UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported): March 5,
2015
WORLD MOTO, INC.
(Exact Name of Registrant as Specified in Charter)
Nevada |
000-54694 |
77-0716386 |
(State or Other Jurisdiction of |
(Commission File Number) |
(IRS Employer Identification |
Incorporation) |
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No.) |
131 Thailand Science Park INC-1 #214 |
N/A |
Phahonyothin Road |
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Klong1, Klong Luang |
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Pathumthani 12120 Thailand |
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(Address of Principal Executive Offices) |
(Zip Code) |
Registrants telephone number, including area code: (646)
840-8781
N/A
(Former Name or Former Address, if
Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions (see General Instruction .2. below):
[ ] Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a -12)
[ ] Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
[ ] Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
SECTION 1 REGISTRANTS BUSINESS AND OPERATIONS
Item
1.01. Entry into a
Material Definitive Agreement
Securities Purchase Agreement
On March 5, 2015, World Moto Inc., a Nevada corporation (the
Company) entered into a Securities Purchase Agreement (the Agreement) with
an existing investor (the Investor) pursuant to which the Investor purchased a
debenture (the Initial Debenture) in the principal amount of $54,348 for a
purchase price of $50,000 (8% original issue discount). Upon the effectiveness
of a registration statement to be filed by the Company in connection therewith,
the Investor will purchase an additional debenture (the Second Debenture,
together with the Initial Debenture, the Debentures) in the principal amount
of $489,130 for a purchase price of $450,000 (8% original issue discount), for a
total aggregate principal amount of $543,478 for a purchase price of
$500,000.
The Agreement provides for a right of participation with
respect to any future sales of the Companys securities during the time that the
Debentures remain outstanding. The right of participation allows the Investor to
participate in an amount up to 30% of the proposed offering. The Agreement also
includes customary representations, warranties and covenants of the Company and
the Investor made to each other as of specific dates. The assertions embodied in
those representations and warranties were made solely for purposes of the
Agreement and are not intended to provide factual, business, or financial
information about the Company and the Investor. In addition, the Company agreed
to indemnify the Investor and its affiliates from any losses incurred by the
Investor relating to any breaches of a representation or warranty by the Company
or related to the transactions contemplated by the Agreement.
Pursuant to the terms of the Agreement, the Company agreed to
reimburse the Investor for attorneys fees in the amount of $12,000.
Debentures
On March 5, 2015, the Company entered into the Initial
Debenture with the Investor in the principal amount of $54,348 for a purchase
price of $50,000 (8% original issue discount). The Debentures accrue interest at
the rate of 12% annually and have a maturity date of March 5, 2016. The Company
is obligated to make amortization payments beginning on the six month
anniversary of the issuance date of the Debentures and continuing monthly
thereafter. The Debentures are convertible into shares of common stock of the
Company at any time at the discretion of the Investor at a conversion price
equal to the lesser of (i) $0.03 or (ii) 50% of the lowest traded price per
share of the common stock during the twenty five (25) trading days prior to the
date of conversion.
The conversion price of the Debentures is subject to full
ratchet anti-dilution protection upon the occurrence of stock dividends, stock
splits, sales of securities of the Company, rights offerings, certain pro rata
distributions or a certain fundamental transactions as defined in the
Debentures. The Company also has a right of redemption with respect to some or
all of the outstanding principal balance under the Debentures.
The Debentures include customary events of default, such as
defaults in payment, breaches of covenants or agreements, or changes in control.
Upon the occurrence of an event of default, the outstanding principal and
interest (which shall accrue at 18% per annum after the event of default) under
the Debentures will be due and shall also be convertible at the lesser of the
conversion price and 60% of the volume weighted average price (VWAP) for the
five (5) trading days in the preceding twenty (20) trading days that have the
lowest VWAP during such period.
Registration Rights Agreement
On March 5, 2015, the Company entered into the Registration
Rights Agreement (the Rights Agreement) with the Investor pursuant to which
the Company agreed to register an amount of shares of common stock of the
Company equal to 125% of the shares of common stock issuable upon conversion of
the Debentures (the Registrable Securities). The Company is required to file a
registration statement with the SEC to register the Registrable Securities by
March 10, 2015 (the Filing Deadline) and have the registration statement
declared effective by the SEC within sixty (60) days of the Filing Deadline (the
Effectiveness Deadlines).
If the Company fails to meet the Filing Deadline or the
Effectiveness Deadline, or if the registration statement ceases or fails to
remain effective for the requisite time, the Company is required to pay
liquidated damages equal to 1% of the aggregate purchase price paid by the
Investor pursuant to the Agreement on a monthly basis, until the expiration of
the Effectiveness Deadline. The liquidated damages may not exceed 10% of the
purchase price paid by the Investor.
The parties to the Rights Agreement also agreed, among other
things, to indemnify each other for losses that may arise based on untrue
statements that may be included in a registration statement and certain other
fees and expenses that the parties may incur in connection therewith. The
Company will pay all expenses relating to the filing of the registration
statement.
Security Agreement
In connection with the Companys obligations under the
Debentures, on March 5, 2015, the Company entered into a Security Agreement with
the Investor, pursuant to which the Company granted a lien on all assets of the
Company (the Collateral) for the benefit of the Investor, to secure the Companys obligations
under the Debentures, which lien is junior to the lien on the Collateral held by
the Investor and another accredited investor (the Existing Lienholders)
pursuant to a security agreement dated April 4, 2014.
In the event of a default as defined in the Debentures, the
Investor may, among other things, collect or take possession of the Collateral,
proceed with the foreclosure of the security interest in the Collateral or sell,
lease or dispose of the Collateral, subject to the rights of the Existing
Lienholders.
The foregoing descriptions are qualified in their entirety by
reference to the Agreement, Form of Debenture, Form of Rights Agreement and Form
of Security Agreement filed as Exhibits 10.1, 10.2, 10.3 and 10.4 attached
hereto and incorporated herein by reference.
SECTION 2 FINANCIAL INFORMATION
Item
2.03 Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement of Registrant
Reference is made to the disclosure set forth under Item 1.01
of this Current Report on Form 8-K (the Report), which disclosure is
incorporated herein by reference.
SECTION 3 SECURITIES AND TRADING MARKETS
Item
3.02 Unregistered
Sales of Equity Securities
Reference is made to the disclosure set forth under Item 1.01
of the Report, which disclosure is incorporated herein by reference.
The issuance of the Debentures is exempt from the registration
requirements of the Securities Act of 1933, as amended (the Securities Act),
pursuant to the exemption for transactions by an issuer not involved in any
public offering under Section 4(a)(2) of the Securities Act and Rule 506 of
Regulation D promulgated under the Securities Act (Regulation D). The Company
made this determination based on the representations of the Investor that it is
an accredited investors within the meaning of Rule 501 of Regulation D and
have access to information about the Company and their investment.
This Report is neither an offer to sell nor the solicitation of
an offer to buy any securities. The securities have not been registered under
the Securities Act and may not be offered or sold in the United State of America
absent registration or an exemption from registration under the Securities
Act.
SECTION 9 FINANCIAL STATEMENT AND EXHIBITS
Item
9.01. Financial Statements
and Exhibits.
(d)
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this Current Report on Form
8-K to be signed on its behalf by the undersigned hereunto duly authorized.
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WORLD MOTO, INC. |
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Date: March 10, 2015 |
By: |
/s/ Paul Giles |
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Paul Giles, Chief Executive
Officer |
SECURITIES PURCHASE AGREEMENT
This
Securities Purchase Agreement (this Agreement) is dated as of March 5,
2015, between World Moto, Inc., a Nevada corporation (the Company) and
Redwood Management, LLC (the Purchaser)
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(a)(2) of the Securities Act of 1933, as amended (the Securities
Act), and Rule 506 promulgated thereunder, the Company desires to issue and
sell to the Purchaser, and the Purchaser desires to purchase from the Company,
securities of the Company as more fully described in this Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings set forth in this Section 1.1:
Acquiring
Person shall have the meaning ascribed to such term in Section 4.7.
Action
shall have the meaning ascribed to such term in Section 3.1(j) .
Affiliate
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.
Board
of Directors means the board of directors of the Company.
Business
Day means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
Closing
means the closing of a purchase and sale of the Securities pursuant to Section
2.1.
Closing
Date means the Trading Day on which all of the Transaction Documents with
respect to a particular Closing have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the Purchasers
obligations to pay the relevant Subscription Amount and (ii) the Companys obligations to
deliver the corresponding Securities, in each case, have been satisfied or
waived.
1
Closing
Statement means the Closing Statement in the form on Annex A
attached hereto.
Commission
means the United States Securities and Exchange Commission.
Common
Stock means the common shares of the Company, par value $0.0001 per share,
and any other class of securities into which such securities may hereafter be
reclassified or changed.
Common
Stock Equivalents means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, right, option, warrant
or other instrument that is at any time convertible into or exercisable or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
Company
Counsel means Greenberg Traurig, LLP, with offices located at 1201 K Street
Suite 1100, Sacramento CA 95814.
Conversion
Price shall have the meaning ascribed to such term in the Debentures.
Conversion
Shares shall have the meaning ascribed to such term in the Debentures.
Debentures
means up to $500,000 of the 12% Senior Secured Convertible Debentures due,
subject to the terms therein, twelve months from their date of issuance, issued
by the Company to the Purchaser hereunder, in the form of Exhibit A
attached hereto.
Disclosure
Schedules shall have the meaning ascribed to such term in Section 3.1.
Effective
Date means the earliest of the date that (a) the initial Registration
Statement has been declared effective by the Commission, (b) all of the
Registrable Securities have been sold pursuant to Rule 144 or may be sold
pursuant to Rule 144 without the requirement of the Company to be in compliance
with current public information required under Rule 144 and without volume or
manner of sale restrictions, or (c) following the one year anniversary of the
Closing Date, provided that a holder of Registrable Securities is not an
Affiliate of the Company, all of the Registrable Securities may be sold pursuant
to an exemption from registration under Section 4(1) of the Securities Act
without volume or manner-of-sale restrictions and Company counsel has delivered
to such holders a standing written unqualified opinion that resales may then be
made by such holders of the Registrable Securities pursuant to such exemption
which opinion shall be in form and substance reasonably acceptable to such
holders. Evaluation Date shall have the meaning ascribed to such term
in Section 3.1(r) .
Equity
Linked Offering shall have the meaning set forth in Section 4.15.
2
Exchange
Act means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
Exempt
Issuance means the issuance of (a) shares of Common Stock or options to
employees, officers, directors or consultants of the Company pursuant to any
equity incentive plan or compensation arrangement duly adopted for such purpose,
by a majority of the non-employee members of the Board of Directors or a
majority of the members of a committee of non-employee directors established for
such purpose, (b) shares issued pursuant to any equipment loan or leasing
arrangement, real property leasing arrangement or debt financing from a bank or
similar financial institution approved by the Board of Directors, (c) securities
upon the exercise or exchange of or conversion of any Securities issued
hereunder and/or other securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease the
exercise price, exchange price or conversion price of such securities, (d)
securities the issuance of which has been approved by the holders of majority in
interest of the aggregate principal amount of the then outstanding Debentures,
(e) securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors of the Company, provided
that any such issuance shall only be to a Person (or to the equityholders of a
Person) which is, itself or through its subsidiaries, an operating company or an
owner of an asset in a business synergistic with the business of the Company and
shall provide to the Company additional benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital
FCPA
means the Foreign Corrupt Practices Act of 1977, as amended.
GAAP
shall have the meaning ascribed to such term in Section 3.1(h) .
Indebtedness
shall have the meaning ascribed to such term in Section 3.1(aa) .
Intellectual
Property Rights shall have the meaning ascribed to such term in Section
3.1(o) .
Legend
Removal Date shall have the meaning ascribed to such term in Section 4.1(c)
.
Liens
means a lien, charge, pledge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.
Material Adverse Effect shall have the meaning assigned to such term in
Section 3.1(b) .
Material
Permits shall have the meaning ascribed to such term in Section 3.1(m) .
Maximum
Rate shall have the meaning ascribed to such term in Section 5.17.
3
Person means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
Purchaser
Party shall have the meaning ascribed to such term in Section 4.10.
Registration
Rights Agreement means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchaser, in the form of Exhibit B attached
hereto.
Registration
Statement means a registration statement meeting the requirements set forth
in the Registration Rights Agreement and covering the resale of the Underlying
Shares (subject to reduction as required by the Commission pursuant to Rule 415
or otherwise) by the Purchaser as provided for in the Registration Rights
Agreement.
Required
Approvals shall have the meaning ascribed to such term in Section 3.1(e) .
Required
Minimum shall have the meaning ascribed to such term in the Debentures.
Rule
144 means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.
Rule
424 means Rule 424 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended or interpreted from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.
SEC
Reports shall have the meaning ascribed to such term in Section 3.1(h) .
Securities
means the Debentures and the Underlying Shares.
Securities
Act means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
Security
Agreement means the Security Agreement, dated the date hereof, among the
Company and the Purchaser, in the form of Exhibit C attached hereto.
Short Sales means all short sales as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include any
sale of Securities pursuant to Rule 144).
Subscription
Amount means, as to each Closing, the aggregate amount to be paid for
Debentures purchased hereunder as specified below the Purchasers name on the
signature page of this Agreement and next to the heading Subscription Amount,
in United States dollars and in immediately available funds.
4
Subsidiary
means any subsidiary of the Company as set forth in the SEC Reports and shall,
where applicable, also include any direct or indirect subsidiary of the Company
formed or acquired after the date hereof.
Trading
Day means a day on which the principal Trading Market is open for trading.
Trading
Market means any of the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the NYSE MKT, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors
to any of the foregoing, including the OTC QB).
Transaction
Documents means this Agreement, the Debentures, the Registration Rights
Agreement, the Security Agreement, all exhibits and schedules thereto and hereto
and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
Transaction
Offer shall have the meaning set forth in Section 4.15.
Transfer
Agent means Empire Stock Transfer, Inc., the current transfer agent of the
Company, with a mailing address of 1859 Whitney Mesa Dr., Henderson, NV 89014
and a facsimile number of (702) 974-1444, and any successor transfer agent of
the Company.
Underlying
Shares means the shares of Common Stock issued or issuable in connection
with the conversion or redemption of the Debentures and issued and issuable in
lieu of the cash payment of interest on the Debentures in accordance with the
terms of the Debentures.
VWAP means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market other than the OTC Bulletin Board, the daily volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:00 p.m. (New York City time)), (b) if the OTC Bulletin Board is the
Trading Market, the volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the
Common Stock is not then listed or quoted for trading on a Trading Market and if
prices for the Common Stock are then reported in the Pink Sheets published by
Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good
faith by the holders of a majority in interest of the aggregate principal amount
of the then outstanding Debentures and reasonably acceptable to the Company, the
fees and expenses of which shall be paid by the Company.
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ARTICLE II.
PURCHASE AND SALE
2.1
Closing. (a) First Closing. Subject to the satisfaction of the
conditions to closing set forth herein, the purchase and sale of Debentures, in
the amounts and to the Purchaser of $50,000 ($54,348) face amount, inclusive of
8% original issue discount (8% OID)), listed under the heading First Closing
on Schedule A attached hereto shall take place at the offices of counsel
to the Purchaser at 61 Broadway, New York, NY 10006 or such other location as
the parties shall mutually agree, at 10:00 A.M., Eastern Standard Time, on March
_, 2015, or at such other time and place as the Company and the Purchaser
mutually agree upon orally or in writing (which time and place are designated as
the First Closing). The Purchaser shall deliver to the Company, via
wire transfer with immediately available funds to the designated account set
forth on Annex A an amount equal to the Subscription Amount applicable to the
First Closing as set forth on the signature page hereto executed by the
Purchaser participating in the First Closing, and the Company shall deliver to
the Purchaser its Debenture, as determined pursuant to Section 2.2, and the
Company and Purchaser shall deliver the other items set forth in Section 2.2
deliverable at the First Closing.
(b)
Subject to the satisfaction of the conditions to closing set forth herein,
within three business days after the effective date of the Registration
Statement, the Company shall sell, and the Purchaser shall purchase an
additional $450,000 ($489,130 face amount, inclusive of 8% OID) of Debentures on
the terms and conditions contained herein such that the aggregate principal
amount of Debentures sold pursuant to the terms of this Agreement shall equal
$500,000, the date on which the transactions contemplated in this Section 1.3
shall be consummated shall be designated as Subsequent Closing and
together with the First Closing, the Closings). Upon completion of any
Subsequent Closing, the Company shall amend Schedule A, without
any further consents required, to reflect the purchase and sale of Securities at
such Subsequent Closing.
2.2 Deliveries.
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(a) |
On or prior to any Closing Date pursuant to Section 2.1,
the Company shall deliver or cause to be delivered to the Purchaser this
Agreement, the Security Agreement and the Registration Rights Agreement
duly executed by the Company. In addition, on or prior to each Closing
Date held pursuant to Section 2.1, the Company shall deliver or cause to
be delivered to the Purchaser the following: |
(i) a
legal opinion of Company Counsel, substantially in the form of Exhibit D
attached hereto;
(ii)
a Debenture with a principal amount equal to the relevant Subscription Amount,
adjusted for the 8% OID, registered in the name of the Purchaser; and
(iii)
an irrevocable letter of instructions to the Companys Transfer Agent in
substantially the form of Exhibit E attached hereto.
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(b) |
On or prior to any Closing Date pursuant to Section 2.1,
the Purchaser shall deliver or cause to be delivered to the Company this
Agreement and the Registration Rights Agreement duly executed by the
Purchaser. In addition, on or prior to each Closing Date held pursuant to
Section 2.1, the Purchaser shall deliver or cause to be delivered to the
Company, the Purchasers relevant Subscription Amount by wire transfer to
the account specified in Annex A. |
2.3
Closing Conditions.
(a) The
obligations of the Company hereunder in connection with any Closing are subject
to the following conditions being met:
(i)
the accuracy in all material respects on the applicable Closing Date of the
representations and warranties of the Purchaser contained herein (unless as of a
specific date therein in which case they shall be accurate as of such date);
(ii) all
obligations, covenants and agreements of the Purchaser required to be performed
at or prior to an applicable Closing Date shall have been performed;
(iii)
the delivery by the Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
obligations of the Purchaser hereunder in connection with any Closing are
subject to the following conditions being met:
(i) the
accuracy in all material respects when made and on the applicable Closing Date
of the representations and warranties of the Company contained herein (unless as
of a specific date therein);
(ii)
all obligations, covenants and agreements of the Company required to be
performed at or prior to the applicable Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv) as of the relevant Closing
Date, trading in the Common Stock shall not have been suspended by the
Commission or any Trading Market;
(v)
the Company shall be current in it reporting obligations under the Exchange Act;
and (vi) for the avoidance of doubt and notwithstanding anything to the contrary
herein, the obligations of the Purchaser to consummate the Subsequent Closing
and purchase an additional $450,000 ($489,130 face amount, inclusive of 8% OID)
of Debentures is subject to the Companys having sent the Companys transfer
agent an irrevocable letter in form and substance that is satisfactory to the
Purchaser reserving from the Companys authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the additional $450,000 ($489,130 face amount, inclusive of 8%
OID) of Debentures to be issued on the Subsequent Closing in accordance with the
following formula:
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Required Minimum = (OA/CP) x 3
OA = the outstanding principal amount
of this Debenture, plus 100% of accrued and unpaid interest hereon, plus the
applicable Interest Make-Whole Amount on such date of determination;
CP = the applicable Conversion Price
on such date of determination.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1
Representations and Warranties of the Company. Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations and warranties
to the Purchaser as of the date hereof and at each Closing Date:
(a)
Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth in the SEC Reports. The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and clear
of any Liens, and all of the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities. If the
Company has no subsidiaries, all other references to the Subsidiaries or any of
them in the Transaction Documents shall be disregarded.
(b)
Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation nor default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in: (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Companys ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a Material Adverse Effect) and no proceeding has been instituted in any such jurisdiction revoking, limiting
or curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.
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(c)
Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and each of the other Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and each of the other Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Companys stockholders in connection herewith or therewith other than in
connection with the Required Approvals. This Agreement and each other
Transaction Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(d)
No Conflicts. The execution, delivery and performance by the Company of
this Agreement and the other Transaction Documents to which it is a party, the
issuance and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Companys or any Subsidiarys certificate
or articles of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals. Other than as set forth on Schedule 3.1(e),
the Company is not required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than: (i) the filings required pursuant to Section
4.6 of this Agreement, (ii) the filing with the Commission pursuant to the Registration Rights Agreement, (iii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale of
the Securities and the listing of the Conversion Shares for trading thereon in
the time and manner required thereby, if applicable, and (iv) the filing of Form
D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the Required
Approvals).
9
(f) Issuance
of the Securities. The Securities are duly authorized and, when issued and
paid for in accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance with the
terms of the Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Company
has reserved from its duly authorized capital stock a number of shares of Common
Stock for issuance of the Underlying Shares at least equal to the Required
Minimum on the date hereof.
(g)
Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g). No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as set forth
in the SEC Reports (as defined below) and as a result of the purchase and sale
of the Securities, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchaser) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Companys capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Companys stockholders.
(h)
SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) of the Exchange Act, for the two years preceding the date
hereof (or such shorter period as the Company was required by law or regulation
to file such material) (the foregoing materials, including the exhibits thereto
and documents incorporated by reference therein, being collectively referred to
herein as the SEC Reports) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act, 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 Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved
(GAAP), except as may be otherwise specified in such financial
statements or the notes thereto and 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.
10
(i)
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 could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Companys financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the issuance of
the Securities contemplated by this Agreement, no event, liability, fact,
circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Company or its Subsidiaries or
their respective businesses, properties, operations, assets or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least one Trading Day prior to the
date that this representation is made.
(j) Litigation.
There is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an Action) which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the Securities
or (ii) could, if there were an unfavorable decision, have or reasonably be
expected to result in a Material Adverse Effect. Except as set forth on Schedule 3.1(j), neither
the Company nor any Subsidiary, nor any director or officer thereof, is or has
been the subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
11
(k)
Labor Relations. No labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company, which
could reasonably be expected to result in a Material Adverse Effect. None of the
Companys or its Subsidiaries employees is a member of a union that relates to
such employees relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good. To the knowledge of the Company, no executive
officer of the Company or any Subsidiary, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(l) Compliance.
Neither the Company nor any Subsidiary: (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any judgment,
decree or order of any court, arbitrator or other governmental authority or
(iii) is or has been in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign,
federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and
labor matters, except in each case as could not have or reasonably be expected
to result in a Material Adverse Effect.
(m) Regulatory
Permits. The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not reasonably be expected to result in a Material Adverse Effect
(Material Permits), and neither the Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
12
(n) Title
to Assets. Except as set forth on Schedule 3.1(n), the Company and
the Subsidiaries have good and marketable title in fee simple to all real
property owned by them and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as
do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries and (ii) Liens for the payment of federal, state or
other taxes, for which appropriate reserves have been made therefor in
accordance with GAAP and, the payment of which is neither delinquent nor subject
to penalties. Any real property and facilities held under lease by the Company
and the Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in compliance.
(o)
Intellectual Property. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights as described
in the SEC Reports as necessary or required for use in connection with their
respective businesses and which the failure to so have could have a Material
Adverse Effect (collectively, the Intellectual Property Rights). None
of, and neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of, the Intellectual Property Rights has expired, terminated
or been abandoned, or is expected to expire or terminate or be abandoned, within
two (2) years from the date of this Agreement. Neither the Company nor any
Subsidiary has received, since the date of the latest audited financial
statements included within the SEC Reports, a written notice of a claim or
otherwise has any knowledge that the Intellectual Property Rights violate or
infringe upon the rights of any Person, except as could not have or reasonably
be expected to not have a Material Adverse Effect. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights. The Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(p)
Insurance. Except as set forth on Schedule 3.1(p), the Company and
the Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance coverage at
least equal to the aggregate Subscription Amount. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q) Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none
of the officers or directors of the Company or any Subsidiary and, to the
knowledge of the Company, none of the employees of the Company or any Subsidiary
is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from providing for the borrowing of money from or lending of
money to, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.
13
(r) Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in
compliance with any and all applicable requirements of the Sarbanes-Oxley Act of
2002 that are effective as of the date hereof, and any and all applicable rules
and regulations promulgated by the Commission thereunder that are effective as
of the date hereof and as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that: (i) transactions are executed in accordance with
managements 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 managements general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company and the Subsidiaries have established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and the 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 Commissions rules and forms. The Companys certifying officers have
evaluated the effectiveness of the disclosure controls and procedures of the
Company and the Subsidiaries as of the end of the period covered by the most
recently filed periodic report under the Exchange Act (such date, the
Evaluation Date). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the internal control over financial reporting (as such
term is defined in the Exchange Act) that have materially affected, or is
reasonably likely to materially affect, the internal control over financial
reporting of the Company and its Subsidiaries.
(s)
Certain Fees. With the exception of the commission payable to Aegis
Capital Corp., in its capacity as placement agent in connection with the
transactions contemplated by this Agreement, no brokerage or finders fees or
commissions are or will be payable by the Company or any 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 Purchaser 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.
14
(t)
Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchaser as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u)
Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an investment company within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(v)
Registration Rights. Except as set forth on Schedule 3.1(v), and
the transactions contemplated by the Transaction Documents, no Person has any
right to cause the Company to effect the registration under the Securities Act
of any securities of the Company or any Subsidiaries.
(w) Listing
and Maintenance Requirements. The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration. Except as set forth in the SEC Reports, the
Company has not, in the 12 months preceding the date hereof, received notice
from any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. Except as set forth in the SEC
Reports, the Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(x)
Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Companys certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchaser as a result of the Purchaser and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Companys
issuance of the Securities and the Purchasers ownership of the Securities.
(y) Disclosure.
Except with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither it
nor any other Person acting on its behalf has provided the Purchaser or its
agents or counsel with any information that it believes constitutes or might
constitute material, non-public information. The Company understands and
confirms that the Purchaser will rely on the foregoing representation in
effecting transactions in securities of the Company. All of the disclosure
furnished by or on behalf of the Company to the Purchaser regarding the Company
and its Subsidiaries, their respective businesses and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement, is
true and correct and does not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that the Purchaser makes no nor
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.
15
(z)
No Integrated Offering. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.
(aa)
Solvency. The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year
from the Closing Date. Schedule 3.1(aa), sets forth, as of the date
hereof, all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, Indebtedness means (x) any liabilities for
borrowed money or amounts owed in excess of $10,000 (other than trade accounts
payable incurred in the ordinary course of business), (y) all guaranties,
endorsements and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the Companys
consolidated balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (z) the present value of
any lease payments in excess of $10,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth in the SEC Reports,
neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(bb)
Tax Status. Except as set forth on Schedule 3.1(bb) and for
matters that would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, the Company and its
Subsidiaries each (i) has made or filed all United States federal, state and
local income and all foreign income and franchise tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations
and (iii) has set aside on its books provision reasonably adequate for the
payment of all material taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company or of any Subsidiary know of no
basis for any such claim.
16
(cc) No
General Solicitation. Neither the Company nor any person acting on behalf of
the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for
sale only to the Purchaser and certain other accredited investors within the
meaning of Rule 501 under the Securities Act.
(dd) Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the
knowledge of the Company or any Subsidiary, any agent or other person acting on
behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used
any funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company or any
Subsidiary (or made by any person acting on its behalf of which the Company is
aware) which is in violation of law or (iv) violated in any material respect any
provision of FCPA.
(ee) Accountants.
The Companys accounting firm is GBH CPAs, PC. To the knowledge and belief of
the Company, such accounting firm: (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion with respect to
the financial statements to be included in the Companys Annual Report for the
fiscal year ending December 31, 2013.
(ff)
Seniority. As of the Closing Date, except as set forth on Schedule
3.1(ff), no Indebtedness or other claim against the Company is senior to the
Debentures in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise, other than indebtedness secured by
purchase money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as to the
property covered thereby).
(gg)
No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers which could affect the Companys ability to
perform any of its obligations under any of the Transaction Documents.
(hh) Acknowledgment
Regarding Purchasers Purchase of Securities. The Company acknowledges and
agrees that the Purchaser is acting solely in the capacity of an arms length
purchaser with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that the 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 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 thereby is merely incidental to the Purchasers
purchase of the Securities. The Company further represents to the Purchaser
that the Companys decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
17
(ii)
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, other than, in the case of clauses (ii) and (iii),
compensation paid to the Companys placement agent in connection with the
placement of the Securities.
(jj) Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to
the Company's knowledge, any director, officer, agent, employee or affiliate of
the Company or any Subsidiary is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (OFAC).
(kk) U.S.
Real Property Holding Corporation. The Company is not and has never been a
U.S. real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended.
(ll)
Bank Holding Company Act. Neither the Company nor any of its Subsidiaries
or Affiliates is subject to the Bank Holding Company Act of 1956, as amended
(the BHCA) and to regulation by the Board of Governors of the Federal
Reserve System (the Federal Reserve). Neither the Company nor
any of its Subsidiaries or Affiliates owns or controls, directly or indirectly,
five percent (5%) or more of the outstanding shares of any class of voting
securities or twenty-five percent or more of the total equity of a bank or any
entity that is subject to the BHCA and to regulation by the Federal Reserve.
Neither the Company nor any of its Subsidiaries or Affiliates exercises a
controlling influence over the management or policies of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve.
(mm)
Money Laundering. The operations of the Company and its Subsidiaries are
and have been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, applicable money laundering
statutes and applicable rules and regulations thereunder (collectively, the
Money Laundering Laws), and no action, suit or proceeding by or before
any court or governmental agency, authority or body or any arbitrator involving
the Company or any Subsidiary with respect to the Money Laundering Laws is
pending or, to the knowledge of the Company or any Subsidiary, threatened.
(nn)
Bad Actor Disqualification.
(i)
No Disqualification Events. With respect to Securities to be offered and
sold hereunder in reliance on Rule 506 under the Securities Act ("Regulation D
Securities"), none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other
officer of the Company participating in the offering, any beneficial owner of
20% or more of the Company's outstanding voting equity securities, calculated on
the basis of voting power, nor any promoter (as that term is defined in Rule 405
under the Securities Act) connected with the Company in any capacity at the time
of sale (each, an "Issuer Covered Person" and, together, "Issuer
Covered Persons") is subject to any of the "Bad Actor" disqualifications
described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a
"Disqualification Event"), except for a Disqualification Event covered by
Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine
whether any Issuer Covered Person is subject to a Disqualification Event. The
Company has complied, to the extent applicable, with its disclosure obligations
under Rule 506(e), and has furnished to the the Purchaser a copy of any
disclosures provided thereunder.
18
(ii)
Other Covered Persons. The Company is not aware of any person that (i)
has been or will be paid (directly or indirectly) remuneration for solicitation
of purchasers in connection with the sale of the Securities and (ii) who is
subject to a Disqualification Event.
(iii)
Notice of Disqualification Events. The Company will notify the Purchaser
in writing of (i) any Disqualification Event relating to any Issuer Covered
Person and (ii) any event that would, with the passage of time, become a
Disqualification Event relating to any Issuer Covered Person, prior to any
Closing of this Offering.
3.2
Representations and Warranties of Purchaser. The Purchaser hereby
represents and warrants, as of the date hereof and as of the Closing Date on
which the Purchaser is purchasing Securities to the Company as follows (unless
as of a specific date therein):
(a) Organization;
Authority. If the Purchaser is an entity, the Purchaser is an entity duly
incorporated or formed, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or formation with full right, corporate,
partnership, limited liability company or similar power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
If the Purchaser is an entity, the execution and delivery of the Transaction
Documents and performance by the Purchaser of the transactions contemplated by
the Transaction Documents have been duly authorized by all necessary corporate,
partnership, limited liability company or similar action, as applicable, on the
part of the Purchaser. Each Transaction Document to which it is a party has been
duly executed by the Purchaser, and when delivered by the Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
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(b)
Own Account. The 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 the Purchasers right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws). The Purchaser is acquiring
the Securities hereunder in the ordinary course of its business.
(c)
Purchaser Status. At the time the Purchaser was offered the Securities,
it was, and as of the date hereof it is, and on each date on which it converts
any Debentures it will be either: (i) an accredited investor as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or
(ii) a qualified institutional buyer as defined in Rule 144A(a) under the
Securities Act.
(d)
Experience of the Purchaser. The Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. The Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e)
General Solicitation. The Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(f)
Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any transactions in any securities of
the Company, including Short Sales, of the securities of the Company during the
period commencing as of the time that the Purchaser first received a term sheet
(written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder and
ending immediately prior to the execution hereof (it being understood and agreed
that for all purposes of this Agreement, and, without implication that the
contrary would otherwise be true, that neither transactions nor purchases nor
sales shall include the location and/or reservation of borrowable shares of
Common Stock). Other than to other Persons party to this Agreement, the
Purchaser has maintained the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and terms of this
transaction).
The Company acknowledges and agrees that the representations
contained in Section 3.2 shall not modify, amend or affect the Purchasers right
to rely on the Companys representations and warranties contained in this Agreement or any representations
and warranties contained in any other Transaction Document or any other document
or instrument executed and/or delivered in connection with this Agreement or the
consummation of the transaction contemplated hereby.
20
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1
Transfer Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of restricted Securities other
than pursuant to an effective registration statement or Rule 144 or to the
Company, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer
complies with applicable state and federal securities laws and does not require
registration of such transferred Securities under the Securities Act. As a
condition of such transfer of restricted Securities, any such transferee shall
agree in writing to be bound by the terms of this Agreement and the Registration
Rights Agreement and shall have the rights and obligations of the Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The
Purchaser agrees to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS
SECURITY IS [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
SECURITIES ACT), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON
[CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that the Securities may be pledged by the
Purchaser in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and
no Purchaser effecting a pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document; provided that the Purchaser and its pledgee shall be required to comply with the
provisions of Section 4.1(a) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. Subject to the foregoing, the Company
hereby agrees to execute and deliver such documentation as a pledgee of the
Securities may reasonably request in connection with a pledge of the Securities
to such pledgee by an Investor.
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(c)
Certificates evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, (ii) following
any sale of such Underlying Shares pursuant to Rule 144 (subject to execution
and delivery by the holder of such Underlying Shares and such holders
broker-dealer of customary documentation acceptable to the Company with respect
to such Rule 144 sale), or (ii) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) as determined by Company
Counsel. The Company shall cause its counsel to issue a legal opinion (at the
expense of the holder of Underlying Shares) to the Transfer Agent promptly after
the Effective Date if required by the Transfer Agent to effect the removal of
the legend hereunder. If all or any portion of a Debenture is converted at a
time when there is an effective registration statement to cover the resale of
the Underlying Shares, or if such Underlying Shares may be sold by the
applicable holder of Underlying Shares under Rule 144 without the requirement
for the Company to be in compliance with the current public information required
under Rule 144 as to such Underlying Shares and without volume or manner-of-sale
restrictions or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) as determined by Company
counsel then such Underlying Shares shall be issued free of all legends. The
Company agrees that following the Effective Date or such time as such legend is
no longer required under this Section 4.1(c), it will, no later than three
Trading Days following the delivery by the Purchaser to the Company or the
Transfer Agent of a certificate representing Underlying Shares and, in
connection with any sale in reliance on Rule 144, such customary documentation
acceptable to the Company and executed by such holder of Underlying Shares and
such holders broker-dealer in connection with such sale, as applicable, issued
with a restrictive legend (such third Trading Day, 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.
The Company may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this
Section 4. Certificates for Underlying Shares subject to legend removal
hereunder shall be transmitted by the Transfer Agent to the Purchaser by
crediting the account of the Purchasers prime broker with the Depository Trust
Company System as directed by the Purchaser.
22
(d) In
addition to the Purchasers other available remedies, if the Company fails (i)
issue and deliver (or cause to be delivered) to the Purchaser by the Legend
Removal Date a certificate representing the Securities so delivered to the
Company by the Purchaser that is free from all restrictive and other legends or (ii) credit the
balance account of the Purchasers or its nominee with DTC for such number of
Conversion Shares so delivered to the Company, and if after such date the
Purchaser is required by its brokerage firm to purchase (in an open market
transaction or otherwise), or the Purchasers brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Purchaser of the Conversion Shares which the Purchaser was entitled to receive
upon the conversion relating to such Legend Removal Date (a Buy-In),
then the Company shall (A) pay in cash to the Purchaser (in addition to any
other remedies available to or elected by the Purchaser) the amount, if any, by
which (x) the Purchasers total purchase price (including any brokerage
commissions) for the Common Stock so purchased exceeds (y) the product of (1)
the aggregate number of shares of Common Stock that the Purchaser was entitled
to receive from the conversion at issue multiplied by (2) the actual sale price
at which the sell order giving rise to such purchase obligation was executed
(including any brokerage commissions) and (B) at the option of the Purchaser,
either reissue (if surrendered) this Debenture in a principal amount equal to
the principal amount of the attempted conversion (in which case such conversion
shall be deemed rescinded) or deliver to the Purchaser the number of shares of
Common Stock that would have been issued if the Company had timely complied with
its delivery requirements under Section 4(c). For example, if the Purchaser
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of a Debenture with respect to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Purchaser $1,000. The Purchaser shall provide the Company
written notice indicating the amounts payable to the Purchaser in respect of the
Buy-In and, upon request of the Company, evidence of the amount of such loss.
Nothing herein shall limit the Purchasers right to pursue actual damages for
the Companys failure to deliver certificates representing any Securities as
required by the Transaction Documents, and the Purchaser shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e)
The Purchaser agrees with the Company that the Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a Registration Statement,
they will be sold in compliance with the plan of distribution set forth therein,
and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Companys reliance upon this understanding.
(f)
The Company shall be responsible for providing a legal opinion upon each
conversion to the effect that the Underlying Shares are exempt from registration
under the Securities Act, so long as the requirements of Rule 144 are satisfied.
4.2 Acknowledgment
of Dilution. The Company acknowledges that the issuance of the Securities
may result in dilution of the outstanding shares of Common Stock, which dilution
may be substantial under certain market conditions. The Company further
acknowledges that its obligations under the Transaction Documents, including,
without limitation, its obligation to issue the Underlying Shares pursuant to
the Transaction Documents, are unconditional and absolute and not subject to any right of
set off, counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against the Purchaser and regardless
of the dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
23
4.3 Furnishing
of Information; Public Information. Until the earlier of (x) the first
anniversary of the initial date that the Purchaser does not own any Debentures
and (y) the initial date that the Purchaser does not own any Securities, the
Company covenants to maintain the registration of the Common Stock under Section
12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act even if the Company is not then subject to the reporting
requirements of the Exchange Act.
4.4
Integration. The Company shall not sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the closing of
such other transaction unless shareholder approval is obtained before the
closing of such subsequent transaction.
4.5 Conversion
and Exercise Procedures. The form of Notice of Conversion included in the
Debentures sets forth the totality of the procedures required of the
Purchaser in order to convert the Debentures. Without limiting the preceding
sentences, 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 in order to convert the Debenture. No additional
legal opinion, other information or instructions shall be required of the
Purchaser to convert its Debentures. The Company shall honor conversions of the
Debentures and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.
4.6 Securities
Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m. (New York
City time) on the Trading Day immediately following the date hereof, issue a
press release disclosing the material terms of the transactions contemplated
hereby, and (b) file a Current Report on Form 8-K, including the Transaction
Documents as exhibits thereto, with the Commission within the time required by
the Exchange Act. From and after the issuance of such press release, the Company
represents to the Purchaser that it shall have publicly disclosed all material,
non-public information delivered to the Purchaser by the Company or any of its
Subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of the Purchaser, or include the name of the Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of the Purchaser, except: (a) as required by federal
securities law in connection with (i) any registration statement contemplated by
the Registration Rights Agreement and (ii) the filing of final Transaction
Documents with the Commission and (b) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchaser with
prior notice of such disclosure permitted under this clause (b).
24
4.7
Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that the
Purchaser is an Acquiring Person under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that the Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchaser.
4.8
Non-Public Information. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents or
as otherwise required by the Transaction Documents, the Company covenants and
agrees that neither it, nor any other Person acting on its behalf, will provide
the Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto the
Purchaser shall have entered into a written agreement with the Company regarding
the confidentiality and use of such information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing covenant in
effecting transactions in securities of the Company.
4.9
Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and shall not use
such proceeds: (a) for the satisfaction of any portion of the Companys debt
(other than payment of trade payables in the ordinary course of the Companys
business and prior practices), (b) for the redemption of any Common Stock or
Common Stock Equivalents, (c) for the settlement of any outstanding litigation
or (d) in violation of FCPA or OFAC regulations.
4.10
Indemnification of Purchaser. Subject to the provisions of this Section
4.10, the Company will indemnify and hold the Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
Purchaser Party) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys
fees and costs of investigation that any the Purchaser Party may suffer or incur
as a result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against the
Purchaser Parties in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of the
Purchaser Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of the Purchaser Partys representations, warranties or covenants
under the Transaction Documents or any agreements or understandings the
Purchaser Party may have with any such stockholder or any violations by such
Purchaser Party of state or federal securities laws or any conduct by the
Purchaser Party which constitutes fraud, gross negligence, willful misconduct or
malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, the
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
counsel, a material conflict on any material issue between the position of the
Company and the position of the Purchaser Party, in which case the Company shall
be responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser Party under
this Agreement (y) for any settlement by a Purchaser Party effected without the
Companys prior written consent, which shall not be unreasonably withheld or
delayed; or (z) to the extent, but only to the extent that a loss, claim, damage
or liability is attributable to any Purchaser Partys breach of any of the
representations, warranties, covenants or agreements made by the Purchaser Party
in this Agreement or in the other Transaction Documents. The indemnification
required by this Section 4.10 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or are incurred. The indemnity agreements contained herein shall be in
addition to any cause of action or similar right of any Purchaser Party against
the Company or others and any liabilities the Company may be subject to pursuant
to law.
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4.11
Reservation and Listing of Securities.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may then be
required to fulfill its obligations in full under the Transaction Documents and
shall confirm the adequacy of such reserve promptly upon request.
(b) The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock covering the Securities, (ii) take all steps reasonably necessary to cause
the Conversion Shares to be approved for listing or quotation on such Trading
Market as soon as possible thereafter, (iii) provide to the Purchaser evidence
of such listing or quotation and (iv) maintain the listing or quotation of such
Common Stock on such date on such Trading Market or another Trading Market.
4.12
Certain Transactions and Confidentiality.
(a) The
Purchaser covenants that neither it, nor any Affiliate acting on its behalf or
pursuant to any understanding with it will execute any Short Sales of any of the
Companys securities during the period commencing with the
execution of this Agreement and ending on the earlier of (i) the Maturity Date
of the Debentures and (ii) the date the Purchaser no longer owns Debentures
(whether by conversion or transfer).
26
(b)
The Purchaser covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company, the Purchaser will
maintain the confidentiality of the existence and terms of this transaction and
the information included in the Transaction Documents and the Disclosure
Schedules.
(c) Except
as set forth in Sections 4.12(a) and 4.12(b) above, the Company expressly
acknowledges and agrees that (i) the Purchaser shall not be restricted from
effecting transactions in any securities of the Company in accordance with
applicable securities laws after the time that the transactions contemplated by
this Agreement are first publicly announced, and (ii) the Purchaser shall not
have any duty of confidentiality to the Company or its Subsidiaries after the
transactions contemplated by this Agreement are first publicly announced.
4.13
Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of the Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the Securities for, sale to the Purchaser at the
Closing under applicable securities or Blue Sky laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of the Purchaser.
4.14 Offerings
of New Securities. Until the date on which no Debentures remain outstanding,
and with respect to the Purchaser, the Company will not, directly or indirectly,
effect any Subsequent Placement (as defined below) unless the Company shall have
first complied with this Section 4.14; provided, that the Company shall not be
required to comply with this Section 4.14 if such Subsequent Placement would be
integrated with such prior offering by the principal Trading Market in which the
Common Stock is then trading (the Principal Market) or pursuant
to the Securities Act, or any other applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated.
(a) At least four (4) Business
Days prior to any proposed or intended Subsequent Placement, the Company or its
agent shall orally contact the Purchaser and ask whether the Purchaser is
willing to agree to receive material non-public information (each such notice, a
Pre-Notice), provided that neither the Company nor its agents shall
provide any material, non-public information with respect to the Company or any
of its Subsidiaries to the Purchaser without the expressed written consent of
the Purchaser to receive such material, non-public information. Upon the written
request of the Purchaser no later than one (1) Business Day after the
Purchasers receipt of such Pre-Notice, and only upon a written request by the
Purchaser, the Company shall promptly, but no later than one (1) Business Day
after such request, deliver to the Purchaser by facsimile an irrevocable written
notice (the Offer Notice) of any proposed or intended issuance or sale or
exchange (the Offer) of the securities being offered (the
Offered Securities) in a Subsequent Placement within one (1)
Business Day of the determination of the terms of such Subsequent Placement,
which Offer Notice shall (w) identify and describe the Offered Securities, (x)
describe the price and other final terms upon which they are to be issued, sold
or exchanged, and the number or amount of the Offered Securities to be issued,
sold or exchanged, (y) identify the persons or entities (if known) to which or
with which the Offered Securities are to be offered, issued, sold or exchanged
and (z) offer to issue and sell to or exchange with the Purchaser (which offer
being non-transferable to any successor to the Purchaser) at least 30% of the
Offered Securities (the Basic Amount).
27
(b) To accept an Offer, in whole or in
part, the Purchaser must deliver a written notice to the Company prior to the
end of the third (3rd) full Business Day after the Purchasers
receipt of the Offer Notice (for purposes of this Section 4.14(b), receipt of
the Offer Notice shall not be deemed to have occurred until the Purchaser shall
have physically received such Offer Notice) (the Offer Period), setting
forth the portion of the Purchasers Basic Amount that such Purchaser elects to
purchase (the Notice of Acceptance).
(c) The Company shall have thirty (30)
Business Days from the expiration of the Offer Period above to offer, issue,
sell or exchange all or any part of such Offered Securities as to which a Notice
of Acceptance has not been given by such Purchaser (the Refused
Securities), but only to the offerees described in the Offer Notice (if
so described therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable to the
acquiring Person or Persons or less favorable to the Company than those set
forth in the Offer Notice.
(d)
The purchase by the Purchaser of any Offered Securities is subject in all cases
to the preparation, execution and delivery by the Company and the participating
Purchaser of a purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Purchaser (the Subsequent
Placement Agreement).
(f)
Any Offered Securities not acquired by the Purchaser or other Persons in
accordance with this Section 4.14 may not be issued, sold or exchanged until
they are again offered to the Purchaser under the procedures specified in this
Agreement.
(g)
The Company and the Purchaser agree that if such Purchaser elects to participate
in the Offer, without the written consent of such Purchaser, neither the
Subsequent Placement Agreement with respect to such Offer nor any other
transaction documents related thereto shall include any term or provision
whereby such Purchaser shall be required to agree to any restrictions on trading
as to any securities of the Company with respect to any period after the public
announcement of such Subsequent Placement beyond those restrictions on the
transfer or sale of the securities purchased in such Subsequent Placement agreed
to by other purchasers in such Subsequent Placement or be required to consent to
any amendment to or termination of, or grant any waiver or release under or in
connection with, any agreement previously entered into with the Company or any
instrument received from the Company.
(h) The
restrictions contained in this Section 4.14 shall not apply (1) in connection
with the issuance of any Excluded Securities (as defined below) and (2) to the
extent that counsel to the Company has advised that with respect to a Subsequent Placement
of Offered Securities that are not being issued pursuant to a registration
statement under the Securities Act, the exercising of the participation right
would result in the Company not being able to offer or sell the Offered
Securities pursuant to any exemption from the registration requirements of the
Securities Act.
28
(i) Notwithstanding
anything herein to the contrary, the rights granted to the Purchaser pursuant to
this Section 4.14 shall not be transferrable to any other Person without the
prior written consent of the Company.
(j) For the purposes of this Section
4.14, the following definitions will apply:
(i)
Convertible Securities means any shares or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.
(ii)
Excluded Securities means any securities of the Company issued in
any Exempt Issuance.
(iii) Options
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.
(iv)
Subsequent Placement means the sale, grant of any option to purchase,
or other disposition of by the Company, directly or indirectly, of any of the
Companys or its Subsidiaries equity or equity equivalent securities,
including, without limitation, any convertible debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of
Common Stock or Convertible Securities or Options.
ARTICLE V.
MISCELLANEOUS
5.1
Termination. This Agreement may be terminated by Purchaser, by
written notice to the Company, if the First Closing has not been consummated on
or before March 15, 2015; provided, however, that such termination
will not affect the right of any party to sue for any breach by any other party
(or parties).
5.2
Fees and Expenses. At the First Closing, the Company has agreed to
reimburse the Purchaser for all reasonably documented attorneys fees for the
transactions contemplated by this Agreement in the amount of $12,000. The
Company shall deliver to the Purchaser, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as Annex
A. The Company shall pay all Transfer Agent fees (including, without
limitation, any fees required for same-day processing of any instruction letter
delivered by the Company and any conversion notice delivered by the Purchaser),
stamp taxes and other taxes and duties levied in connection with the delivery of
any Securities to the Purchaser provided that, the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion
in a name other than that of the Purchaser and the Company shall not be required
to issue or deliver such certificates unless or until the Person or Persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
29
5.3
Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
5.4
Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5
Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by each of the Company and the Purchaser or, in the case
of a waiver, by the party against whom enforcement of any such waived provision
is sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6
Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7
Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of a majority in interest of the Debentures
(other than by merger). The Purchaser may assign any or all of its rights under
this Agreement to any Person to whom the Purchaser assigns or transfers any
Securities, provided that such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the Purchaser.
30
5.8
No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.10 and this
Section 5.8.
5.9
Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, partners, members,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, Borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. If
either party shall commence an action, suit or proceeding to enforce any
provisions of the Transaction Documents, then, in addition to the obligations of
the Company under Section 4.10, the prevailing party in such action, suit or
proceeding shall be reimbursed by the other party for its reasonable attorneys
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.10
Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Securities.
5.11
Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to each other party, it being understood that the parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a .pdf format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or .pdf signature page were an original thereof.
5.12
Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and restrictions
set forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
31
5.13
Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever the Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then the
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of a conversion of a Debenture,
the applicable Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded conversion concurrently with the return to the
Purchaser of the applicable Debenture.
5.14
Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.
5.15
Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchaser
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agree to waive and not to
assert in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.
5.16
Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchaser pursuant to any Transaction Document or the Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
32
5.17
Usury. To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by the Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the Maximum
Rate), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other
sums in the nature of interest that the Company may be obligated to pay under
the Transaction Documents exceed such Maximum Rate. It is agreed that if the
maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date thereof forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to the
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by the Purchaser to the unpaid principal balance of
any such indebtedness or be refunded to the Company, the manner of handling such
excess to be at the Purchasers election.
5.18
Liquidated Damages. The Companys obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.19
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.
5.20
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 Transaction Document shall be subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.
5.21
WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY,
TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
33
5.22 Exculpation
By Purchaser. The Purchaser acknowledges that it is not relying upon any
person or entity, other than the Company and its representatives, in making its
investment or decision to invest in the Company.
(Signature Pages Follow)
34
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
WORLD MOTO, INC. |
Address for Notice: |
|
131 MOO 9 THAILAND SCIENCE PARK |
|
INC-1 #2 |
|
PHAHONYOTHIN ROAD |
|
KLONG1, KLONG LUANG |
|
PATHUMTHANI W1 12120 |
|
|
By: ________________________________________ |
Fax: |
Name: |
|
With a copy to (which shall not constitute notice):
Greenberg Traurig, LLP
1201 K Street Suite 1100
Sacramento CA 95814
Attn.: Mark C. Lee, Esq.
Facsimile: (916) 868
0630
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE
FOR PURCHASER FOLLOWS]
35
PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name of Purchaser:
____________________________________________________________
Signature of Authorized Signatory of Purchaser:
|
|
|
|
Name of Authorized Signatory: |
|
|
|
Title of Authorized Signatory: |
|
|
|
Email Address of Authorized Signatory: |
|
|
|
Facsimile Number of Authorized Signatory: |
|
|
Address for Notice to Purchaser:
Address for Delivery of Securities to Purchaser (if not same as
address for notice):
Subscription Amount: __________
EIN Number: _______________________
[SIGNATURE PAGES CONTINUE]
36
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of
,
2015, the Purchaser shall purchase $[_________] of Debentures from World Moto,
Inc., a Nevada corporation (the Company). All funds will be wired into
an account maintained by the Company. All funds will be disbursed in accordance
with this Closing Statement.
Disbursement Date: ________ ___, 2015
_______________________________________________________________________________________________
I.
PURCHASE PRICE |
|
|
|
Gross Proceeds to be Received |
$ |
|
|
II.
DISBURSEMENTS |
|
|
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
Total Amount Disbursed: |
$ |
WIRE INSTRUCTIONS:
To:
To:
_____________________________________________________
37
SCHEDULE A
SCHEDULE OF PURCHASER
First Closing
PURCHASER NAME
AND |
PRINCIPAL AMOUNT
OF |
ADDRESS |
DEBENTURES |
Redwood Management, LLC |
$54,348 |
|
|
|
|
Subsequent Closing
PURCHASER NAME
AND |
PRINCIPAL AMOUNT
OF |
ADDRESS |
DEBENTURES |
Redwood Management, LLC |
$489,130 |
|
|
|
|
38
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 TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON
CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. ANY TRANSFEREE OF THIS
SECURITY SHOULD CAREFULLY REVIEW THE TERMS OF THIS SECURITY, INCLUDING SECTION
4(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS SECURITY AND, ACCORDINGLY,
THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 4(a) OF THIS
SECURITY.
Principal Amount: $54,348 |
Original Issue Date: March 5, 2015
|
Purchase Price: $50,000 |
|
12% SENIOR SECURED CONVERTIBLE DEBENTURE
DUE
2015
THIS 12% SENIOR SECURED CONVERTIBLE DEBENTURE is
one of a series of duly authorized and validly issued 12% Senior Secured
Convertible Debentures of World Moto, Inc., a Nevada corporation, (the
Company), having its principal place of business at 131 Thailand
Science Park INC-1 #214, Phahonyothin Road, Klongl, Klong Luang, Patumthani
12120 Thailand, designated as its 12% Senior Secured Convertible Debenture due
2015 (this debenture, the Debenture and, collectively with the other
debentures of such series, the Debentures).
All
obligations under this Debenture are secured by assets of the Company, as more
fully set forth in the security agreement between the Company and the Holder,
executed as of the Original Issuance Date.
FOR
VALUE RECEIVED, the Company promises to pay to Redwood Management, LLC or its
registered assigns (the Holder), or shall have paid pursuant to the
terms hereunder, the principal sum of $54,348 on the twelve month anniversary of
the issue date hereof (the Maturity Date) or such earlier date as this
Debenture 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 Debenture in accordance
with the provisions hereof. This Debenture shall have an original issue discount
of eight percent (8%) from the stated Principal Amount. This Debenture is
subject to the following additional provisions:
1
Section 1.
Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein
shall have the meanings set forth in the Purchase Agreement and (b) the
following terms shall have the following meanings:
Alternate Consideration shall have the meaning set forth in Section
5(e).
Amortization
Amount means (i) with respect to any Amortization Date other than the
Maturity Date (the applicable Amortization Date), the product of (A) the
quotient of one divided by the number of remaining Amortization Dates, including
the applicable Amortization Date and the Maturity Date, and (B) the outstanding
principal amount of this Debenture on the applicable Amortization Date, and (ii)
with respect to the Amortization Date that is the Maturity Date, the principal
amount of this Debenture outstanding as of such Amortization Date (in each case,
as any such Amortization Amount may be reduced pursuant to the terms of this
Debenture, whether upon conversion, redemption or otherwise) together with, in
each case of clauses (i) and (ii) above, the sum of any accrued and unpaid
interest as of such Amortization Date under this Debenture.
Amortization
Date shall have the meaning set forth in Section 2(c).
Amortization
Notice Date shall have the meaning set forth in Section 2(c).
Authorized
Failure Shares shall have the meaning set forth in Section 4(c)(vi).
Amortizing
Conversion Notice shall have the meaning set forth in Section 2(c).
Authorized
Share Failure shall have the meaning set forth in Section 4(c)(vi).
Bankruptcy
Event means any of the following events: (a) the Company or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Company or any
Significant Subsidiary thereof, (b) there is commenced against the Company or
any Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement, (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered, (d) the Company
or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such appointment, (e) the
Company or any Significant Subsidiary thereof makes a general assignment for the
benefit of creditors, (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of
the foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.
2
Base
Conversion Price shall have the meaning set forth in Section 5(b).
Beneficial
Ownership Limitation shall have the meaning set forth in Section 4(d).
Business
Day means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
Buy-In
shall have the meaning set forth in Section 4(c)(v).
Change
of Control Transaction means the occurrence after the date hereof of any of
(a) an acquisition after the date hereof by an individual or legal entity or
group (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company (other than by means of conversion or exercise
of the Debentures and the Securities issued together with the Debentures), (b)
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 own less than 50% of the aggregate voting power of the Company or
the successor entity of such transaction, (c) the Company sells or transfers all
or substantially all of its assets to another Person and the stockholders of the
Company immediately prior to such transaction own less than 50% of the aggregate
voting power of the acquiring entity immediately after the transaction, (d) a
replacement at one time or within a one year period of more than one-half of the
members of the Board of Directors which is not approved by a majority of those
individuals who are members of the Board of Directors on the Original Issue Date
(or by those individuals who are serving as members of the Board of Directors on
any date whose nomination to the Board of Directors was approved by a majority
of the members of the Board of Directors who are members on the date hereof), or
(e) the execution by the Company of an agreement to which the Company is a party
or by which it is bound, providing for any of the events set forth in clauses
(a) through (d) above.
Company
Notice Date shall have the meaning set forth in Section 6(a).
Conversion
shall have the meaning ascribed to such term in Section 4.
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.
3
Conversion
Shares means, collectively, the shares of Common Stock issuable upon
conversion of this Debenture in accordance with the terms hereof.
Conversion
Share Ratio means as to any applicable Amortization Date (as defined
below), the quotient of (i) the number of Pre-Amortization Conversion Shares
delivered in connection with such Amortization Date divided by (ii) the number
of Post-Amortization Conversion Shares applicable to such Amortization Date.
Debenture Register shall have the meaning set forth in Section 2(c).
Dilutive Issuance shall have the meaning set forth in Section 5(b).
Dilutive Issuance Notice shall have the meaning set forth in Section
5(b).
Equity Conditions means, during the period in question, (a) the Company
shall have duly honored all previous conversions and redemptions pursuant to
this Debenture, if any, (b) the Company shall have paid all liquidated damages
and other amounts owing to the Holder in respect of this Debenture, (c) the
Common Stock is trading on a Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed or quoted for trading on such
Trading Market (and the Company believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for the foreseeable
future), (d) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
shares then issuable pursuant to the Transaction Documents, (e) there is no
existing Event of Default and no existing event which, with the passage of time
or the giving of notice, would constitute an Event of Default, (f) the issuance
of the shares in question to the Holder would not violate the limitations set
forth in Section 4(d) herein, (g) there has been no public announcement of a
pending or proposed Fundamental Transaction or Change of Control Transaction
that has not been has not been abandoned, terminated or consummated, (h) the
applicable Holder is not in possession of any information provided by the
Company that constitutes, or may constitute, material non-public information,
and (i) the Company meets the current public information requirements under Rule
144 and the Holder is able to sell its Registrable Securities (as defined in the
Registration Rights Agreement) pursuant to Rule 144.
Event of Default shall have the meaning set forth in Section 8(a).
Fixed
Conversion Price means, as of any date of determination, $0.03, subject to
adjustment as provided herein.
Fundamental Transaction shall have the meaning set forth in Section
5(e).
Holder Notice Date shall have the meaning set forth in Section 6(a).
Interest
Make-Whole Amount means with respect to each $1,000 principal amount of
Debentures, an amount equal to the amount of any interest that, but for the
Holders exercise of its conversion right pursuant to Section 4, an Optional
Redemption by the Company pursuant to Section 6, or acceleration pursuant to
Section 8(b) would have accrued under the Debentures at the Interest Rate for the period from the applicable Conversion
Date, Optional Redemption Date or acceleration date through the one year
anniversary of the Original Issue Date, discounted to the present value of such
interest using a discount rate equal to the interest rate of U.S. Treasury Bonds
with equivalent remaining terms from the applicable Conversion Date, Optional
Redemption Date or acceleration date through the one year anniversary of the
Original Issue Date.
4
Interest
Notice Period shall have the meaning set forth in Section 2(a).
Interest
Payment Date shall have the meaning set forth in Section 2(a).
Interest
Share Amount shall have the meaning set forth in Section 2(a).
Late
Fees shall have the meaning set forth in Section 2(d).
Mandatory
Default Amount means the sum of (a) the greater of (i) the outstanding
principal amount of this Debenture, plus all accrued and unpaid interest hereon,
plus the applicable Interest Make-Whole Amount, divided by the Conversion Price
on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid
in full, whichever has a lower Conversion Price, multiplied by the VWAP on the
date the Mandatory Default Amount is either (x) demanded or otherwise due or (y)
paid in full, whichever has a higher VWAP, or (ii) 118% of the outstanding
principal amount of this Debenture, plus 100% of accrued and unpaid interest
hereon, plus the applicable Interest Make-Whole Amount, and (b) all other
amounts, costs, expenses and liquidated damages due in respect of this
Debenture.
New
York Courts shall have the meaning set forth in Section 9(d).
Notice
of Conversion shall have the meaning set forth in Section 4(a).
Optional
Redemption shall have the meaning set forth in Section 6(a).
Optional
Redemption Date shall have the meaning set forth in Section 6(a).
Optional
Redemption Notice shall have the meaning set forth in Section 6(a).
Optional
Redemption Notice Date shall have the meaning set forth in Section 6(a).
Optional
Redemption Period shall have the meaning set forth in Section 6(a).
Original Issue Date means the date of the first issuance of the
Debentures, regardless of any transfers of any Debenture and regardless of the
number of instruments which may be issued to evidence such Debentures.
Post-Amortization Conversion Shares means that number of shares of
Common Stock that would be required to be delivered pursuant to Section 2(c) on
an applicable Amortization Date without taking into account the delivery of any
Pre-Amortization Conversion Shares (as defined below).
5
Purchase
Agreement means the Securities Purchase Agreement, dated as of , 2015 among
the Company and the Holder, as amended, modified or supplemented from time to
time in accordance with its terms.
Purchase
Rights shall have the meaning set forth in Section 5(c).
Redemption Amount means the sum of (a) 125% of the then outstanding
principal amount of the Debenture, (b) accrued but unpaid interest, (c) the
applicable Interest Make-Whole Amount, and (d) all liquidated damages and other
amounts due in respect of the Debenture.
Registration
Rights Agreement means the Registration Rights Agreement, dated as of the
date of the Purchase Agreement, among the Company and the Holder, in the form of
Exhibit B attached to the Purchase Agreement.
Registration
Statement means a registration statement meeting the requirements set forth
in the Registration Rights Agreement and covering the resale of the Underlying
Shares by each Holder as provided for in the Registration Rights 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).
Successor
Entity shall have the meaning set forth in Section 5(e).
Trading
Day means a day on which the principal Trading Market is open for
trading.
Trading
Market means any of the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the NYSE MKT, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors
to any of the foregoing including the OTC QB).
VWAP
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market other than the OTC Bulletin Board, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to
4:00 p.m. (New York City time)), (b) if the Common Stock is then quoted on the
OTC Bulletin Board, the volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the
Common Stock is not then listed or quoted for trading on a Trading Market and if
prices for the Common Stock are then reported in the Pink Sheets published by
Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Holders of a majority in
interest of the Debentures then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.
6
Section 2.
Interest and Amortization.
a)
Interest. The Company shall pay guaranteed interest to the Holder on the
aggregate principal amount of this Debenture at the rate of 12%, regardless of
when the principal amount is repaid. Interest hereunder will be paid to the
Person in whose name this Debenture is registered on the records of the Company
regarding registration and transfers of this Debenture (the Debenture
Register).
b)
Amortization. Beginning on the sixth-month anniversary of the date of the
Original Issue Date and on the monthly anniversary of such day for each
succeeding month thereafter through and including the Maturity Date (each, an
Amortization Date), the Company shall pay to the Holder an amount equal
to the Amortization Amount for such Amortization Date. At least five Trading
Days prior to each Amortization Date, the Company shall notify the Holder (the
date of each such notification, or if such notice is not timely provided, the
date such notice should have been provided, an Amortization Notice
Date, and such notice, an Amortization Notice) whether the
Amortization Amount will be paid in cash or pursuant to an Amortizing Conversion
(as defined below). If such notice is not timely provided, the Amortization
Amount shall be paid pursuant to an Amortizing Conversion. No later than two (2)
Trading Days after delivery or deemed delivery (as applicable) of the applicable
Amortization Notice electing, in whole or in part, an Amortizing Conversion, the
Company shall deliver to the Holders account with DTC such number of shares of
Common Stock (the Pre-Amortization Conversion Shares) equal to
the quotient of (x) such Amortization Amount divided by (y) the lesser of (i)
the Conversion Price calculated in accordance with 4(b), and (ii) 60% of the
average of the VWAP for the five Trading Day period ending on, and including,
the Trading Day immediately preceding the Amortization Notice Date, and as to
which the Holder shall be the owner thereof as of such time of delivery or
deemed delivery (as the case may be) of such Amortization Notice. On each
Amortization Date on which the Amortization Amount is to be paid in shares of
Common Stock rather than cash, the Company shall pay to the Holder of this
Debenture the applicable Amortization Amount due on such date by converting
(each an Amortizing Conversion) such Amortization Amount in accordance
with Section 4(c), except that (A) the Conversion Price shall be equal to the
lesser of (i) the Conversion Price calculated in accordance with 4(b), and (ii)
60% of the average of the VWAP for the five Trading Day period ending on, and
including, the Trading Day immediately preceding the Amortization Date and (B)
such shares of Common Stock shall be delivered to the Holder on the Amortization
Date. The number of shares of Common Stock to be delivered upon such Amortizing
Conversion shall be reduced by the number of any Pre-Amortization Conversion
Shares delivered in connection with such Amortization Date. Notwithstanding the
foregoing, the Company shall not be entitled to effect an Amortizing Conversion
with respect to any portion of such Amortization Amount and shall be required to
pay the entire amount of such Amortization Amount in cash if the Equity
Conditions are not true and correct from the Amortization Notice Date through
the Amortization Date, except that the Company may still issue shares on the
applicable Amortization Date in accordance with Section 4(c) with the written
consent of the Holder. If any of the Equity Conditions are not satisfied (or
waived in writing by the Holder) on such Amortization Date or on such date a
Amortizing Conversion is not otherwise permitted under any other provision of
this Note, then the Company shall pay the applicable Amortization Amount to the
Holder within three (3) days of such Amortization Date, by wire transfer of
immediately available funds. In addition, if any of the Equity Conditions are
not satisfied (or waived in writing by the Holder) on such Amortization Date or
on such date a Amortizing Conversion is not otherwise permitted under any other
provision of this Note, then, at the Holders option, either (I) the Holder
shall return any Pre-Amortization Conversion Shares delivered in connection with
the applicable Amortization Date or (II) the applicable Amortization Amount
shall be reduced by the product of (X) the Amortization Amount applicable to
such Amortization Date multiplied by (Y) the Conversion Share Ratio. If, with
respect to an Amortization Date, the number of Pre-Amortization Conversion
Shares delivered to the Holder exceeds the number of Post-Amortization
Conversion Shares with respect to such Amortization Date, then the number of
shares of Common Stock equal to such excess shall constitute a credit against
the number of shares of Common Stock to be issued to such Holder pursuant to
this Section 2(c), at the option of the Holder, either (x) against any
conversion of this Note pursuant to Section 4 as selected by the Holder or (y)
on the Maturity Date, or, if earlier, the last Amortization Date, reducing the
number of shares of Common Stock required to be actually issued by the Company
to the Holder on such date by the amount of such excess on a share-for-share
basis. Delivery of shares of Common Stock for an Amortizing Conversion shall be
made in accordance with the provisions of Section 4(c) below. The Company may
elect to make a payment of the Amortization Amount in cash to the Holder upon
notice to the Holder. If the Company elects or is required to pay the
Amortization Amount in cash, in whole or in part, in accordance with this
Section 2(c), then the amount shall be paid in cash on the applicable
Amortization Date by wire transfer to the Holder of immediately available funds
in an amount equal to the applicable Amortization Amount.
7
d)
Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at an interest rate equal to the lesser of 18% per annum
or the maximum rate permitted by applicable law (the Late Fees) which
shall accrue daily from the date such interest is due hereunder through and
including the date of actual payment in full.
e)
Prepayment. Except as otherwise set forth in this Debenture in Section 6,
the Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.
Section 3.
Registration of Transfers and Exchanges.
a)
Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
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 Debenture has been issued subject to
certain investment representations of the original Holder set forth in the
Purchase Agreement and may
8
be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and
regulations.
c)
Reliance on Debenture Register. Prior to due presentment for transfer to
the Company of this Debenture, the Company and any agent of the Company may
treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 4.
Conversion.
a)
Voluntary Conversion. At any time after the Original Issue Date until
this Debenture is no longer outstanding, this Debenture shall be convertible, in
whole or in part, into 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
principal amount and accrued interest of this Debenture 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. In the event of a partial conversion of this Debenture
pursuant hereto, the Principal amount converted shall be deducted from the
Amortization Amount(s) relating to the Amortization Date(s) as set forth in the
applicable Notice of Conversion. 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 Debenture to the Company unless the entire principal amount of this
Debenture, plus all accrued and unpaid interest thereon, has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the
principal amount(s) converted and the date of such conversion(s). The Company
may deliver an objection to any Notice of Conversion within one (1) Business Day
of delivery of such Notice of Conversion. The Holder, and any assignee by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
b)
Conversion Price. The conversion price (the Conversion Price) in
effect on any Conversion Date shall be the lesser of (i) the Fixed Conversion
Price and (ii) the price equal to 60% of the lowest traded price per share of
the Common Stock during the 25 Trading Days immediately preceding the date of
conversion.
c)
Mechanics of Conversion.
9
i.
Conversion Shares Issuable. The number of
Conversion Shares issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding principal amount of this
Debenture being converted, plus accrued interest, plus, the applicable Interest
Make-Whole by (y) the Conversion Price.
ii.
Delivery of Certificate Upon Conversion. Not later than
three (3) Trading Days after each Conversion Date (the Share Delivery
Date), the Company shall deliver, or cause to be delivered, to the Holder a
certificate or certificates representing Conversion Shares which, on or after
the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those which may then be required by the Purchase
Agreement) representing the number of Conversion Shares being acquired upon the
conversion of this Debenture. On or after the Effective Date, the Company shall
deliver any certificate or certificates required to be delivered by the Company
under this Section 4(c) electronically through the Depository Trust Company or
another established clearing corporation performing similar functions.
iii.
Failure to Deliver Certificates. If, in the case of any Notice of
Conversion, such certificate or certificates are not delivered to or as directed
by the applicable Holder by the Share Delivery Date, the Holder shall be
entitled to elect by written notice to the Company at any time on or before its
receipt of such certificate or certificates, to rescind such Conversion, in
which event the Company shall promptly return to the Holder any original
Debenture delivered to the Company and the Holder shall promptly return to the
Company the Common Stock certificates issued to such Holder pursuant to the
rescinded Notice of Conversion.
iv.
Obligation Absolute. The Companys obligations to
issue and deliver the Conversion Shares upon conversion of this Debenture 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 which 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.
v.
Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the Holder, if
the Company fails for any reason to deliver to the Holder such certificate or
certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if
after such Share Delivery Date the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise), or the Holders brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a
Buy-In), then the Company shall (A) pay in cash to the Holder (in
addition to any other remedies available to or elected by the Holder) the
amount, if any, by which (x) the Holders total purchase price (including any
brokerage commissions) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that the Holder was entitled
to receive from the conversion at issue multiplied by (2) the actual sale price
at which the sell order giving rise to such purchase obligation was executed
(including any brokerage commissions) and (B) at the option of the Holder,
either reissue (if surrendered) this Debenture in a principal amount equal to
the principal amount of the attempted conversion (in which case such conversion
shall be deemed rescinded) or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied with
its delivery requirements under Section 4(c)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Debenture with respect to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In
and, upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holders right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Companys
failure to timely deliver certificates representing shares of Common Stock upon
conversion of this Debenture as required pursuant to the terms hereof.
10
vi.
Reservation of Shares Issuable Upon Conversion. So long as this Debenture
is outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Debenture, a number of shares of
Common Stock, as of any date of determination, in accordance with the following
formula:
Required Minimum = (OA/CP) x 3
OA = the outstanding principal amount
of this Debenture, plus 100% of accrued and unpaid interest hereon, plus the
applicable Interest Make-Whole Amount on such date of determination;
CP = the applicable Conversion Price
on such date of determination.
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, and, if the Registration Statement is then effective under the
Securities Act shall be registered for public resale in accordance with such
Registration Statement (subject to such Holders compliance with its obligations
under the Registration Rights Agreement).
vii.
Insufficient Authorized Shares. If, notwithstanding Section 4(c)(v), and
not in limitation thereof, at any time while any of the Debentures remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Debentures at least a number of shares of Common
Stock equal to the Required Minimum specified in Section 4(c)(v) (an
Authorized Share Failure), then the Company shall immediately take all
action necessary to increase the Companys authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the applicable amount for
the Debentures then outstanding. Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but
in no event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock. In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal. In the event that the Company is prohibited from issuing shares of
Common Stock upon any conversion due to the failure by the Company to have
sufficient shares of Common Stock available out of the authorized but unissued
shares of Common Stock (such unavailable number of shares of Common Stock, the
Authorized Failure Shares), in lieu of delivering such Authorized
Failure Shares to the Holder, the Company shall pay cash in exchange for the
portion of the Debenture convertible into such Authorized Failure Shares at a
price equal to the sum of the product of (x) such number of Authorized Failure
Shares and (y) the greatest closing sale price of the Common Stock on any
Trading Day during the period commencing on the date the Authorized Failure
Shares should have been issued pursuant to the terms of this Debenture and
ending on the date of such issuance of payment under this Section 4(c)(vi).
11
viii.
Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of this Debenture. As to any fraction
of a share which the Holder would otherwise be entitled to purchase upon such
conversion, the Company shall at its 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.
ix.
Transfer Taxes and Expenses. The issuance of certificates for shares of
the Common Stock on conversion of this Debenture shall be made without charge to
the Holder hereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificates, provided that, the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Debenture so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid. The
Company shall pay all Transfer Agent fees required for same-day processing of
any Notice of Conversion.
12
d) Holders Conversion Limitations. The Company shall not effect any
conversion of this Debenture, and a Holder shall not have the right to convert
any portion of this Debenture, to the extent that after giving effect to the
conversion set forth on the applicable Notice of Conversion, the Holder
(together with the Holders Affiliates, and any Persons acting as a group
together with the Holder or any of the Holders Affiliates) 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 Affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Debenture with respect
to which such determination is being made, but shall exclude the number of
shares of Common Stock which are issuable upon (i) conversion of the
remaining, unconverted principal amount of this Debenture beneficially owned by
the Holder or any of its Affiliates 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 (including, without limitation, any other Debentures or the
Warrants) beneficially owned by the Holder or any of its Affiliates. 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 Debenture is convertible (in relation to other securities owned by
the Holder together with any Affiliates) and of which principal amount of this
Debenture is convertible shall be in the sole discretion of the Holder, and the
submission of a Notice of Conversion shall be deemed to be the Holders
determination of whether this Debenture may be converted (in relation to other
securities owned by the Holder together with any Affiliates) and which principal
amount of this Debenture 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 paragraph and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a determination as to
any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. 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 Companys most recent periodic or annual report filed with
the Commission, 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
Companys transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company shall
within two 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
Debenture, by the Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. 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 Debenture held by the Holder. The
Holder, upon not less than 61 days prior notice to the Company, may increase or
decrease the Beneficial Ownership Limitation provisions of this Section 4(d).
Any such increase or decrease will not be effective until the 61st day after
such notice is delivered to the Company. 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 shall apply to a
successor holder of this Debenture.
Section 5.
Certain Adjustments.
13
a)
Stock Dividends and Stock Splits. If the Company, at any time while this
Debenture is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company upon
conversion of, or payment of interest on, the Debentures), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii)
combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Fixed Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
any treasury shares of the Company) outstanding immediately before such event,
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the effective date in the case
of such dividend, distribution, subdivision, combination or
reclassification.
b)
Subsequent Equity Sales. If, at any time while this Debenture is
outstanding, the Company or any Subsidiary, as applicable, sells or grants any
option to purchase or sells or grants any right to reprice, or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase or
other disposition), any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock at an effective price per share that is
lower than the then Fixed Conversion Price (such lower price, the Base
Conversion Price and such issuances, collectively, a Dilutive
Issuance) (if the holder of the Common Stock or Common Stock Equivalents so
issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise,
or due to warrants, options or rights per share which are issued in connection
with such issuance, be entitled to receive shares of Common Stock at an
effective price per share that is lower than the Conversion Price, such issuance
shall be deemed to have occurred for less than the Conversion Price on such date
of the Dilutive Issuance), then the Fixed Conversion Price shall be reduced to
the Base Conversion Price. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. If the Company enters into a Variable Rate Transaction, despite the
prohibition set forth in the Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion price at which such securities may be converted or exercised. The
Company shall notify the Holder in writing, no later than the Trading Day
following the issuance of any Common Stock or Common Stock Equivalents subject
to this Section 5(b), indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price and other pricing terms
(such notice, the Dilutive Issuance Notice). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Conversion Shares based upon the
adjusted Conversion Price on or after the date of such Dilutive Issuance,
regardless of whether the Holder accurately refers to such adjusted Conversion
Price in the Notice of Conversion.
14
c)
Subsequent Rights Offerings. If the Company, at any time while the
Debenture is outstanding, shall issue rights, options or warrants to all holders
of Common Stock (and not to the Holder) entitling them to subscribe for or
purchase warrants, securities or other property pro rata to all or substantially
all of the record holders of any class of Common Stock (the Purchase
Rights), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Debenture (without taking into
account any limitations or restrictions on the convertibility of this Debenture)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights (provided, however, to the extent that the
Holders right to participate in any such Purchase Right would result in the
Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not
be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right to
such extent) and such Purchase Right to such extent shall be held in abeyance
for the Holder until such time, if ever, as its right thereto would not result
in the Holder exceeding the Beneficial Ownership Limitation).
d)
Pro Rata Distributions. If the Company, at any time while this Debenture
is outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security other
than the Common Stock (which shall be subject to Section 3(b)), then in each
such case the Fixed Conversion Price shall be adjusted by multiplying the Fixed
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record date of the
portion of such assets or evidence of indebtedness or rights or warrants so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made.
15
e)
Fundamental Transaction. If, at any time while this Debenture is
outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into
another Person, (ii) the Company, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which Holder
of Common Stock are permitted to sell, tender or exchange their shares for other
securities, cash or property and has been accepted by the Holder of 50% or more
of the outstanding Common Stock, (iv) the Company, directly or indirectly, in
one or more related transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock or share purchase agreement or other business combination) (each a
Fundamental Transaction), then, upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction (without regard to any limitation in
Section 4(d) on the conversion of this Debenture), the number of shares of
Common Stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and any additional consideration (the
Alternate Consideration) receivable as a result of such Fundamental
Transaction by a holder of the number of shares of Common Stock for which this
Debenture is convertible immediately prior to such Fundamental Transaction
(without regard to any limitation in Section 4(d) on the conversion of this
Debenture). For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one (1) share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture following such
Fundamental Transaction. The Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the
Successor Entity) to assume in writing all of the obligations of the
Company under this Debenture and the other Transaction Documents (as defined in
the Purchase Agreement) in accordance with the provisions of this Section 5(e)
and shall, at the option of the holder of this Debenture, deliver to the Holder
in exchange for this Debenture a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Debenture
which is convertible for a corresponding number of shares of capital stock of
such Successor Entity (or its parent entity) equivalent to the shares of Common
Stock acquirable and receivable upon conversion of this Debenture (without
regard to any limitations on the conversion of this Debenture) at the closing of
such Fundamental Transaction, and with a conversion price which applies the
conversion price hereunder to such shares of capital stock (but taking into
account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
number of shares of capital stock and such conversion price being for the
purpose of protecting the economic value of this Debenture immediately prior to
the consummation of such Fundamental Transaction). Upon the occurrence of any
such Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Debenture 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 Debenture and the other
Transaction Documents with the same effect as if such Successor Entity had been
named as the Company herein.
16
f)
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.
g)
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 Holder 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 stockholder 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 or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Debenture, and shall cause to be delivered to the Holder at its last address as
it shall appear upon the Debenture Register, at least fifteen (15) 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 or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holder 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 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. To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Holder shall remain
entitled to convert this Debenture during the 20-day 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.
17
Section 6.
Redemption and Forced Conversion.
a)
Optional Redemption at Election of Company. Subject to the provisions of
this Section 6(a), the Company may deliver a notice to the Holder (an
Optional Redemption Notice and the date such notice is deemed delivered
hereunder, the Optional Redemption Notice Date) of its irrevocable
election to redeem some or all of the then outstanding principal amount of this
Debenture for cash in an amount equal to the Redemption Amount on the 10th
Trading Day following the Optional Redemption Notice Date (such date, the
Optional Redemption Date, such 10 Trading Day period, the Optional
Redemption Period and such redemption, the Optional Redemption);
provided that the Company may only provide notice of such redemption if the
Equity Conditions are true and correct as of the date of the Notice.
b)
Optional Redemption Procedure. The payment of cash pursuant to an
Optional Redemption shall be payable on the Optional Redemption Date. If any
portion of the payment pursuant to an Optional Redemption shall not be paid by
the Company by the applicable due date, interest shall accrue thereon at an
interest rate equal to the lesser of 18% per annum or the maximum rate permitted
by applicable law until such amount is paid in full. Notwithstanding anything
herein contained to the contrary, if any portion of the Optional Redemption
Amount remains unpaid after such date, the Holder may elect, by written notice
to the Company given at any time thereafter, to invalidate such Optional
Redemption, abinitio. The Holder may elect to convert the outstanding
principal amount and accrued interest of the Debenture pursuant to Section 4
prior to actual payment in cash for any redemption under this Section 6 by the
delivery of a Notice of Conversion to the Company.
Section
7. Negative Covenants. As
long as any portion of this Debenture remains outstanding, unless the Holders of
at least 50% in principal amount of the then outstanding Debentures shall have
otherwise given prior written consent, the Company shall not, and shall not
permit any of the Subsidiaries to, directly or indirectly:
a)
amend its charter documents, including, without limitation, its certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;
b)
pay cash dividends or distributions on any equity securities of the Company;
c)
enter into any transaction with any Affiliate of the Company which would be
required to be disclosed in any public filing with the Commission, unless such
transaction is made on an arms-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or
d)
enter into any agreement with respect to any of the foregoing.
18
Section 8.
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 any Debenture or
(B) interest, liquidated damages and other amounts owing to the Holder on any
Debenture, 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 3 Trading Days;
ii.
the Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below) which failure is not cured, if
possible to cure, within the earlier to occur of (A) 5 Trading Days after notice
of such failure sent by the Holder or by any other Holder to the Company and (B)
5 Trading Days after the Company has become aware of such failure;
iii.
a default or event of default (subject to any grace or cure period
provided in the applicable agreement, document or instrument) shall have been
declared under (A) any of the Transaction Documents or (B) any other material
agreement, lease, document or instrument to which the Company or any Subsidiary
is obligated (and not covered by clause (vi) below) which solely with respect to
Section 8(a)(iii)(B), such default or event of default would or is likely to
have a material adverse effect on the business, assets, operations (including
results thereof), liabilities, properties, or financial condition of the Company
or any of its Subsidiaries, individually or in the aggregate;
iv.
any representation or warranty made in this Debenture, any other Transaction
Documents, 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;
v.
the Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
vi.
the Company or any Subsidiary shall default on any of its
obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
that (a) involves an obligation greater than $50,000, whether such indebtedness
now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;
19
vii.
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 Trading Days;
viii.
the Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 50% of its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);
ix.
the Company does not meet the current public information requirements
under Rule 144 in respect of the Registrable Securities (as defined under the
Registration Rights Agreement);
x.
if, during the Effectiveness Period (as defined in the Registration Rights
Agreement), the Holder shall not be permitted to resell Registrable Securities
(as defined in the Registration Rights Agreement) under the Registration
Statement for a period of more than 20 consecutive Trading Days or 30
non-consecutive Trading Days during any 12 month period unless it is pursuant to
an Allowable Grace Period (as defined in the Registration Rights Agreement);
xi.
the Company shall fail for any reason to deliver certificates to a Holder
prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(c)
or the Company shall provide at any time notice to the Holder, including by way
of public announcement, of the Companys intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof;
xii.
on or before the earlier of the (x) the Effective Date, or (y) the date
which is six months from the First Closing Date, the Common Stock shall not be
eligible for electronic transfer through the Depository Trust Company (DTC) or
DTC otherwise places a chill on new deposits of Common Stock; or
xii.
any monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or other
assets for more than $100,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;
provided, however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall not be included in calculating the
$100,000 amount set forth above so long as the Company provides the Holder a
written statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the effect that
such judgment is covered by insurance or an indemnity and the Company or such
Subsidiary (as the case may be) will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment.
b)
Remedies Upon Event of Default. If any Event of Default occurs, the
outstanding principal amount of this Debenture, plus accrued but unpaid
interest, plus the applicable Interest Make-Whole Amount, liquidated damages and
other amounts owing in respect thereof through the date of acceleration, shall
become, at the Holders election, immediately due and payable in cash at the Mandatory Default Amount and shall become
convertible into shares of Common Stock at the lesser of (i) the Conversion
Price, and (ii) 50% of the average VWAP for the five Trading Days in the
preceding twenty Trading Days that have the lowest VWAP during such period.
Commencing 5 days after the occurrence of any Event of Default that results in
the acceleration of this Debenture, the interest rate on this Debenture shall
accrue at an interest rate equal to the lesser of 18% per annum or the maximum
rate permitted under applicable law. Upon the payment in full of the Mandatory
Default Amount, the Holder shall promptly surrender this Debenture to or as
directed by the Company. 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 Holder at any time prior to
payment hereunder and the Holder shall have all rights as a holder of the
Debenture until such time, if any, as the Holder receives full payment pursuant
to this Section 8(b). No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
20
Section 9.
Miscellaneous.
a)
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, or sent
by a nationally recognized overnight courier service, addressed to the Company,
at the address set forth above, or such other facsimile number or address as the
Company may specify for such purposes by notice to the Holder delivered in
accordance with this Section 9(a). 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, 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 the 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 at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 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 at the facsimile number set forth on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (iv) upon actual receipt by the party to whom such
notice is required to be given.
b)
Absolute Obligation. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, liquidated damages and
accrued interest, as applicable, on this Debenture at the time, place, and rate,
and in the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks paripassu with all other
Debentures now or hereafter issued under the terms set forth herein.
21
c)
Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, reasonably satisfactory to the
Company.
e)
Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws thereof. Each party
agrees that all legal proceedings concerning the interpretation, enforcement and
defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholder, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the New
York Courts). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by applicable
law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Debenture or the transactions
contemplated hereby. If any party shall commence an action or proceeding to
enforce any provisions of this Debenture, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys
fees and other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.
f)
Amendments; Waiver. No provision of this Debenture may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by each of the Company and the Holder or, in the case of a
waiver, by the party against whom enforcement of any such waived provision is
sought. Any waiver by the Company or the Holder of a breach of any provision of
this Debenture 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
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture 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 Debenture on any other
occasion.
22
g)
Severability. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder 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 Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Debenture, 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 as
though no such law has been enacted.
h)
Successors and Assigns. The terms and conditions of this Debenture shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties. The Company may not assign this note or delegate any of
its obligations hereunder without the written consent of the Holder. The Holder
may assign this Debenture and its rights hereunder at any time without consent
of Company.
i)
Next Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
j)
Headings. The headings contained herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect
any of the provisions hereof.
*********************
(Signature Pages Follow)
23
IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a
duly authorized officer as of the date first above indicated.
WORLD MOTO, INC.
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By:
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Name: |
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Title: |
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Facsimile No. for
delivery of Notices: |
24
ANNEX A
NOTICE OF CONVERSION
The
undersigned hereby elects to convert principal under the 12% Senior Secured
Convertible Debenture due ______ , 2016 of World Moto, Inc., a Nevada
corporation (the Company), into shares of common stock (the Common
Stock), of the Company according to the conditions hereof, as of the date
written below. If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the holder for any conversion, except for such transfer
taxes, if any.
By the delivery of this Notice of Conversion the undersigned
represents and warrants to the Company that its ownership of the Common Stock
does not exceed the amounts specified under Section 4 of this Debenture, as
determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
In the event of a partial Conversion, Amortization Dates from
which Amortization Amount is to be deducted:
Conversion calculations:
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Date to Effect Conversion: |
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Principal Amount of Debenture |
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to be Converted: |
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Number of shares of Common Stock |
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to be issued: |
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Signature: |
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Name: |
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Address for Delivery of Common Stock |
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Certificates: |
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Schedule 1
CONVERSION SCHEDULE
The 12% Senior Secured Convertible Debentures due ____, 2016 in
the aggregate principal amount of $____________ are issued by World Moto, Inc.,
a Nevada corporation. This Conversion Schedule reflects conversions made under
Section 4 of the above referenced Debenture.
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) |
Company Attest
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27
REGISTRATION RIGHTS AGREEMENT
REGISTRATION
RIGHTS AGREEMENT (this Agreement), dated as of March _, 2015,
between World Moto, Inc., a Nevada corporation (the Company), and
Redwood Management, LLC (the Investor).
This
Agreement is made pursuant to that certain Securities Purchase Agreement (the
Purchase Agreement), dated as of the date hereof, between the Company
and the Investor, among others.
The parties accordingly agree as follows:
ARTICLE I
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:
1.1
Commission means the Securities and Exchange Commission.
1.2
Common Stock means shares of the Companys common stock, par value
$0.0001 per share.
1.3
Company is defined in the Preamble.
1.4
Conversion Shares means the shares of Common Stock issued or issuable
upon conversion of the Notes and the interest that may accrue thereon through
the Maturity Date (as defined in the Notes).
1.5
Effective Date means the date on which the Commission declares a
Registration Statement effective.
1.6
Effectiveness Deadline means a date no later than sixty (60) days
following the Filing Deadline.
1.7
Effectiveness Period means the period commencing on the Effective Date
and ending on the earlier of the date when all of the Registrable Securities
covered by such Registration Statement have been sold or otherwise no longer
meet the definition of Registrable Securities.
1.8
Event is defined in Section 2.4.
1.9
Event Date is defined in Section 2.4.
1
1.10
Exchange Act means the Securities Exchange Act of 1934, as amended, and
any successor statute.
1.11
Filing Deadline means a date no later five (5) days after the Closing
Date.
1.12
Holder or Holders means the Investor and any other person
holding Registrable Securities or any of their respective affiliates or
transferees to the extent any of them hold Registrable Securities, other than
those purchasing Registrable Securities in a market transaction.
1.13
Indemnified Party is defined in Section 6.3.
1.14
Indemnifying Party is defined in Section 6.3.
1.15
Note means the 12% senior secured convertible debenture due 2016 issued
on , 2015 pursuant to the Purchase Agreement.
1.16
Proceeding means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
1.17
Prospectus means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
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.
1.18
Purchase Agreement is defined in the Preamble.
1.19
Registrable Securities means (i) 125% of the Conversion Shares, and
(ii) any securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the foregoing,
provided, that any of the foregoing securities shall cease to be Registrable
Securities upon the earliest to occur of the following: (A) a sale pursuant to
an effective Registration Statement (b) a sale pursuant to Rule 144 (in which
case, only such security sold shall cease to be a Registrable Security); or (C)
eligibility for sale without current public information requirements and volume
or manner of sale restrictions.
1.20
Registration Statement means each registration statement required to be
filed hereunder, including the Prospectus therein, amendments and supplements to
such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
Notwithstanding the foregoing, Registration Statement excludes a registration
statement on Form S-4 or Form S-8, or their successors, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another entity.
2
1.21
Rule 144 means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
1.22
Rule 415 means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
1.23
Securities Act means the Securities Act of 1933, as amended, and any
successor statute.
1.24
Trading Market means any of the Over The Counter Bulletin Board, the
OTC QB, NASDAQ Capital Market, the NASDAQ Global Market, the Nasdaq Global
Select Market, the NYSE MKT or the New York Stock Exchange.
ARTICLE II
AUTOMATIC REGISTRATION.
2.1
Registration. The Company shall, on or prior to the Filing Deadline,
prepare and file with the Commission a Registration Statement (the Initial
Registration Statement) covering the Registrable Securities (assuming, for
such purpose of the number of shares to be registered on such Initial
Registration Statement, that the Notes are converted in full at the Conversion
Price (as defined in the Notes) in effect on the Trading Day immediately prior
to the date the Initial Registration Statement is initially filed with the
Commission). Each Registration Statement shall be on Form S-3 (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). The Company shall use its commercially reasonable
efforts to cause the Initial Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in no event later than the Effectiveness Deadline, and to remain effective
continuously throughout the Effectiveness Period. The Company shall promptly
notify the Holders via facsimile or electronic mail of a .pdf format data file
of the effectiveness of a Registration Statement within one (1) business day of
the Effective Date. The Company shall, by 9:30 a.m. New York City time on the
first business day after the Effective Date, file a final Prospectus with the
Commission, as required by Rule 424(b) of the Securities Act. Notwithstanding
the registration obligations set forth in this Article 2, in the
event the Commission informs the Company that all of the Registrable Securities
cannot, as a result of the application of Rule 415, be registered for resale on
a single registration statement, the Company agrees to promptly (i) inform each
of the Holders thereof, (ii) use its best efforts to file amendments to the
Registration Statement as required by the Commission and/or (iii) withdraw the
Registration Statement and file a new registration statement (a New
Registration Statement), in either case covering the maximum number
of Registrable Securities permitted to be registered by the Commission, on Form
S-3 or such other form available to register for resale the Registrable Securities as a secondary offering; provided,
however, that prior to filing such amendment or New Registration Statement, the
Company shall be obligated to use its commercially reasonable efforts to
advocate with the Commission for the registration of all of the Registrable
Securities in accordance with the Commission guidance. In the event the Company
amends the Initial Registration Statement or files a New Registration Statement,
as the case may be, under clauses (ii) or (iii) above, the Company will use its
commercially reasonable efforts to file with the Commission, as promptly as
allowed by Commission or Commission guidance provided to the Company or to
registrants of securities in general, one or more registration statements on
Form S-3 or such other form available to register for resale those Registrable
Securities that were not registered for resale on the Initial Registration
Statement, as amended, or the New Registration Statement (the Remainder
Registration Statements).
3
2.2
Liquidated Damages. If: (i) a Registration Statement is not filed with
the Commission on or prior to the Filing Deadline, (ii) a Registration Statement
is not declared effective by the Commission (or otherwise does not become
effective) for any reason on or prior to the Effectiveness Deadline or (iii)
after its Effective Date, (A) such Registration Statement ceases for any reason
(including, without limitation, by reason of a stop order, or the Companys
failure to update the Registration Statement), to remain continuously effective
as to all Registrable Securities for which it is required to be effective or (B)
the Holders are not permitted to utilize the Prospectus therein to resell such
Registrable Securities, in the case of (A) and (B), for more than an aggregate
of thirty (30) Trading Days (which need not be consecutive) during any 12 month
period (other than during an Allowable Grace Period (as defined in Section
2.3)), (iv) a Grace Period (as defined in Section 2.3 of this
Agreement) exceeds the length of an Allowable Grace Period, or (v) 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) as a
result of which the Holders who are not affiliates are unable to sell
Registrable Securities without restriction under Rule 144 (or any successor
thereto) (any such failure or breach in clauses (i) through (v) above being
referred to as an Event, and, for purposes of clauses (i), (ii) or (v),
the date on which such Event occurs, or for purposes of clause (iii), the date
on which such thirty (30) Trading Day period is exceeded, or for purposes of
clause (iv) the date on which such Allowable Grace Period is exceeded, being
referred to as an Event Date), then in addition to any other rights the
Holders may have hereunder or under applicable law, on each such Event Date and
on each monthly anniversary of each such Event Date (if the applicable Event
shall not have been cured by such date) until the applicable Event is cured, the
Company shall pay to the Holder an amount in cash, as liquidated damages and not
as a penalty (Liquidated Damages), equal to one percent (1.0%) of the
aggregate purchase price paid by such Holder pursuant to the Purchase Agreement
for any Registrable Securities included in such Registration Statement by such
Holder, if any, on the Event Date. The parties agree that (1) notwithstanding
anything to the contrary herein or in the Purchase Agreement, no Liquidated
Damages shall be payable with respect to any period after the expiration of the
Effectiveness Period (it being understood that this sentence shall not relieve
the Company of any Liquidated Damages accruing prior to the Effectiveness
Period), and in no event shall the aggregate amount of Liquidated Damages
payable to a Holder exceed, in the aggregate, ten percent (10%) of the aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement and (2) in
no event shall the Company be liable in any 30-day period for Liquidated Damages
under this Agreement in excess of 1.0% of the aggregate purchase price paid by
the Holders pursuant to the Purchase Agreement. The Liquidated Damages pursuant to the
terms hereof shall apply on a daily pro-rata basis for any portion of a month
prior to the cure of an Event, except in the case of the first Event Date. The
Company shall not be liable for Liquidated Damages under this Agreement as to
any Registrable Securities which are not permitted by the Commission to be
included in a Registration Statement due solely to the Commissions guidance on
Rule 415 from the time that it is determined that such Registrable Securities
are not permitted to be registered until such time as the provisions of this
Agreement as to the Remainder Registration Statements required to be filed
hereunder are triggered, in which case the provisions of this Section 2.4 shall once again apply. In such case, the Liquidated Damages shall be calculated
to only apply to the percentage of Registrable Securities which are permitted in
accordance with Rule 415 to be included in such Registration Statement. Notwithstanding anything herein to the contrary, no Liquidated Damages shall
accrue with respect to any Registrable Securities of a Holder not included in a
Registration Statement due to the fact that (i) the Commission informs the
Company that all of the Registrable Securities cannot, as a result of the
application of Rule 415, be registered for resale on such Registration
Statement, and (ii) such Holder is required by the Commission to be named as an
underwriter and such Holder refuses to be named as an underwriter
therein.
4
2.3
Material Non-Public Information. Notwithstanding anything to the contrary
herein, at any time after the Registration Statement has been declared effective
by the Commission, the Company may delay the disclosure of material non-public
information concerning the Company if the disclosure of such information at the
time is not, in the good faith judgment of the Company, in the best interests of
the Company (a Grace Period); provided, however, the Company shall
promptly (i) notify the Holders in writing of the existence of material
non-public information giving rise to a Grace Period (provided that the Company
shall not disclose the content of such material non-public information to the
Holders) or the need to file a post-effective amendment, as applicable, and the
date on which such Grace Period will begin, and (ii) notify the Holders in
writing of the date on which the Grace Period ends; provided, further, that no
single Grace Period shall exceed thirty (30) consecutive days, and during any
three hundred sixty-five (365) day period, the aggregate of all Grace Periods
shall not exceed an aggregate of forty-five (45) days (each Grace Period
complying with this provision being an Allowable Grace Period). In the
event the Company does disclose the content of such material non-public
information that is the subject of subpart (i) above to any Holder without its
consent, the Company shall make public disclosure of such material nonpublic
information within two (2) Trading Days of such disclosure and no Grace Period
shall apply. For purposes of determining the length of a Grace Period, the Grace
Period shall be deemed to begin on and include the date the Holders receive the
notice referred to in clause (i) above and shall end on and include the later of
the date the Holders receive the notice referred to in clause (ii) above and the
date referred to in such notice; provided, however, that no Grace Period shall
be longer than an Allowable Grace Period.
5
2.4 Underwriter Status. Notwithstanding anything to the contrary contained in
this Agreement, but subject to the payment of the Liquidated Damages pursuant to
Section 2.2 in the event the staff of the Commission (the Staff) or the
Commission seeks to characterize any offering pursuant to a Registration
Statement filed pursuant to this Agreement as constituting an offering of
securities by, or on behalf of, the Company, or in any other manner, such that
the Staff or the Commission do not permit such Registration
Statement to become effective and used for resales in a manner that does not
constitute such an offering and that permits the continuous resale at the market
by the Investor participating therein (or as otherwise may be acceptable to the
Investor) without being named therein as an underwriter, then, unless the
Investor elects to be named as an underwriter therein, the Company shall
reduce the number of shares to be included in such Shelf Registration Statement
by the Investor until such time as the Staff and the Commission shall so permit
such Shelf Registration Statement to become effective as aforesaid In addition,
in the event that the Staff or the Commission requires the Investor seeking to
sell securities under a Registration Statement filed pursuant to this Agreement
to be specifically identified as an underwriter in order to permit such Shelf
Registration Statement to become effective, and the Investor does not consent to
being so named as an underwriter in such Registration Statement, then, in each
such case, the Company shall reduce the total number of Registrable Securities
to be registered on behalf of the Investor, until such time as the Staff or the
Commission does not require such identification or until the Investor accepts
such identification and the manner thereof. In the event of any reduction in
Registrable Securities pursuant to this paragraph, the Investor shall have the
right to require, upon delivery of a written request to the Company signed by
the Investor, the Company to file a registration statement within thirty (30)
days of such request (subject to any restrictions imposed by Rule 415 or
required by the Staff or the Commission) for resale by the Investor in a manner
acceptable to the Investor, and the Company shall following such request cause
to be and keep effective such registration statement in the same manner as
otherwise contemplated in this Agreement for registration statements hereunder,
in each case until such time as: (i) all Registrable Securities held by the
Investor have been registered and sold; (ii) all Registrable Securities may be
resold by the Investor without restriction (including, without limitation,
volume limitations) pursuant to Rule 144 (taking account of any Staff position
with respect to affiliate status) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or
(iii) the Investor agrees to be named as an underwriter in any such Registration
Statement in a manner acceptable to the Investor as to all Registrable
Securities held by such Investor and that have not theretofore been included in
a Registration Statement under this Agreement (it being understood that the
special demand right under this sentence may be exercised by an Investor
multiple times and with respect to limited amounts of Registrable Securities in
order to permit the resale thereof by the Investor as contemplated above).
ARTICLE III
COMPANY REGISTRATION
3.1
Notice of Registration. If at any time or from time to time the Company
shall determine to register any of its Common Stock exclusively for cash, either
for its own account or the account of security holders, other than (i) a
registration on Form S-8 or otherwise relating solely to employee benefit plans,
(ii) a registration on Form S-4, (iii) a registration on any other form which
does not permit secondary sales, or (iv) a registration on any other form which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities, the Company shall:
(a)
promptly give to each Holder written notice thereof; and
6
(b)
include in such registration (and any related qualification under blue sky laws
or other compliance), and in any underwriting involved therein (Subject to
Section 3.2 below)), all Registrable Securities which are then not registered
pursuant to a then effective Registration Statement, and have not been excluded
from a Registration Statement pursuant to Commission comments or due to Rule 415
of the Securities Act, as are specified in a written request or requests,
actually received by the Company within 20 days after receipt of such written
notice from the Company, by any Holder.
3.2
Underwritten Offerings. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.1. In such event the right of any Holder to
registration pursuant to Section 3.1 shall be conditioned upon such
Holders participation in such underwriting and the inclusion of such Holders
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. The foregoing shall include, without limitation, such powers of
attorney and escrow agreements as the underwriters may require. Notwithstanding
any other provision of Article III, if the managing underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration, it being understood that the
shares proposed to sold by the Company in such underwriting shall be given
priority and shall not be subject to any such limitation vis-a-vis the
Registrable Securities. The Company shall so advise all Holders and other
holders distributing their securities through such underwriting, and the number
of shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders and such other holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders and such other holders at the time of filing the
registration statement. To facilitate the allocation of shares in accordance
with the above provisions, the Company may round the number of shares allocated
to any Holder to the nearest 100 shares. If any Holder disapproves of the terms
of any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the managing underwriter.
The
Registrable Securities so excluded or withdrawn shall also be excluded or
withdrawn from registration, and neither such Registrable Securities nor any
securities convertible into or exchangeable or exercisable for Common Stock
shall be sold in any public sale or other distribution, without the prior
written consent of the Company or such underwriters, for such period of time
before and after (not to exceed thirty (30) days before and one hundred eighty
(180) days after) the effective date of the registration statement relating
thereto as the underwriters may require.
3.3
Company Termination of Registration. The Company reserves the right to
terminate any registration under this Article III at any time and for any
reason without liability to any Holder.
7
ARTICLE IV
REGISTRATION PROCEDURES
4.1
Registration Procedures. If and whenever the Company is required by the
provisions of Articles II or III hereof to effect the registration of any
Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:
(a)
prepare and file with the Commission a Registration Statement with respect to
such Registrable Securities, respond as promptly as possible to any comments
received from the Commission, and use its commercially reasonable efforts to
cause such Registration Statement to become and remain effective for the
Effectiveness Period with respect thereto, and the Investor 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 the
Investor with respect to such information prior to filing any Registration
Statement or amendment thereto or any Prospectus or any supplement thereto;
(b)
prepare and file with the Commission such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by such Registration
Statement and to keep such Registration Statement effective until the expiration
of the Effectiveness Period applicable to such Registration Statement;
(c)
furnish to the Investor such number of copies of the Registration Statement and
the Prospectus included therein (including each preliminary Prospectus and any
amendments and supplements to the Registration Statement and the Prospectus) and
such other documents as the Investor reasonably may request to facilitate the
public sale or disposition of the Registrable Securities covered by such
Registration Statement;
(d)
use its commercially reasonable efforts to register or qualify the Investors
Registrable Securities covered by such Registration Statement under the
securities or blue sky laws of such jurisdictions within the United States as
the Investor may reasonably request and do any and all other acts and things
which may be reasonably necessary or advisable to enable the Investor to
consummate the disposition in such jurisdiction of the Registrable Securities,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e)
list the Registrable Securities covered by such Registration Statement with any
securities exchange on which the Common Stock of the Company is then listed and,
if the Common Stock is not then listed, list the Registrable Securities on
Nasdaq or a national securities exchange selected by the Company;
(f)
immediately notify the Investor at any time when a Prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the Prospectus contained in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and, at the request of the Investor,
the Company shall prepare a supplement or amendment to such Prospectus so that,
as thereafter delivered to the purchasers of Registrable Securities, such
Prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statement therein not misleading;
8
(g)
make available for inspection by the Investor and any attorney, accountant or
other agent retained by the Investor, all publicly available, non-confidential
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Companys officers, directors and employees to supply all
publicly available, non-confidential information reasonably requested by the
attorney, accountant or agent of the Investor;
(h)
provide a transfer agent and registrar for all such Registrable Securities not
later than the effective date of such Registration Statement;
(i)
if requested, cause to be delivered, immediately prior to the effectiveness of
the Registration Statement, letters from the Companys independent certified
public accountants addressed to the Investor (unless the Investor does not
provide to such accountants the appropriate representation letter required by
rules governing the accounting profession) stating that such accountants are
independent public accountants within the meaning of the Securities Act and the
applicable rules and regulations adopted by the Commission thereunder, and
otherwise in customary form and covering such financial and accounting matters
as are customarily covered by letters of the independent certified public
accountants delivered in connection with primary or secondary underwritten
public offerings, as the case may be; and
(j)
at all times after the Company has filed a Registration Statement with the
Commission pursuant to the requirements of either the Securities Act or the
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder, and take such further action as the
Investor may reasonably request, all to the extent required to enable the
Investor to be eligible to sell Registrable Securities pursuant to Rule 144 (or
any similar rule then in effect).
ARTICLE V
REGISTRATION EXPENSES.
5.1
Registration Expenses. All expenses relating to the Companys
compliance with Articles II and III hereof, including, without limitation, all
registration, filing and listing application fees, costs of distributing any
prospectuses and supplements thereto, printing expenses, fees and disbursements
of counsel and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or blue sky laws, fees of FINRA, transfer taxes, fees of transfer
agents and registrars, fees of, and disbursement incurred by, one counsel for
the Holders, not to exceed $5,000 (collectively, the Registration Expenses) shall
be borne by the Company. The obligation of the Company to bear the Registration
Expenses shall apply irrespective of whether a registration, becomes effective,
is withdrawn or suspended, is converted to another form of registration and
irrespective of when any of the foregoing shall occur.
9
5.2
Selling Expenses. All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, and any fees and disbursements
of any counsel to the Holders (collectively, the Selling Expenses)
shall be borne by the Holders in proportion to the aggregate selling price of
the Registrable Securities of each Holder to be so registered.
ARTICLE VI
INDEMNIFICATION.
6.1
Company Indemnification. In the event of a registration of any
Registrable Securities under the Securities Act pursuant to this Agreement, the
Company shall indemnify and hold harmless each Holder, and its officers,
directors and each other person, if any, who controls such Holder within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Holder, or such persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Registrable Securities
were registered under the Securities Act pursuant to this Agreement, any
preliminary Prospectus or final Prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or any violation or
alleged violation by the Company of the Securities Act, the Exchange Act or
applicable blue sky laws, and shall reimburse such Holder, and each such
person for any legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing by
or on behalf of a Holder specifically for use in any such document.
6.2
Holder Indemnification. Each Holder of Registrable Securities included in
a Registration Statement pursuant to this Agreement shall indemnify and hold
harmless the Company, and its officers, directors and each other person, if any,
who controls the Company within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact which was furnished in writing by the Investor to
the Company expressly for use in (and such information is contained in) the
Registration Statement under which such Registrable Securities were registered
under the Securities Act pursuant to this Agreement, any preliminary Prospectus
or final Prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse the Company and each such
person for any reasonable legal or other expenses incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action, provided, however, that a Holder shall be liable in any such case if and
only to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing to
the Company by or on behalf of such Holder specifically for use in any such
document. Notwithstanding the provisions of this paragraph, a Holder shall not
be required to indemnify any person or entity in excess of the amount of the
aggregate net proceeds received by the Holder in respect of Registrable
Securities in connection with any such registration under the Securities Act.
10
6.3
Indemnification Procedures. Promptly after receipt by a party entitled to
claim indemnification hereunder (an Indemnified Party) of notice of the
commencement of any action, such Indemnified Party shall, if a claim for
indemnification in respect thereof is to be made against a party hereto
obligated to indemnify such Indemnified Party (an Indemnifying
Party), notify the Indemnifying Party in writing thereof, but the
omission so to notify the Indemnifying Party shall not relieve it from any
liability which it may have to such Indemnified Party other than under this
Section 6.3 and shall only relieve it from any liability which it may
have to such Indemnified Party under this Section 6.3 if and to the
extent the Indemnifying Party is prejudiced by such omission. In case any such
action shall be brought against any Indemnified Party and it shall notify the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such Indemnified
Party, and, after notice from the Indemnifying Party to such Indemnified Party
of its election so to assume and undertake the defense thereof, the Indemnifying
Party shall not be liable to such Indemnified Party under this Section
6.3 for any legal expenses subsequently incurred by such Indemnified Party
in connection with the defense thereof; if the Indemnified Party retains its own
counsel, then the Indemnified Party shall pay all reasonable and documented
fees, costs and expenses of such counsel; provided, however, that, if the
defendants in any such action include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the Indemnifying Party or if the interests
of the Indemnified Party reasonably may be deemed to conflict with the interests
of the Indemnifying Party, the Indemnified Party shall have the right to select
one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable and documented
expenses and fees of such separate counsel and other reasonable and documented
expenses related to such participation to be reimbursed by the Indemnifying
Party as incurred.
6.4
Contribution. In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) a Holder, or any officer, director or controlling person of a Holder,
makes a claim for indemnification pursuant to this Section 6.4 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 6.4 provides for
indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Investor or
such officer, director or controlling person of the Investor in circumstances
for which indemnification is provided under this Section 6.4 ; then, and
in each such case, the Company and the Investor shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Investor is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the Registration Statement bears to
the public offering price of all securities offered by such Registration
Statement, provided, however, that, in any such case, (A) the Investor shall not
be required to contribute any amount in excess of the public offering price of
all such securities offered by it pursuant to such Registration Statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Act) shall be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
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6.5
Survival. The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and shall survive the transfer of securities.
ARTICLE VII
MISCELLANEOUS.
7.1
Compliance. Each Holder covenants and agrees that it shall comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to any Registration
Statement.
7.2
Discontinued Disposition. Each Holder agrees by its acquisition of
Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of a Discontinuation Event (as defined below), such Holder shall
forthwith discontinue disposition of such Registrable Securities under the
applicable Registration Statement until such Holders receipt of the copies of
the supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the Advice) by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
Section 7.2. For purposes of this Agreement, a Discontinuation
Event shall mean (i) when the Commission notifies the Company whether
there will be a review of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); (ii) any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to such Registration
Statement or Prospectus or for additional information; (iii) the issuance by the
Commission of any stop order suspending the effectiveness of such Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) 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; and/or (v) the occurrence of any event or passage of time that makes the
financial statements included in such Registration Statement ineligible for
inclusion therein or any statement made in such 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 such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or 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.
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7.3
Transfer of Registration Rights. The rights to cause the Company to
register securities granted to Holders under Article II or Article
III may be assigned to a transferee or assignee in connection with any
transfer or assignment of Registrable Securities by a Holder, provided that: (i)
such transfer may otherwise be effected in accordance with applicable securities
laws, and (ii) written notice thereof is promptly given to the Company.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to any constituent partner or affiliate of a Holder,
without compliance with item (ii) above.
7.4
Entire Agreement. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof. No provision of this
Agreement may be explained or qualified by any prior or contemporaneous
understanding, negotiation, discussion, conduct, or course of conduct or by any
trade usage, and, except as otherwise expressly stated herein, there is no
condition precedent to the effectiveness of any provision hereof. No party has
relied on any representation, warranty, or agreement of any person in entering
this Agreement, except those expressly stated herein.
7.5
Counterparts; Facsimile Signatures. This Agreement may be executed
in counterparts, each of which shall constitute an original, but all of which
shall constitute one agreement. This Agreement shall become effective upon
delivery to each party of an executed counterpart or the earlier delivery to
each party of original, photocopied, or electronically transmitted signature
pages that together (but need not individually) bear the signatures of all other
parties.
7.6
Amendments; Waivers; Remedies.
(a)
This Agreement cannot be amended, except by a writing signed by Holders of at
least a majority of the then outstanding Registrable Securities, or terminated
orally or by course of conduct. No provision hereof can be waived, except by a
writing signed by the party against whom such waiver is to be enforced, and any
such waiver shall apply only in the particular instance in which such waiver
shall have been given. 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 certain Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority 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 immediately preceding sentence.
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(b)
Neither any failure or delay in exercising any right or remedy hereunder or in
requiring satisfaction of any condition herein nor any course of dealing shall
constitute a waiver of or prevent any party from enforcing any right or remedy
or from requiring satisfaction of any condition. No notice to or demand on a
party waives or otherwise affects any obligation of that party or impairs any
right of the party giving such notice or making such demand, including any right
to take any action without notice or demand not otherwise required by this
Agreement. No exercise of any right or remedy with respect to a breach of this
Agreement shall preclude exercise of any other right or remedy, as appropriate
to make the aggrieved party whole with respect to such breach, or subsequent
exercise of any right or remedy with respect to any other breach.
(c)
Except as otherwise expressly provided herein, no statement herein of any right
or remedy shall impair any other right or remedy stated herein or that otherwise
may be available.
7.7
Notices. Any notice hereunder shall be sent in writing, addressed as
specified below, and shall be deemed given: if by hand or recognized courier
service, by 5:30 p.m. (New York City time) on a business day, addressees day
and time, on the date of delivery, and otherwise on the first business day after
such delivery; if by fax, on the date that transmission is confirmed
electronically, if by 5:30 p.m. (New York City time) on a business day,
addressees day and time, and otherwise on the first business day after the date
of such confirmation; or three days after mailing by certified or registered
mail, return receipt requested. Notices shall be addressed to the respective
parties as follows (excluding telephone numbers, which are for convenience
only), or to such other address as a party shall specify to the others in
accordance with these notice provisions:
To Company, at:
World Moto, Inc.
131 Thailand Science Park INC-1
#214
Phahonyothin Road
Klong1, Klong Luang
Pathumthani 12120
Thailand
Attn.:
Facsimile:
with a copy (not constituting notice) to
Greenberg Traurig, LLP
1201 K Street Suite 1100
Sacramento CA 95814
Attn.: Mark C. Lee, Esq.
14
Facsimile: (916) 868 0630
To Investor at the facsimile number set forth for such Investor
on the signature page to this Agreement.
To
any other Person who is then the registered Holder at the address of such Holder
as it appears in the stock transfer books of the Company.
7.8
Successors and Assigns. Subject to the provisions of Section 7.3, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties, including, without limitation, and without the
need for an express assignment, subsequent Holders of Registrable Securities.
7.9
Further Assurances. Each party shall execute and deliver such documents
and take such action, as may reasonably be considered within the scope of such
partys obligations hereunder, necessary to effectuate the transactions
contemplated by this Agreement.
7.10
Choice of Law and Forum; Service of Process.
(a)
This Agreement, any disputed matter arising hereunder, including the
construction, interpretation, or validity of any provision hereof or performance
thereof, or any other matter relating hereto or arising in connection herewith
(whether in tort, contract, equity, or otherwise) (any such matter, a
Disputed Matter) is and shall be governed by and enforced in accordance
with the laws of the State of New York, excluding its choice of law rules.
(b)
Subject to Section 7.10(c) , no party shall bring or maintain any action
or proceeding with respect to any Disputed Matter (Dispute Proceeding),
except in the Federal District Court for the Southern District of New York, or,
if such court lacks subject matter jurisdiction, the Supreme Court sitting in
New York County. Each party irrevocably submits and consents to the jurisdiction
of such courts, and no party shall object to the laying of venue in any such
court or claim that any such court is an inconvenient forum.
(c)
Nothing herein shall affect the right of any party to enforce any judgment in
any jurisdiction or the rule that any matter of internal governance of a
corporation or other entity is determined under the laws of the state pursuant
to which the corporation or other entity is incorporated or formed.
(d)
Each party irrevocably consents to service of process, by any means authorized,
in respect of any Dispute Proceeding.
[Balance of page intentionally left blank; signature page
follows]
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as
of the date first written above.
WORLD MOTO, INC.
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16
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this Agreement)
is made as of March 5, 2015 (Effective Date) is made by World
Moto, Inc., a Nevada corporation (the Company), in favor of Redwood
Management, LLC , in its capacity as collateral agent (in such capacity, the
Collateral Agent) for the Purchaser (as defined below) party to the
Securities Purchase Agreement, dated as of March 5, 2015 (as amended, restated
or otherwise modified from time to time, the Purchase Agreement).
RECITAL
A.
The Company and Redwood Management, LLC (Purchaser) are parties to the
Purchase Agreement, pursuant to which the Company shall be required to sell, and
the Purchaser shall purchase or have the right to purchase, the Debentures (as
defined therein) issued pursuant thereto (as such Debentures may be amended,
restated, replaced or otherwise modified from time to time in accordance with
the terms thereof, collectively, the Debentures).
B.
The parties have agreed that the Companys obligations under the Debentures will
be secured by the Companys grant to the Collateral Agent, for itself and for
the benefit of the Purchaser, of a security interest in and to certain
Collateral (as defined below), pursuant to the terms and conditions of this
Agreement.
NOW,
THEREFORE, in consideration of the foregoing, and the representations,
warranties, covenants and conditions set forth below, the parties hereto,
intending to be legally bound, hereby agree as follows:
AGREEMENT
1.
SECURITY.
1.1
Grant of Security Interest. As security for the prompt and
punctual payment and performance of all Indebtedness (as defined below) of the
Company to the Purchaser when and as due under the Debentures, the Company
hereby grants to the Collateral Agent, for the benefit of the Purchaser, a
security interest in the Collateral (as defined below). For purposes of this
Agreement, Indebtedness means all obligations and liabilities of the
Company to the Purchaser under (i) the Debentures, and (ii) this Agreement.
Notwithstanding anything to the contrary herein, until the Indebtedness has been
fully satisfied (including the Debentures no longer being outstanding), the
Company may not grant a security interest in the Collateral that is senior to or
pari passu to the Debentures.
1.2
Collateral Defined. As used in this Agreement, the term
Collateral means, collectively, wherever located, whether now owned or
hereafter acquired or now existing or hereafter acquired or created, all right,
title and interest of the Company in and to all of its assets, including,
without limitation: (i) accounts, chattel paper, deposit accounts, documents,
general intangibles (including, but not limited to intellectual property,
payment intangibles, software, licenses, franchises and customer information),
goods (including, but not limited to equipment, fixtures and inventory),
instruments, investment property, letter-of-credit rights, money, other personal
property, software, any commercial tort claims; (ii) to the extent not referred
to in clause (i) of this sentence, all (A) supporting obligations and incidental
property rights incident to, arising or accruing pursuant to or otherwise
relating to any of the things referred to in clause (i) of this sentence,
whether arising or accruing from any action taken by the Company or the
Collateral Agent or otherwise, (B) proceeds of any of the items referred to in
clauses (i) and (ii)(A) of this sentence and (C) books and records relating to
any of the items referred to in clauses (i) and (ii)(A) and (B) of this
sentence.
1.3
Collateral Agent Rights. The Collateral Agent is hereby authorized to
file one or more UCC-1 Financing Statements with the Secretary of State of the
State of Nevada evidencing and providing notice of the security interest granted
pursuant to this Agreement in the Collateral.
1.4
Release of Collateral. Upon the full and final discharge of all
of the Indebtedness, the Collateral Agent will execute and deliver such
documents as may be reasonably necessary and requested by the Company to release
the Collateral from the security interest granted to the Collateral Agent in
this Agreement.
1.5
Termination. When all the Indebtedness has been paid in full and
discharged, this Agreement and the security interest granted to the Collateral
Agent hereunder will terminate and a UCC-3 Termination Statement shall be filed
by Collateral Agent to indicate the termination of the security interest created
hereby.
2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Collateral Agent that the statements contained in
the following paragraphs of this Section 2 are all true and correct immediately
prior to the execution of the Debenture.
2.1 Title. The Company
owns all right, title and interest in and to the Collateral.
2.2
Right to Grant Interest. The Company has the right to grant the
security interest under this Agreement to Collateral Agent in the Collateral.
2.3
No Bankruptcy. Company is not subject to any bankruptcy case or
insolvency proceedings before any court in any jurisdiction. In the ninety (90)
days preceding the date of this Agreement, the Company has not received any
threat from any third party to subject the Company to any involuntary bankruptcy
or insolvency proceeding.
3.
COVENANTS OF THE COMPANY. So long as any of the
Company Indebtedness to the Purchaser has not been fully satisfied, the Company
covenants and agrees with the Collateral Agent that:
3.1
Payment of Indebtedness. The Company will pay all Indebtedness
when due under the Debentures;
3.2
Condition of Collateral. The Company will maintain the
Collateral in good condition and repair;
3.3
Further Assurances. The Company will execute and deliver such
documents as the Collateral Agent deems necessary to create, perfect and
continue the security interests granted by this Agreement;
3.4
Taxes. The Company will pay all taxes due and owing by the
Company at such time as they become due.
3.5
No Sale or Transfer. The Company will not to sell, offer to
sell, or otherwise transfer the Collateral, except in the ordinary course of
business;
3.6
Books and Records. The Company will keep, in accordance with
accounting principles consistently applied, complete and accurate books and
records regarding all Collateral;
2
3.7
Inspection. The Company will permit the Collateral Agent and its
designees at all reasonable times to inspect the Collateral and Debtors books
and records relating to Collateral, and to audit and make copies or extracts
from such books and records
4.
RIGHTS AND REMEDIES UPON EVENT OF DEFAULT.
4.1
General Remedies. Subject to the security interests of the
holders of the Debentures set forth on Schedule 4.1 (the Existing
Debentures), in the event of an occurrence (and during the continuance) of
an Event of Default (as defined in the Debentures), in addition to exercising
any other rights or remedies the Purchaser may have under the Debentures, at law
or in equity, or pursuant to the provisions of the Uniform Commercial Code, the
Collateral Agent may, at its option, and without demand first made, exercise any
one or all of the following rights and remedies: (i) collect the Collateral and
its proceeds; (ii) take possession of the Collateral wherever it may be found,
using all reasonable means to do so, or require the Company to assemble the
Collateral and make it available to the Collateral Agent at a place designated
by the Collateral Agent that is reasonably convenient to the Company; (iii)
proceed with the foreclosure of the security interest in the Collateral granted
herein and the sale or endorsement and collection of the proceeds of the
Collateral in any manner permitted by law or provided for herein; (iv) sell,
lease or otherwise dispose of the Collateral at public or private sale, with or
without having the Collateral at the place of sale; (v) institute a suit or
other action against the Company for recovery on the Debenture or to obtain
possession or effect a sale of the Collateral; (vi) exercise any rights and
remedies of a Company under the Uniform Commercial Code; and/or (vii) offset,
against any payment due from the Company to the Collateral Agent, the whole or
any part of any Indebtedness of the Collateral Agent to the Company.
4.2
No Election of Remedies. The election by the Collateral Agent of
any right or remedy will not prevent any Purchaser from exercising any other
right or remedy against the Company.
4.3
Proceeds. If an Event of Default occurs (and is continuing), subject to
the rights of the Existing Debentures, all proceeds and payments with respect to
the Collateral will be retained by the Collateral Agent (or if received by the
Company will be held in trust and will be forthwith delivered by the Company to
the Collateral Agent in the original form received, endorsed in blank) and held
by the Collateral Agent as part of the Collateral or applied by the Collateral
Agent to the payment of the Indebtedness.
4.4
Sales of Collateral. Any item of Collateral may be sold for cash
or other value at public or private sale or other disposition and the proceeds
thereof collected by or for the Collateral Agent as provided in the Uniform
Commercial Code or under other applicable law. The Company agrees to promptly
execute and deliver, or promptly cause to be executed and delivered, such
instruments, documents, assignments, waivers, certificates and affidavits and
supply or cause to be supplied such further information and take such further
action as the Collateral Agent may reasonably require in connection with any
such sale or disposition. The Collateral Agent will have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in the Company, which right or equity is
hereby waived or released. The Company hereby waives any prior notice periods,
to the extent allowable by applicable law.
4.5
Application of Proceeds. The proceeds of all sales and
collections in respect of the Collateral, the application of which is not
otherwise specifically herein provided for, will be applied as follows: (i)
first, to the payment of the costs and expenses of such sale or sales and
collections and the actual attorneys fees and out-of-pocket expenses incurred
by the Collateral Agent relating to costs of collection; (ii) second, any surplus then remaining will be
applied to the payment of all unpaid principal under the Debenture; and (iii)
third, any surplus then remaining will be paid to the Company.
3
5.
GENERAL PROVISIONS.
5.1
Appointment of Collateral Agent. Purchaser hereby (a) appoints the
Collateral Agent, as the collateral agent hereunder, and (b) authorizes the
Collateral Agent (and its officers, directors, employees and agents) to take
such action on such Purchasers behalf in accordance with the terms hereof. The
Collateral Agent shall not have, by reason hereof, a fiduciary relationship in
respect of any Purchaser. Neither the Collateral Agent nor any of its officers,
directors, employees or agents shall have any liability to any Purchaser for any
action taken or omitted to be taken in connection hereof except to the extent
caused by its own gross negligence or willful misconduct, and Purchaser agrees
to defend, protect, indemnify and hold harmless the Collateral Agent and all of
its officers, directors, employees and agents (collectively, the Collateral
Agent Indemnitees) from and against any losses, damages, liabilities,
obligations, penalties, actions, judgments, suits, fees, costs and expenses
(including, without limitation, reasonable attorneys fees, costs and expenses)
incurred by such Collateral Agent Indemnitee, whether direct, indirect or
consequential, arising from or in connection with the performance by such
Collateral Agent Indemnitee of the duties and obligations of Collateral Agent
pursuant hereto. The Collateral Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Purchaser,; provided, however, that the Collateral
Agent shall not be required to take any action which, in the reasonable opinion
of the Collateral Agent, exposes the Collateral Agent to liability or which is
contrary to this Agreement or applicable law. The Collateral Agent shall be
entitled to rely upon any written notices, statements, certificates, orders or
other documents or any telephone message believed by it in good faith to be
genuine and correct and to have been signed, sent or made by the proper Person
(as defined in the Purchase Agreement), and with respect to all matters
pertaining to this Agreement and its duties hereunder or thereunder, upon advice
of counsel selected by it.
5.2
Resignation of Collateral Agent. The Collateral Agent may resign from the
performance of all its functions and duties hereunder at any time by giving at
least ten (10) business days prior written notice to the Company and the
Purchaser. Such resignation shall take effect upon the acceptance by a successor
Collateral Agent of appointment pursuant to clauses (b) and (c) below or as
otherwise provided below. The Purchaser may, by written consent, remove the
Collateral Agent from all its functions and duties hereunder.
(a)
Upon any such notice of resignation or removal, the Purchaser shall appoint a
successor collateral agent. Upon the acceptance of any appointment as Collateral
Agent hereunder by a successor agent, such successor collateral agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the collateral agent, and the Collateral Agent shall be discharged
from its duties and obligations under this Agreement. After the Collateral
Agents resignation or removal hereunder as the collateral agent, the provisions
of this Section 5(a) shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Collateral Agent under this
Agreement.
(b)
If a successor collateral agent shall not have been so appointed within ten (10)
business days of receipt of a written notice of resignation or removal, the
Collateral Agent shall then appoint a successor collateral agent who shall serve
as the Collateral Agent until such time, if any, as the Purchaser appoints a
successor collateral agent as provided above.
(c)
In the event that a successor Collateral Agent is appointed pursuant to the
provisions of this Section 5.2 that is not a Purchaser or an affiliate of any
Purchaser ( the Collateral Agent (or its
successor)notifies the Company that they or it wants to appoint such a successor
Collateral Agent pursuant to the terms of this Section 5.2), the Company
covenants and agrees to promptly take all actions reasonably requested by the
Purchaser or the Collateral Agent (or its successor), as applicable, from time
to time, to secure a successor Collateral Agent satisfactory to the requesting
part(y)(ies), in their sole discretion, including, without limitation, by paying
all reasonable and customary fees and expenses of such successor Collateral
Agent, by having the Company agree to indemnify any successor Collateral Agent
pursuant to reasonable and customary terms and by the Company executing a
collateral agency agreement or similar agreement and/or any amendment hereto
reasonably requested or required by the successor Collateral Agent.
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5.3
Survival of Warranties. The representations, warranties and covenants of
the Company and the Collateral Agent contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of any of the Collateral Agent or the Company, as the case may be.
5.4
Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
5.5
Governing Law. This Agreement shall be governed by and construed under
the internal laws of the State of Nevada as applied to agreements among Nevada
residents entered into and to be performed entirely within Nevada, without
reference to principles of conflict of laws or choice of laws and, to the extent
applicable, by federal law.
5.6
Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.7
Headings. The headings and captions used in this Agreement are
used only for convenience and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
5.8
Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) at the time of personal delivery, if delivery is in
person; (ii) one (1) business day after deposit with an express overnight
courier for United States deliveries, or two (2) business days after such
deposit for deliveries outside of the United States, with proof of delivery from
the courier requested; or (iii) three (3) business days after deposit in the
United States mail by certified mail (return receipt requested) for United
States deliveries when addressed to the party to be notified at the address
indicated for such party on the signature page hereto, or, or at such other
address as any party or the Company may designate by giving ten (10) days
advance written notice to all other parties.
5.9
Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
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5.10
Further Assurances. From and after the date of this Agreement,
upon the request of the Collateral Agent or the Company, the Company and the
Collateral Agent shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
5.9
Waiver and Amendment. Any of the terms and provisions of this Agreement
may be waived at any time by the party that is entitled to the benefit thereof,
but only by a written instrument executed by such party. This Agreement may be
amended only by an agreement in writing executed by the parties.
5.10 Delay
or Omission. No delay or omission to exercise any right, power or remedy
accruing to any party hereto shall impair any such right, power or remedy of
such party nor be construed to be a waiver of any such right, power or remedy
nor constitute any course of dealing or performance hereunder.
[SIGNATURE PAGE IMMEDIATELY FOLLOWS]
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IN
WITNESS WHEREOF, the parties have caused this SECURITY AGREEMENT to be executed
and delivered as of the date first above written.
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COMPANY: |
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WORLD MOTO, INC. |
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a Nevada corporation |
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By:
____________________________________________ |
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Name: |
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Title:
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Agreed and accepted by:
COLLATERAL AGENT:
REDWOOD MANAGEMENT, LLC
By:
___________________________________
Name:
Title:
[SECURITY AGREEMENT]
Agreed and accepted by:
PURCHASER:
REDWOOD MANAGEMENT, LLC
By:
___________________________________
Name:
Title:
[SECURITY AGREEMENT]
Schedule 4.1
Existing Debentures
Debentures, dated April 4, 2014, in the aggregate principal
amount of $543,479, issued to Dominion Capital LLC and Redwood Management, LLC.
Debentures, dated December 11, 2014, in the aggregate principal
amount of $543,479, issued to Dominion Capital LLC and Redwood Management, LLC.
2