 19.5000 | 14.3200 | 8.8424 | |||||||||
| 7/1/2029 | 150.4150 | 102.5641 | 0.0000 | 0.0000 | 0.0000 | 0.0000 | 0.0000 | 0.0000 | 0.0000 |
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this “Agreement”) is made and entered into as of July 2, 2024, by and among Douglas Elliman Inc., a Delaware corporation (the “Company”), and the parties signatory hereto (each, a “Purchaser” and, collectively, the “Purchasers”).
This Agreement is being entered into as contemplated by that certain Securities Purchase Agreement, dated as of the date hereof, between the Company and the Purchasers (the “Purchase Agreement”). This Agreement is a Transaction Document (as defined in the Purchase Agreement).
The Company and each Purchaser hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:
“Additional Registrable Securities” shall have the meaning set forth in Section 2(b).
“Advice” shall have the meaning set forth in Section 7(b).
“Effectiveness Period” shall have the meaning set forth in Section 2(c).
“Filing Date” means, (a) with respect to the Initial Registration Statement required hereunder, the forty-fifth (45th) calendar day following the Closing Date and, (b) with respect to any additional Registration Statements which may be required pursuant to Section 2(d) or Section 3(c), the earliest practicable date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.
“FINRA” shall have the meaning set forth in Section 5.
“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.
“Indemnified Party” shall have the meaning set forth in Section 6(c).
“Indemnifying Party” shall have the meaning set forth in Section 6(c).
“Initial Registration Statement” means the initial Registration Statement filed pursuant to this Agreement.
“Losses” shall have the meaning set forth in Section 6(a).
“Piggyback Registration” shall have the meaning set forth in Section 2(e).
“Plan of Distribution” shall have the meaning set forth in Section 2(a).
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Prospectus” means the prospectus included in any Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the SEC pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
“Registrable Securities” means, as of any date of determination, (a) all Conversion Shares issued or issuable upon conversion of the Notes (assuming the Notes are converted in full without regard to any exercise limitations therein), (b) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization, merger, exchange or similar event with respect to the foregoing and (c) any other securities issued or issuable with respect to or in exchange for Registrable Securities; provided, however, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities has been declared effective by the SEC under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144 or (c) such Registrable Securities becoming eligible for sale by the Holder pursuant to Rule 144 without restriction as to volume or manner of sale.
“Registration Statement” means any registration statement of the Company filed under the Securities Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including any Prospectus, post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such Registration Statement.
“Required Holders” means the Holders that own a majority of the Registrable Securities (excluding, for purposes of this determination, any Holder that is the Company, its directors (other than the KLIM Designees), officers or any of its or their Affiliates).
“Rule 144” means Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same purpose and effect as such Rule.
“Rule 415” means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same purpose and effect as such Rule.
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“Rule 416” means Rule 416 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same purpose and effect as such Rule.
“Rule 424” means Rule 424 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same purpose and effect as such Rule.
“SEC Guidance” means (a) any publicly available written or oral guidance of the SEC staff, or any comments, requirements or requests of the SEC staff and (b) the Securities Act.
“Staff” shall have the meaning set forth in Section 2(d).
“Trading Day” means any day on which the Common Stock is traded on the Trading Market; provided, that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on the Trading Market for less than four and half (4.5) hours or any day that the Common Stock is suspended from trading during the final hour of trading on the Trading Market (or if the Trading Market does not designate in advance the closing time of trading on the Trading Market, then during the hour ending at 4:00 p.m., New York City time) unless such day is otherwise designated as a Trading Day in writing by the Required Holders.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: The NASDAQ Global Market, The NASDAQ Global Select Market, or The NASDAQ Capital Market, or the New York Stock Exchange, NYSE Arca, or the NYSE MKT (or any successor to any of the foregoing).
“Underwritten Offering” shall have the meaning set forth in Section 2(i).
“Underwritten Offering Notice” shall have the meaning set forth in Section 2(i).
2. Registration of Registrable Securities.
(a) Shelf Registration. On or prior to each Filing Date, the Company shall prepare and file with the SEC a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-3 or its successor form (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on such form of registration statement as is then available to effect a registration of the resale of the Registrable Securities, subject to the provisions of Section 2(f)) registering the resale from time to time pursuant to any method or combination of methods legally available to, and requested by, the Holders of all of the Registrable Securities then held by such Holders that are not covered by an effective Registration Statement, and shall contain (unless otherwise directed by the Required Holders and approved by the Company or required pursuant to written comments received from the SEC upon a review of such Registration Statement) substantially the “Plan of Distribution” attached hereto as Annex A, provided, however, that no Holder shall be required to be named as an “underwriter” without such Holder’s express prior written consent. Such Registration Statement also shall cover, to the extent allowable under the Securities Act (including Rule 416), such indeterminate number of additional Registrable Securities resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities.
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(b) Demand Registration. No later than the thirtieth (30th) day immediately following the written demand of any of Holder, and subject to Section 3(j) and Section 3(k), the Company shall prepare and file with the SEC one or more Registration Statements, or amend the Registration Statement filed pursuant to Section 2(a) above if such Registration Statement has not previously been declared effective, covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each such Registration Statement shall be on Form S-3 or its successor form (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(g)) registering the resale from time to time pursuant to any method or combination of methods legally available to, and requested by, the Holders of all of the Registrable Securities then held by such Holders that are not covered by an effective Registration Statement to effect a registration for resale of such additional Registrable Securities not covered by an effective resale registration statement, including any additional Registrable Securities that become issuable pursuant to the terms of the Notes, including upon the exercise of the Notes for Conversion Shares pursuant to the terms of the Notes (the “Additional Registrable Securities”), subject to Section 3(j) and Section 3(k) and shall contain (unless otherwise directed by the Required Holders and approved by the Company or required pursuant to written comments received from the SEC upon a review of such Registration Statement) substantially the “Plan of Distribution” attached hereto as Annex A. Such Registration Statement also shall cover, to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Additional Registrable Securities.
(c) Subject to the terms of this Agreement, the Company shall use its reasonable best efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as practicable after the filing thereof and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement no longer constitute Registrable Securities pursuant to the definition thereof (the “Effectiveness Period”). The Company shall advise the Holders in writing when the Effectiveness Period has expired. The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. (New York City time) on a Trading Day. The Company shall, by 9:30 a.m. (New York City time) on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the SEC as required by Rule 424.
(d) If at any time the staff of the SEC (the “Staff”) takes the position that the offering of some or all of the Registrable Securities in the Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the Securities Act or requires any Holder to be named as an “underwriter”, the Company shall use its commercially reasonable efforts to seek to persuade the Staff that the offering contemplated by a Registration Statement is a bona fide secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that none of the Holders is an “underwriter” or that the number of shares the Company is eligible to register on the Registration Statement should not be so limited. In the
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event that, despite the Company’s commercially reasonable efforts and compliance with the terms of this Section 2(d), the Staff refuses to alter its position, the Company shall (i) notify the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the SEC, covering the maximum number of Registrable Securities permitted to be registered by the SEC, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(f); with respect to filing on Form S-3 or other appropriate form, and/or (ii) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the Staff may require to assure the Company’s compliance with the requirements of Rule 415; provided, however, that the Company shall not agree to name any Holder as an “underwriter” in such Registration Statement without the prior written consent of such Holder.
(e) Notwithstanding any other provision of this Agreement, if the Staff or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used commercially reasonable efforts to advocate with the SEC for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of securities to be registered on such Registration Statement will be reduced as follows:
| i. | First, the Company shall reduce or eliminate any securities to be included other than Registrable Securities; and |
| ii. | Second, the Company shall reduce Registrable Securities on a pro rata basis based on the total number of unregistered shares of Common Stock beneficially held by such Holders. |
In the event of a cutback hereunder, the Company shall give each Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its commercially reasonable efforts to file with the SEC, as promptly practicable, one or more registration statements on Form S-3 or such form of registration statement as is then available to effect a registration of the resale of the Registrable Securities.
(f) Piggyback Registration. If at any time following the date of this Agreement that any Registrable Securities remain outstanding (i) there is not one or more effective Registration Statements covering all of the Registrable Securities and (ii) the Company proposes for any reason to register any shares of Common Stock under the Securities Act (other than pursuant to a registration statement on Form S-4 or Form S-8 (or a similar or successor form)) with respect to an offering of Common Stock by the Company for its own account or for the account of any of its stockholders, it shall at each such time promptly give written notice to the Holders of its intention to do so (but in no event less than ten (10) Trading Days before the anticipated filing date) and, to the extent permitted under the provisions of Rule 415 under the Securities Act and SEC Guidance, include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within five (5) days after receipt of the Company’s notice (a “Piggyback Registration”). Such notice shall offer the holders of the Registrable
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Securities the opportunity to register such number of shares of Registrable Securities as each such holder may request and shall indicate the intended method of distribution of such Registrable Securities. If the managing underwriter of any underwritten offering shall inform the Company of its opinion that the number of Registrable Securities requested to be included in such registration pursuant to this Section 2(f), when added to the number of other securities to be offered in such registration by the Company, would materially adversely affect the price, timing or distribution of such offering, then the Company shall include in such registration, to the extent of the total number of securities which the Company is so advised can be sold in (or during the time of) such offering without so materially adversely affecting such offering, securities in the following priority: (i) first, all Common Stock or securities convertible into, or exchangeable or exercisable for, Common Stock that the Company proposes to register for its own account; (ii) second, the Holders on a pro rata basis based on the number of Registrable Securities subject to registration rights owned by each holder requesting inclusion in relation to the number of securities then owned by all holders requesting inclusion. Notwithstanding the foregoing, (A) if such registration involves an underwritten public offering, the Holders must sell their Registrable Securities to, if applicable, the underwriter(s) at the same price and subject to the same underwriting discounts and commissions that apply to the other securities sold in such offering (it being acknowledged that the Company shall be responsible for other expenses as set forth in Section 5) and subject to the Holders entering into customary underwriting documentation for selling stockholders in an underwritten public offering, and (B) if, at any time after giving written notice of its intention to register any Registrable Securities pursuant to this Section 2(f) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to cause such registration statement to become effective under the Securities Act, the Company shall deliver written notice to the Holders and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration.
(g) If Form S-3 or its successor form 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 such form of registration statement as is then available to effect a registration of the resale of the Registrable Securities 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.
(h) Notwithstanding anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder as any Underwriter without the prior written consent of such Holder unless in response to a comment or request from the Staff; provided, however, that if the SEC requests that a Holder be identified as an Underwriter in any Registration Statement, such Holder will have the opportunity, in its sole and absolute discretion, to either (i) withdraw from such Registration Statement upon its prompt written request to the Company or (ii) be included as such in such Registration Statement.
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(i) Underwritten Offerings.
| i. | Subject to any applicable restrictions on transfer and to the extent permitted under the Securities Act, one or more Holders of Registrable Securities may, after any Registration Statement filed pursuant to this Agreement becomes effective, deliver a written notice to the Company (the “Underwritten Offering Notice”) specifying that the sale of some or all of the Registrable Securities subject to such Registration Statement, is intended to be conducted through an underwritten offering or an underwritten block trade or bought deal; provided, however, that the Holders may not, without the Company’s prior written consent, launch an underwritten offering or underwritten block trade or bought deal the anticipated gross proceeds of which shall be less than $15,000,000 (unless the Holder, collectively with all of its Affiliates, is proposing to sell all of their remaining Registrable Securities) or launch more than two (2) underwritten offerings or underwritten block trades or bought deals at the request of the Holders within any 365-day period (such qualifying underwritten offering or underwritten block trade or bought deal, an “Underwritten Offering”). |
| ii. | In the event of an Underwritten Offering, the Holder(s) delivering the Underwritten Offering Notice shall select the managing underwriter(s) to administer the Underwritten Offering; provided, that the choice of such managing underwriter(s) shall be subject to the written consent of the Company, which shall not be unreasonably withheld. The Company and the Holders participating in an Underwritten Offering will enter into an underwriting agreement in customary form, and that is reasonably acceptable to the Company, with the managing underwriter or underwriters selected for such offering. |
| iii. | Upon receipt of an Underwritten Offering Notice (which, in the case of an Underwritten Offering that is an underwritten block trade or bought deal, shall be received by the Company not less than four (4) Trading Days prior to the day such offering is first anticipated to commence), the Company shall promptly deliver to each other Holder written notice thereof and if, within five (5) Trading Days after the date of the delivery of such notice (or one Trading Day in the case of an Underwritten Offering that is an underwritten block trade or bought deal), a Holder shall so request in writing, the Company shall as expeditiously as practicable use its reasonable best efforts to facilitate such Underwritten Offering include in such Underwritten Offering all or any part of such Holder’s Registrable Securities as such Holder requests to be registered, subject to Section 2(i)(iv). |
| iv. | The Company will not include in any Underwritten Offering pursuant to this Section 2(i) any securities that are not Registrable Securities without the prior written consent of the Holder(s) participating in such Underwritten Offering, such consent not to be unreasonably withheld. If the managing underwriter or underwriters advise the Company and such Holder(s) in writing that in its or their good faith opinion the number of Registrable Securities (and, if permitted hereunder, other securities requested to be included in such offering) exceeds the number of securities which can be sold in such offering in light of market conditions or would materially adversely affect the price, timing or distribution of such offering, the Company will include in such offering only such number of securities that can be sold without adversely affecting the marketability of |
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| the offering, which securities will be so included in the following order of priority: first, the Registrable Securities of the Holders that have requested to participate in such Underwritten Offering, allocated pro rata among such Holders on the basis of their respective then-owned Registrable Securities, and second, any other securities of the Company that have been requested to be so included. |
3. Registration Procedures.
In connection with the Company’s registration obligations hereunder, the Company shall:
(a) as promptly as reasonably practicable prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto, (i) furnish to each Holder copies of all such documents proposed to be filed, which documents will be subject to review by such Holders and the Company shall consider incorporating into such document any comments of such Holder received by the Company within three (3) Trading Days of furnishing such copies, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Required Holders shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than three (3) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed customary selling stockholder questionnaire in a form acceptable to the Company as promptly as reasonably practicable prior to the Filing Date;
(b) (i) prepare and file with the SEC such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and to comply with the provisions of the Securities Act and the Exchange Act with respect to the distribution of all of the Registrable Securities covered thereby and prepare and file with the SEC such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably practicable to any comments received from the SEC or the Staff with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably practicable to the Holders true and complete copies of all correspondence from and to the SEC and the Staff relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries) and each of the Holders shall have the opportunity to object to any information pertaining to itself that is contained therein and the Company will make the corrections reasonably requested by such Holder with respect to such information prior to filing any Registration Statement or amendment thereto or any Prospectus or any supplement thereto, (iv) use reasonable best efforts to cause all
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Registrable Securities covered by a Registration Statement to be listed on each Trading Market on which similar securities issued by the Company are then listed, and (v) comply in all material respects with the applicable provisions and rules of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented;
(c) file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of Registrable Securities if during the Effectiveness Period, the number of Registrable Securities at any time exceeds one hundred percent (100%) of the number of shares of Common Stock then registered in a Registration Statement;
(d) notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) below, be accompanied by an instruction to suspend the use of the Prospectus, and the Holders shall immediately suspend the use of such Prospectus, until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the SEC notifies the Company whether there will be a “review” of such Registration Statement and whenever the SEC comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided, however, that in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries;
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(e) use its reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment;
(f) prior to any public offering of Registrable Securities, use reasonable best efforts to register or qualify or cooperate with the Holders in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions reasonably requested by the Holders and do any and all other acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (ii) subject itself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(f), or (iii) file a general consent to service of process in any such jurisdiction;
(g) furnish to each Holder, without charge, (i) at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Holder, and all exhibits to the extent requested by such Holder (including those previously furnished or incorporated by reference); provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form, and (ii) such other documents as each Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder that are covered by the related Registration Statement promptly after any such request;
(h) subject to the terms of this Agreement, consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d) or Section 3(j);
(i) if requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of a book-entry statement representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which book-entry statement representing Registrable Securities shall be free, to the extent permitted by the Securities Act, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request;
(j) upon the occurrence of any event contemplated by Section 3(d), but subject in any event to Section 3(k) below, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
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(k) upon prior written notice to the Holder, the Company may postpone the filing of a demanded Registration Statement or suspend the initial effectiveness or continued use of any shelf Registration Statement for a reasonable “blackout period” not in excess of sixty (60) calendar days if the board of directors determines in good faith that such registration or offering could (i) materially interfere with a bona fide business acquisition or divestiture or financing transaction of the Company or is reasonably likely to require premature disclosure of information, the premature disclosure of which could materially and adversely affect the Company or (ii) require the inclusion, in any related Registration Statement, of financial statements that are unavailable to the Company for reasons beyond the Company’s control; provided, that the Company shall not delay the filing of any demanded Registration Statement more than twice in any 12-month period; provided further, that in the event there are two blackout periods in any 12-month period, such blackout periods may not occur consecutively. The blackout period will end upon the earlier to occur of, (A) in the case of a bona fide business, acquisition or divestiture or financing transaction, a date not later than sixty (60) calendar days from the date such deferral commenced or (B) in the case of disclosure of material non-public information or in the case that financial statements are unavailable to the Company for reasons beyond the Company’s control, the earlier to occur of (x) the filing by the Company of its next succeeding Form 10-K or Form 10-Q, and (y) the date upon which such information is otherwise disclosed;
(l) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the SEC pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder;
(m) use its reasonable best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities;
(n) with a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company, including the Registrable Securities, to the public without registration, (i) if the Company is subject to the reporting requirement of Sections 13 or 15(d) of the Exchange Act, file in a timely manner all reports and other documents required, if any, to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted thereunder or (ii) if the Company is not subject to the reporting requirement of Sections 13 or 15(d) of the Exchange Act, make available information necessary to comply with Section 4(a)(7) of the Securities Act and Rule 144, if available, with respect to resales of the Registrable Securities under the Securities Act, at all times, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (x) Section 4(a)(7) of the Securities Act and Rule 144 promulgated under the
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Securities Act (if available with respect to resales of the Registrable Securities), as such rules may be amended from time to time or (y) any other rules or regulations now existing or hereafter adopted by the SEC. Upon the reasonable request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such information requirements, and, if not, the specific reasons for non-compliance;
(o) in the event that the Registrable Securities are being offered in an Underwritten Offering, furnish to the Holder(s) participating in such Underwritten Offering and their respective counsel and to the underwriters of the securities being registered and their respective counsel such reasonable number of copies of the Registration Statement, preliminary prospectus and final Prospectus as such Holder(s) or such underwriters may reasonably request in order to facilitate the public offering or other disposition of such securities;
(p) in connection with an Underwritten Offering, the Company shall cause its officers to use their commercially reasonable efforts to support the marketing of the Registrable Securities covered by such offering (including participation in “road shows” or other similar marketing efforts) to the extent reasonably necessary, in the view of the managing underwriter(s), to support the proposed sale of Registrable Securities pursuant to such Underwritten Offering; provided, that the aggregate number of days of any “road show” presentations in connection with an Underwritten Offering shall not exceed three (3) Business Days and such officers may decline a request to travel for such “road show” (in their sole discretion);
(q) use reasonable best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, an opinion dated such date of the legal counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to Holders and the underwriters, if any, a “negative assurances letter”, dated such date of the legal counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and a letter dated such date from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to Holders and the underwriters, such letter to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings or, if acceptable to the underwriters, a “bringdown” of any comfort letter, and on the date that is one Trading Day prior to the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, a letter dated such date from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to Holders and the underwriters, such letter to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings;
(r) in connection with a customary due diligence review, make available for inspection by the Holders, any underwriter participating in any such disposition of Registrable Securities, if any, and any counsel or accountants retained by the Holders or underwriter, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its Subsidiaries, and cause the officers, directors and employees of the Company and its Subsidiaries to supply all information and participate in customary due diligence sessions in each case reasonably requested by any such representative, underwriter, counsel or accountant in connection with such Registration Statement; and
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(s) cooperate with each Holder and each underwriter or agent participating in the disposition of Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA, including the use of reasonable best efforts to obtain FINRA’s pre-clearance or pre-approval of the registration statement and applicable Prospectus upon filing with the SEC.
4. Furnishing of Holder Information. The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information, the Company shall not be liable for any such failure of the Company to meet its obligations hereunder.
5. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement, other than underwriting discounts or commissions, if any, deducted from the proceeds in respect of any Registrable Securities. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (a) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (i) with respect to filings made with the SEC, (ii) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (iii) with respect to compliance with applicable state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determinations of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders), and (iv) with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with the Financial Industry Regulatory Authority (“FINRA”) pursuant to FINRA Rule 5110 or any similar rule of FINRA, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale), (b) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing any Prospectuses if the printing of any such Prospectus is reasonably requested by the Holders included in the Registration Statement)), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel for the Company, (e) Securities Act and/or Exchange Act liability insurance, if the Company so desires such insurance, and (f) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.
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6. Indemnification.
(a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members and partners agents, brokers, investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (A) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that each Holder has approved Annex A hereto for this purpose), (B) in the case of an occurrence of an event of the type specified in Section 3(d)(iii) – (v), or (C) during a suspension of the Registration Statement contemplated by Section 3(j), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 7(c). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 7(g).
(b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title), each Person who controls the Company (within the meaning
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of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising out of relating to: any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s information provided in any selling stockholder questionnaire or the proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto. In no event shall the liability of a selling Holder be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 6 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable fees and expenses incurred in connection with defense thereof, provided that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses, (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The
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Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section 6) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.
(d) Contribution. If the indemnification under Section 6(a) or Section 6(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 6(a) or Section 6(b)was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. In no event shall the contribution obligation of a Holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 6 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.
The indemnity and contribution agreements contained in this Section 6 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.
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7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.
(b) Discontinued Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi) or Section 3(j), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed.
(c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and Holders of 50.1% or more of the then outstanding Registrable Securities, provided that, if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders) the consent of such disproportionately impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 7(c). 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 also is offered to all of the parties to this Agreement.
(d) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.
(e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable
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Securities. No Holder may assign its rights or obligations hereunder without the written consent of the Company, except that a Holder may, without the prior consent of the Company, assign its rights and obligations hereunder in connection with a transfer of Securities permitted by Section 4.1 of the Purchase Agreement.
(f) No Inconsistent Agreements. 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 Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.
(g) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page was an original thereof.
(h) Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by, and construed and interpreted exclusively in accordance with, the law of the State of New York without giving effect to any conflict of laws.
(i) Entire Agreement. This Agreement, together with the other Documents, contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and therein and supersedes all prior representations, agreements, covenants and understandings, whether oral or written, related to the subject matter of this Agreement and the other Documents.
(j) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.
(k) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
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(l) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.
(m) JURISDICTION; WAIVER. EACH PARTY HEREBY ACKNOWLEDGES THAT THIS AGREEMENT IS BEING SIGNED BY EACH OTHER PARTY IN PARTIAL CONSIDERATION OF SUCH OTHER PARTY’S RIGHT TO ENFORCE IN THE JURISDICTION STATED BELOW THE TERMS AND PROVISION OF THIS AGREEMENT AND THE DOCUMENTS. EACH PARTY IRREVOCABLY CONSENTS TO THE EXCLUSIVE AND SOLE JURISDICTION IN NEW YORK, NEW YORK AND VENUE IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT NEW YORK, NEW YORK IS NOT CONVENIENT. EACH PARTY HEREBY WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST ANY OTHER PARTY IN ANY JURISDICTION EXCEPT NEW YORK, NEW YORK. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THE DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE SUBJECT OF THE DOCUMENTS.
(n) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.
********************
(Signature Pages Follow)
19
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
| COMPANY: DOUGLAS ELLIMAN INC. | ||
| By: | /s/ J. Bryant Kirkland III | |
| Name: | J. Bryant Kirkland III | |
| Title: | Senior Vice President and Chief Financial Officer | |
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
[SIGNATURE PAGE OF HOLDERS TO RRA]
| Name of Holder: |
KLCP Fund III (EU) Master AIV LP | |
| Signature of Authorized Signatory of Holder: |
/s/ Anthony Pasqua | |
| Name of Authorized Signatory: |
Anthony Pasqua | |
| Title of Authorized Signatory: |
Authorized Signatory | |
[SIGNATURE PAGES CONTINUE]
[SIGNATURE PAGE OF HOLDERS TO RRA]
| Name of Holder: |
KLIM Delta HQC3 | |
| Signature of Authorized Signatory of Holder: |
/s/ Anthony Pasqua | |
| Name of Authorized Signatory: |
Anthony Pasqua | |
| Title of Authorized Signatory: |
Authorized Signatory | |
ANNEX A
PLAN OF DISTRIBUTION
The Company is registering the resale by the selling stockholders or their permitted transferees of shares of common stock issuable upon conversion of the Notes. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders.
We will pay all expenses incurred in connection with the registration of shares of common stock pursuant to the Registration Rights Agreement, including all fees of the SEC, blue sky registration and filing fees, listing notices and filing fees, printing fees and expenses, transfer agents’ and registrars’ fees and expenses and all fees and expenses of our outside counsel and independent registered public accounting firm. The selling stockholders will pay all selling expenses, including any broker’s fees or commissions, and fees or expenses of outside counsel to any selling stockholder.
The shares of common stock issuable upon conversion of the Notes that are beneficially owned by the selling stockholders covered by this prospectus may be offered and sold from time to time by the selling stockholders. The term “selling stockholders” includes transferees or other successors in interest selling common stock received from, or common stock issuable upon the conversion of Notes received from, a selling stockholder as a permitted transfer in accordance with the terms of the Purchase Agreement, as further described below. The selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. Such sales may be made on one or more exchanges or otherwise, at prices and under terms then prevailing or at prices related to the then current market price or in negotiated transactions. If underwriters are used in the sale, such underwriters will acquire the shares for their own account. These sales may be at a fixed price or varying prices, which may be changed, or at market prices prevailing at the time of sale, at prices relating to prevailing market prices or at negotiated prices. The common stock may be offered to the public through underwriting syndicates represented by managing underwriters or by underwriters without a syndicate. The obligations of the underwriters to purchase the common stock will be subject to certain conditions. The underwriters will be obligated to purchase all the common stock offered if any of the common stock is purchased.
Selling stockholders may use any one or more of the following methods when selling shares of common stock offered by this prospectus:
| • | purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus; |
| • | ordinary brokerage transactions and transactions in which the broker solicits purchasers; |
| • | block trades in which the broker-dealer so engaged will attempt to sell the common stock as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| • | an over-the-counter distribution in accordance with the rules of NYSE; |
| • | through one or more underwritten offerings on a firm commitment or best efforts basis; |
| • | settlement of short sales entered into after the date of this prospectus; |
| • | agreements with broker-dealers to sell a specified number of the common stock at a stipulated price per share; |
| • | in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales agents; |
| • | directly to purchasers, including through a specific bidding, auction or other process or in privately negotiated transactions; |
| • | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or |
| • | through a combination of any of the above methods of sale or any other method permitted pursuant to applicable law. |
There can be no assurance that the selling stockholders will sell all or any of the common stock offered by this prospectus. In addition, the selling stockholders may also sell common stock under Rule 144 under the Securities Act, if available, or in other transactions exempt from registration, rather than under this prospectus. The selling stockholders have the sole and absolute discretion not to accept any purchase offer or make any sale of common stock if they deem the purchase price to be unsatisfactory at any particular time.
The selling stockholders also may transfer the shares of common stock offered by this prospectus in other circumstances permitted by the Purchase Agreement, in which case the transferees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus.
A selling stockholder may enter into derivative transactions with third parties, or sell common stock not covered by this prospectus to third parties in privately negotiated transactions. If a prospectus supplement indicates, in connection with those derivatives, the third parties may sell common stock covered by this prospectus, including in short sale transactions. If so, the third party may use common stock pledged by any selling stockholder or borrowed from any selling stockholder or others to settle those sales or to close out any related open borrowings of stock, and may use common stock received from any selling stockholder in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and will be identified in any applicable prospectus supplement. In addition any selling stockholder may otherwise loan or pledge common stock to a financial institution or other third party that in turn may sell the common stock short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our common stock or in connection with a concurrent offering of other securities. In effecting sales, broker-dealers or agents engaged by the selling stockholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the selling stockholders in amounts to be negotiated immediately prior to the sale.
If at the time of any offering made under this prospectus a member of the Financial Industry Regulatory Authority (“FINRA”) participating in the offering has a “conflict of interest” as defined in FINRA Rule 5121 (“Rule 5121”), that offering will be conducted in accordance with the relevant provisions of Rule 5121.
In offering the common stock covered by this prospectus, the selling stockholders and any underwriters, broker-dealers or agents who execute sales for the selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any discounts, commissions, concessions or profit they earn on any resale of such common stock may be underwriting discounts and commissions under the Securities Act. To our knowledge, there are currently no plans, arrangements or understandings between the selling stockholders and any broker-dealer or agent regarding the sale of the common stock by the selling stockholders.
The underwriters, broker-dealers and agents may engage in transactions with us or the selling stockholders, or perform services for us or the selling stockholders, in the ordinary course of business.
In order to comply with the securities laws of certain states, if applicable, the common stock must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the common stock may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
The selling stockholders and any other persons participating in the sale or distribution of the common stock will be subject to applicable provisions of the Securities Act and the Exchange Act, and the rules and regulations thereunder, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the common stock by, the selling stockholders or any other person, which limitations may affect the marketability of the shares of the common stock.
We will make copies of this prospectus available to the selling stockholders upon request for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any agent, broker-dealer or underwriter that participates in transactions involving the sale of the common stock against certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against certain liabilities, including certain liabilities under the Securities Act, the Exchange Act or other federal or state law. Agents, broker-dealers and underwriters may be entitled to indemnification by us and the selling stockholders against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the agents, broker-dealers or underwriters may be required to make in respect thereof.
Exhibit 99.1
| Contact: | For Douglas Elliman Inc. | |
| Stephen Larkin, Douglas Elliman Inc. 917-902-2503 | ||
| Columbia Clancy/Catherine Livingston, FGS Global | ||
| 212-687-8080 | ||
| J. Bryant Kirkland III, Douglas Elliman Inc. | ||
| 305-579-8000 | ||
| For Kennedy Lewis Investment Management | ||
| Joshua Clarkson/Mike Geller, Prosek Partners | ||
| pro-klim@prosek.com | ||
| 212-279-3115 | ||
Douglas Elliman Inc. Secures $50 Million Growth Investment From Kennedy Lewis Investment Management
Strengthens balance sheet and fuels long-term strategic growth and expansion plans
Announces preliminary second quarter gross transaction value in the range of $10.25 billion to $11.25 billion and strong cash position
MIAMI, FL, July 2, 2024 - Douglas Elliman Inc. (NYSE:DOUG) today announced the closing of a $50 million growth investment from Kennedy Lewis Investment Management LLC (“Kennedy Lewis”), a leading credit-focused alternative asset management firm. The investment strengthens Douglas Elliman’s balance sheet to fuel its strategic growth and expansion.
Douglas Elliman issued $50 million senior secured convertible notes due July 2, 2029 to funds advised by Kennedy Lewis. The convertible notes bear interest at a rate of 7.0% per annum payable in cash, or, at Douglas Elliman’s election, 8.0% per annum paid in kind, due semi-annually. The convertible notes are convertible into common stock at an initial conversion rate equal to $1.50, subject to certain customary anti-dilution adjustments. As part of the agreement, Kennedy Lewis will have the right (subject to certain conditions), for so long as such funds hold at least one-third of their initial investment, to nominate one director to Douglas Elliman’s board.
Kennedy Lewis has a long history of investing in the residential real estate sector and an impressive track record of providing customized financing solutions tailored to its partner companies’ unique strategic goals. As part of this partnership, Douglas Elliman expects Kennedy Lewis to tap into its deep expertise in the industry, including extensive knowledge and experience in land and home builder finance investments.
“Kennedy Lewis’ investment in Douglas Elliman is a testament to our agents, business model and strategic plan,” said Howard M. Lorber, Chairman and Chief Executive Officer, Douglas Elliman. “With deep experience in residential real estate, we are pleased Kennedy Lewis has chosen to support Douglas Elliman’s strategic initiatives and look forward to tapping into the firm’s network and knowledge base as we work together to drive long-term stockholder value. We are also encouraged by stronger performance in the second quarter of 2024 compared to the prior quarter.”
David K. Chene and Darren L. Richman, Co-Founders and Co-Managing Partners of Kennedy Lewis, said, “We are excited to partner with Douglas Elliman, a firm with one of the strongest brands and most reputable agents in residential real estate and a compelling growth opportunity, and work with the management team to fully capitalize on that opportunity. Douglas Elliman
operates in an industry we understand well, having studied and invested in residential real estate and homebuilders through multiple cycles. We see attractive long-term market dynamics in the growing, luxury markets Douglas Elliman focuses on, and believe the firm is well positioned to utilize additional financial and strategic resources to build on its leading position in the space.”
Preliminary Second Quarter Financial Results
The Company also announced that preliminary unaudited gross transaction value for the second quarter is expected to be in the range of $10.25 billion to $11.25 billion, compared to $7.1 billion in the first quarter of 2024. Douglas Elliman maintains a strong balance sheet with cash and cash equivalents of approximately $92.0 million at June 30, 2024, up from $91.5 million at March 31, 2024, and after the $7.75 million settlement payment in the second quarter to resolve certain brokerage commission litigation.
These estimated financial results are preliminary and are subject to the completion of Douglas Elliman’s quarter-end closing procedures and further financial review by Douglas Elliman’s independent registered public accounting firm. Actual results may differ from these estimates as a result of the completion of our quarter-end closing procedures, review adjustments and other developments that may arise between now and the time the Company’s financial results for the second quarter are finalized.
Board Appointments
In connection with the investment, David K. Chene from Kennedy Lewis and Patrick J. Bartels Jr., an independent director from Redan Advisors LLC, will join Douglas Elliman’s Board of Directors, succeeding Ronald J. Kramer and Lynn Mestel, effective immediately after closing of the transactions.
Mr. Lorber continued, “Ron and Lynn have been valuable members of the Douglas Elliman board, and we thank them for their numerous contributions to the success of our company.”
About Douglas Elliman Inc.
Douglas Elliman Inc. (NYSE: DOUG, “Douglas Elliman”) owns Douglas Elliman Realty, LLC, which is one of the largest residential brokerage companies in the United States with operations in New York City, Long Island, Westchester, Connecticut, New Jersey, the Hamptons, Massachusetts, Florida, California, Texas, Colorado, Nevada, Connecticut, Maryland, Virginia, and Washington, D.C. In addition, Douglas Elliman sources, uses and invests in early-stage, disruptive property technology (“PropTech”) solutions and companies and provides other real estate services, including development marketing, property management and settlement and escrow services in select markets. Additional information concerning Douglas Elliman is available on its website, investors.elliman.com.
Investors and others should note that we may post information about Douglas Elliman on our website at investors.elliman.com or, if applicable, on our accounts on Facebook, Instagram, LinkedIn, TikTok, X, YouTube or other social media platforms. It is possible that the postings or releases could include information deemed to be material information. Therefore, we encourage investors, the media and others interested in Douglas Elliman to review the information we post on our website at investors.elliman.com and on our social media accounts.
About Kennedy Lewis
Kennedy Lewis is an alternative credit manager founded in 2017 by David K. Chene and Darren L. Richman with over $16 billion under management across private funds, a business development company, and collateralized loan obligations. The firm seeks to deliver attractive risk adjusted returns for clients by investing across the credit markets through its opportunistic credit, homebuilder finance, core lending and broadly syndicated loan strategies.
Forward-Looking and Cautionary Statements
This press release includes forward-looking statements within the meaning of the federal securities law. All statements other than statements of historical or current facts made in this document are forward-looking. These statements include, but are not limited to, statements regarding the issuance and sale of the convertible notes to Kennedy Lewis and the impact of the investment on our operations. We identify forward-looking statements in this document by using words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may be,” “continue” “could,” “potential,” “objective,” “plan,” “seek,” “predict,” “project” and “will be” and similar words or phrases or their negatives. Forward-looking statements reflect our current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons.
Risks and uncertainties that could cause our actual results to differ significantly from our current expectations are described in our Annual Report on Form 10-K for the year ended December 31, 2023 and our Quarterly Report on Form 10-K for the quarter ended March 31, 2024. We undertake no responsibility to publicly update or revise any forward-looking statement, except as required by applicable law.
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities. The offer and sale of the convertible notes, and the issuance of common stock upon conversion of the convertible notes, are being made in a transaction not involving a public offering and have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws. Accordingly, the convertible notes or the common stock issuable upon conversion of the convertible notes may not be reoffered or resold in the United States except pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act and applicable state securities laws.
Document and Entity Information |
Jul. 02, 2024 |
|---|---|
| Cover [Abstract] | |
| Amendment Flag | false |
| Entity Central Index Key | 0001878897 |
| Document Type | 8-K |
| Document Period End Date | Jul. 02, 2024 |
| Entity Registrant Name | DOUGLAS ELLIMAN INC. |
| Entity Incorporation State Country Code | DE |
| Entity File Number | 001-41054 |
| Entity Tax Identification Number | 87-2176850 |
| Entity Address, Address Line One | 4400 Biscayne Boulevard |
| Entity Address, City or Town | Miami |
| Entity Address, State or Province | FL |
| Entity Address, Postal Zip Code | 33137 |
| City Area Code | (305) |
| Local Phone Number | 579-8000 |
| Written Communications | false |
| Soliciting Material | false |
| Pre Commencement Tender Offer | false |
| Pre Commencement Issuer Tender Offer | false |
| Security 12b Title | Common stock, par value $0.01 per share |
| Trading Symbol | DOUG |
| Security Exchange Name | NYSE |
| Entity Emerging Growth Company | false |