INVESTMENT AGREEMENT
Exhibit 99.1
INVESTMENT
AGREEMENT (this "Investment Agreement”) dated as of June 19, 2009 by and between
Artfest International, Inc., a Delaware corporation (the "Company"), and Sunny
Isles Venture, LLC, a Florida limited liability company (the
"Investor").
WHEREAS,
the parties desire that, upon the terms and subject to the conditions contained
herein, the Investor will invest up to Five Million Dollars ($5,000,000) in 12%
Convertible Preferred Stock (the “Preferred Stock”);
WHEREAS,
such investments will be made in reliance upon the provisions of Section 4(2)
under the Securities Act of 1933, as amended (the "1933 Act"), Rule 506 of
Regulation D, and the rules and regulations promulgated thereunder, and/or upon
such other exemption from the registration requirements of the 1933 Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder; and
NOW
THEREFORE, in consideration of the foregoing recitals, which shall be considered
an integral part of this Agreement, the covenants and agreements set forth
hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree as follows:
SECTION
1. DEFINITIONS.
As used
in this Agreement, the following terms shall have the following meanings
specified or indicated below, and such meanings shall be equally applicable to
the singular and plural forms of such defined terms.
“1933 Act” shall have
the meaning set forth in the preamble of this agreement.
“1934 Act” shall mean
the Securities Exchange Act of 1934, as it may be amended.
“Common Stock” shall
mean the Company's Common Stock, $.001 par value per share.
“Execution Date” shall
mean the date indicated in the preamble to this Investment
Agreement.
“Investor” shall have
the meaning indicated in the preamble of this Agreement.
“Open Period” shall
mean the period of one month following the Closing Date.
“Principal Market”
shall mean the American Stock Exchange, Inc., the National Association of
Securities Dealers, Inc. Over-the-Counter Bulletin Board, the NASDAQ National
Market System or the NASDAQ SmallCap Market, whichever is the principal market
on which the Common Stock is listed.
“Purchase Amount”
shall mean the total amount being paid by the Investor on a particular Closing
Date to purchase the Preferred Stock.
“Purchase Price” shall
mean the face value of the Preferred Stock.
“Put” shall have the meaning set forth in Section 2(B)(1)
hereof.
“Put Notice” shall
mean a written notice sent to the Investor by the Company stating the Put Amount
in U.S. Dollars the Company intends to sell to the Investor pursuant to the
terms of the Investment Agreement .
“Put Notice Date”
shall mean the Trading Day, as set forth below, immediately following the day on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on (a) the
Trading Day it is received by facsimile or otherwise by the Investor if such
notice is received prior to 9:00 am Eastern Time, or (b) the immediately succeeding
Trading Day if it is received by facsimile or otherwise after 9:00 am Eastern
Time on a Trading Day. No Put Notice may be deemed delivered on a day
that is not a Trading Day.
“Put Restriction”
shall mean the days between the beginning of the Pricing Period and Closing
Date. During this time, the Company shall not be entitled to deliver
another Put Notice.
“SEC” shall mean the
U.S. Securities & Exchange Commission.
“Securities” shall
mean the Preferred Stock issued pursuant to the terms of this Investment
Agreement.
“Shares” shall mean
the shares of the Company’s Common Stock.
“Trading Day” shall
mean any day on which the Principal Market for the Common Stock is open for
trading, from the hours of 9:30 am until 4:00 pm.
SECTION
2. PURCHASE AND SALE OF THE PREFERRED STOCK.
(A)
PURCHASE AND SALE OF PREFERRED STOCK. Subject to the terms and conditions set
forth herein, the Company will issue and sell to the Investor, and the Investor
will, subject to the terms and conditions herein, purchase from the Company, 12%
Convertible Preferred Stock up to an aggregate Purchase Price of Two Hundred
Thousand Dollars ($200,000) and a total of Five Million Dollars ($5,000,000)
face value in 12% Convertible Preferred Stock. The Certificate of Designation
with respect to the 12% Convertible Preferred Stock is attached hereto as
Exhibit A.
(B)
DELIVERY OF PUT NOTICES.
(I)
Subject to the terms and conditions of this Agreement, and from time to time
during the Open Period, the Company may, in its sole discretion, deliver a Put
Notice to the Investor which states the dollar amount (designated in U.S.
Dollars) (the "Put Amount"), which the Company intends to sell to the Investor
on a Closing Date (the "Put"). The Put Notice shall be in the form attached
hereto as Exhibit B and incorporated herein by reference. The amount that the
Company shall be entitled to Put to the Investor shall be up to a maximum of Two
Hundred Thousand Dollars ($200,000)(the “Maximum Put Amount”) and minimum of
Fifty Thousand Dollars ($50,000) (the “Minimum Put Amount” and collectively with
the Maximum Put Amount, the "Put Amount"). During the Open Period,
the Company shall not be entitled to submit a Put Notice until after the
previous Closing has been completed.
(C)
CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE THE PREFERRED STOCK.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and the Investor shall not be obligated
to purchase Preferred Stock at a Closing (as defined in this Section 2) unless
each of the following conditions are satisfied:
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(I)
that weighted average daily trading volume for the 30 days prior to the
notice of Maximum Put Amount is at least $40,000 average daily volume, and
that weighted average daily trading volume for the 30 days prior to the
notice of Minimum Put Amount is at least $20,000 average daily
volume;
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(II)
the closing bid price is not less than $.002 on any day for any three
consecutive days during the 30 days prior to the notice of the Put
Amount;
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(III) the
Investor shall have, in a private transaction, assumed at least Twenty
Thousand Dollars ($20,000) with respect to the initial purchase, and
thereafter Thirty Thousand Dollars ($30,000) of the Company’s debt thirty
(30) days prior to the Put and the debt is converted into Shares and the
Shares underlying the debt are delivered to the Holder’s
account;
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(IV)
at all times during the period beginning on each Put Notice Date and
ending on and including the applicable Closing Date, the Common Stock
shall have been listed on the Principal Market and shall not have been
suspended from trading thereon for a period of two (2) consecutive Trading
Days during the Open Period and the Company shall not have been notified
of any pending or threatened proceeding or other action to suspend the
trading of the Common Stock;
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(V)
the Company has complied with its obligations and an event of default has
not occurred under this Agreement or any other agreement executed in
connection herewith which has not been cured prior to delivery of the
Investor’s Put Notice Date;
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(VI)
no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or
abandoned, prohibiting the purchase or the issuance of the
Securities;
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(VII) there
must be sufficient authorized but unissued Shares available for issuance
at the time of each transaction to complete such
transaction.
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If any of the events described in
clauses (I) through (VIII) above occurs during a Pricing Period, then the
Investor shall have no obligation to purchase the Put Amount of Common Stock set
forth in the applicable Put Notice.
(D)
MECHANICS OF PURCHASE OF PREFERRED STOCK BY INVESTOR. Subject to the
satisfaction of the conditions set forth in this Section 2, the closing of the
purchase by the Investor of Preferred Stock (a "Closing") shall occur on the
date which is no later than ten (10) Trading Days following the applicable Put
Notice Date (each a "Closing Date"). Prior to each Closing Date, (I) the Company
shall deliver to the Investor pursuant to this Agreement, Preferred Stock issued
to the Investor on such date and registered in the name of the Investor; and
(II) the Investor shall deliver to the Company the Purchase Price to be paid for
the Preferred Stock, determined as set forth in this Section 2.
(E) LIMITATION
ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this
Agreement, in no event shall the Investor be entitled to purchase that number of
shares of Preferred Stock, which when added to the sum of the number of shares
of Common Stock beneficially owned (as such term is defined under Section 13(d)
and Rule 13d-3 of the 1934 Act) (the “Shares Owned”), by the Investor (of which
the Investor shall provide notice to the Company of the Shares Owned prior to
each transaction), would exceed 4.99% of the number of shares of Common Stock
outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j)
of the 1934 Act.
SECTION
3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The
Investor represents and warrants to the Company, and covenants,
that:
(A)
SOPHISTICATED INVESTOR. The Investor has, by reason of its business and
financial experience, such knowledge, sophistication and experience in financial
and business matters and in making investment decisions of this type that it is
capable of (I) evaluating the merits and risks of an investment in the
Securities and making an informed investment decision; (II) protecting its own
interest; and (III) bearing the economic risk of such investment for an
indefinite period of time.
(B)
AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Investor and is a valid and binding
agreement of the Investor enforceable against the Investor in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(C)
ACCREDITED INVESTOR. Investor is an "Accredited Investor" as that term is
defined in Rule 501(a) of Regulation D of the 1933 Act.
(D) NO
CONFLICTS. The execution, delivery and performance of the documents executed by
the Investor and the consummation by the Investor of the transactions
contemplated hereby and thereby will not result in a violation of any
organizational documents of the Investor.
(E)
OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to the
Company's business, finance and operations which it has requested. The Investor
has had an opportunity to discuss the business, management and financial affairs
of the Company with the Company's management.
(F)
INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own
account for investment purposes and not with a view towards distribution and
agrees to resell or otherwise dispose of the Securities solely in accordance
with the registration provisions of the 1933 Act (or pursuant to an exemption
from such registration provisions). The proceeds of any sale of the debt
converted to Shares as a condition to any Put are not used to purchase the
Preferred Stock in the same Put.
(G) NO
REGISTRATION AS A DEALER. The Investor is not and will not be required to be
registered as a "dealer" under the 1934 Act, either as a result of its execution
and performance of its obligations under this Agreement or
otherwise.
(H) GOOD
STANDING. The Investor is a Limited Liability Company, duly
organized, validly existing and in good standing in the State of
Florida.
(I) TAX
LIABILITIES. The Investor understands that it is liable for its own
tax liabilities.
SECTION
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as
set forth in the Schedules attached hereto, or as disclosed on the Company's SEC
Documents, the Company represents and warrants to the Investor
that:
(A)
ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware, and
has the requisite corporate power and authorization to own its properties and to
carry on its business as now being conducted. Both the Company and the companies
it owns or controls (“Subsidiaries”) are duly qualified to do business and are
in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under this Investment Agreement.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
5
(B)
AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
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(I)
The Company has the requisite corporate power and authority to enter into
and perform this Investment Agreement and to issue the Preferred Stock and
the Common Stock underlying the Preferred Stock in accordance with the
terms hereof and thereof.
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(II)
The execution and delivery of the Preferred Stock and the Common Stock
underlying the Preferred Stock by the Company and the consummation by it
of the transactions contemplated hereby and thereby, including without
limitation the reservation for issuance and the issuance of the Common
Stock underlying the Preferred Stock pursuant to this Agreement, have been
duly and validly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its Board of
Directors, or its shareholders.
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(III)
The Investment Agreement has been duly and validly executed and delivered
by the Company.
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(IV)
The Investment Agreement constitutes the valid and binding obligation of
the Company enforceable against the Company in accordance with their
terms, except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of creditors' rights and
remedies.
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(C)
CAPITALIZATION. As of the date hereof, the authorized capital stock of the
Company consists of 500,000,000 shares of Common Stock, $.001 par value per
share, of which as of the date hereof, four hundred ten million (410,000,000)
shares are issued and outstanding; 2,000,000 shares of Preferred Stock
authorized, none issued, par value $.001, and zero shares reserved for issuance
pursuant to options, warrants and other convertible securities. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and non-assessable.
Except as
disclosed in the Company's publicly available filings with the SEC:
Except as
disclosed in Schedule
4(C) herein, (I) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (II) there are no outstanding debt
securities; (III) there are no outstanding shares of capital stock, options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (IV) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act; (V) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (VI) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; (VII) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (VIII) there is no dispute as to the
classification of any shares of the Company's capital stock.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
6
The
Company has furnished to the Investor, or the Investor has had access through
XXXXX to, true and correct copies of the Company's Amended and Restated
Certificate of Incorporation, as in effect on the date hereof (the "Certificate
of Incorporation"), and the Company's By-laws, as in effect on the date hereof
(the "By-laws"), and the terms of all securities convertible into or exercisable
for Common Stock and the material rights of the holders thereof in respect
thereto.
(D)
ISSUANCE OF SHARES. The Company has reserved (or will reserve prior to each
transaction) sufficient shares of the Common Stock underlying the Preferred
Stock for issuance pursuant to this Agreement, which have been duly authorized
and reserved those shares of Common Stock for issuance pursuant to this
Investment Agreement. Upon issuance in accordance with this
Investment Agreement, the Securities will be validly issued, fully
paid for and non-assessable and free from all taxes, liens and charges with
respect to the issue thereof. In the event the Company cannot reserve a
sufficient number of shares of Common Stock for issuance pursuant to this
Investment Agreement, the Company will use its best efforts to authorize and
reserve for issuance the number of shares of Common Stock required for the
Company to perform its obligations hereunder as soon as reasonably
practicable.
(E) NO
CONFLICTS. The execution, delivery and performance of the Investment Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not (I) result in a violation of the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the
By-laws; or (II) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or to the Company's knowledge result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state
securities laws and regulations and the rules and regulations of the Principal
Market or principal securities exchange or trading market on which the Common
Stock is traded or listed) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected. Neither the Company nor its Subsidiaries is in violation of
any term of, or in default under, the Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the By-laws or their organizational charter or
by-laws, respectively, or any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except for possible
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations that would not individually or in the aggregate have or constitute a
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be conducted, in violation of any law, statute,
ordinance, rule, order or regulation of any governmental authority or agency,
regulatory or self-regulatory agency, or court, except for possible violations
the sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. All consents, authorizations, permits, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date hereof
and are in full force and effect as of the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company is not, and will not be, in violation of the
listing requirements of the Principal Market as in effect on the date hereof and
on each of the Closing Dates and is not aware of any facts which would
reasonably lead to delisting of the Common Stock by the Principal Market in the
foreseeable future.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
7
(F) SEC
DOCUMENTS; FINANCIAL STATEMENTS. As of the date hereof, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Investor or its representatives,
or they have had access through XXXXX to, true and complete copies of the SEC
Documents. As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, by a firm that is a member of the
Public Companies Accounting Oversight Board ("PCAOB") consistently applied,
during the periods involved (except (I) as may be otherwise indicated in such
financial statements or the notes thereto, or (II) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 4 of this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly disclosed prior
to the date hereof and any material, nonpublic information provided to the
Investor by the Company or its Subsidiaries or any of their officers, directors,
employees or agents prior to any Closing Date shall be publicly disclosed by the
Company prior to such Closing Date.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
8
(G)
ABSENCE OF CERTAIN CHANGES. Except as otherwise set forth in the SEC Documents,
the Company does not intend to change the business operations of the Company in
any material way. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company or its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy
proceedings.
(H)
ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS. Except as set forth in the
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
in which an adverse decision could have a Material Adverse Effect.
(I)
ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF PREFERRED STOCK. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an
arm's length purchaser with respect to the transactions contemplated hereby and
thereby. The Company further acknowledges that the Investor is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Investment Agreement and the transactions contemplated hereby and
thereby and any advice given by the Investor or any of its respective
representatives or agents in connection with the Investment Agreement and the
transactions contemplated hereby and thereby is merely incidental to the
Investor's purchase of the Securities, and is not being relied on by the
Company. The Company further represents to the Investor that the Company's
decision to enter into the Investment Agreement has been based solely on the
independent evaluation by the Company and its representatives.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
9
(J) NO
UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set
forth in the SEC Documents, as of the date hereof, no event, liability,
development or circumstance has occurred or exists, or to the Company's
knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
(K)
EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved
in any union labor dispute nor, to the knowledge of the Company or any of its
Subsidiaries, is any such dispute threatened. Neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that relations with their employees are good. No
executive officer (as defined in Rule 501(f) of the 0000 Xxx) has notified the
Company that such officer intends to leave the Company's employ or otherwise
terminate such officer's employment with the Company.
(L)
INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct their respective businesses as now conducted. Except
as set forth in the SEC Documents, none of the Company's trademarks, trade
names, service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights necessary to conduct its
business as now or as proposed to be conducted have expired or terminated, or
are expected to expire or terminate within two (2) years from the date of this
Agreement. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service xxxx registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others and, except as set forth in the SEC Documents,
there is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken commercially reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
10
(M)
ENVIRONMENTAL LAWS. The Company and its Subsidiaries (I) are, to the knowledge
of the management and directors of the Company and its Subsidiaries, in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"); (II) have, to the knowledge of the
management and directors of the Company, received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses; and (III) are in compliance, to the knowledge of
the management and directors of the Company, with all terms and
conditions of any such permit, license or approval where, in each of the three
(3) foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
(N)
TITLE. The Company and its Subsidiaries have good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in the SEC Documents or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(O)
INSURANCE. Each of the Company's Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company reasonably believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any of its Subsidiaries has been refused any
insurance coverage sought or applied for and neither the Company nor its
Subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(P)
REGULATORY PERMITS. The Company and its Subsidiaries have in full force and
effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
(Q)
INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurance that (I) transactions are executed in accordance with management's
general or specific authorizations; (II) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles by a firm with membership to the PCAOB and to
maintain asset accountability; (III) access to assets is permitted only in
accordance with management's general or specific authorization; and (IV) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
11
(R) NO
MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
(S) TAX
STATUS. The Company and each of its Subsidiaries has made or filed all United
States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(T)
CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at least
ten (10) days prior to the date hereof and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from disinterested
third parties and other than the grant of stock options disclosed in the SEC
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or
partner.
(U)
DILUTIVE EFFECT. The Company understands and acknowledges that the number of
shares of Common Stock issuable upon conversion of Preferred Stock pursuant to
this Agreement will increase in certain circumstances including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the period between the Effective Date and the end of the
Open Period. The Company's executive officers and directors have studied and
fully understand the nature of the transactions contemplated by this Agreement
and recognize that they have a potential dilutive effect on the shareholders of
the Company. The Board of Directors of the Company has concluded, in its good
faith business judgment, and with full understanding of the implications, that
such issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in the
Investment Agreement, its obligation to issue shares of Common Stock underlying
the Preferred Stock pursuant to this Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
12
(V) NO
GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any
person acting on its behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Common Stock to be offered as set forth in this
Agreement.
(W) NO
BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS. Except as
disclosed in writing to the Holder, there are no brokers, finders or financial
advisory fees or commissions will be payable by the Company, its agents or
Subsidiaries, with respect to the transactions contemplated by this
Agreement.
SECTION
5. COVENANTS OF THE COMPANY
(A) BEST
EFFORTS. The Company shall use all commercially reasonable efforts to timely
satisfy each of the conditions set forth in this Agreement.
(B) BLUE
SKY. The Company shall, at its sole cost and expense, on or before the
applicable due date with respect to each of the Closings, take such action as
the Company shall reasonably determine is necessary to qualify the Securities
for, or obtain exemption for the Securities for, sale to the Investor at each of
the Closings pursuant to this Agreement under applicable securities or "Blue
Sky" laws of such states of the United States, as reasonably specified by the
Investor, and shall provide evidence of any such action so taken to the Investor
on or prior to the Closing Date.
(C)
REPORTING STATUS. Until one of the following occurs, the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status, or take an action or fail to take any
action, which would terminate its status as a reporting company under the 1934
Act: (i) this Agreement terminates pursuant to Section 8 and the Investor has
the right to sell all of the shares of Common Stock underlying the Preferred
Stock without restrictions pursuant to Rule 144 promulgated under the 1933 Act,
or such other exemption (ii) the date on which the Investor has sold all the
shares of Common Stock underlying the Preferred Stock and this Agreement has
been terminated pursuant to Section 8.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
13
(D) USE
OF PROCEEDS. The Company will use the proceeds from the sale of the Preferred
Stock for general corporate and working capital purposes and acquisitions or
assets, businesses or operations or for other purposes that the Board of
Directors, in its good xxxxx xxxx to be in the best interest of the
Company.
(E)
FINANCIAL INFORMATION. During the Open Period, the Company agrees to make
available to the Investor via XXXXX or other electronic means the following
documents and information on the forms set forth: (I) within five (5) Trading
Days after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any Registration Statements or amendments filed pursuant to the 1933 Act; (II)
copies of any notices and other information made available or given to the
shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders; and (III) within two (2)
calendar days of filing or delivery thereof, copies of all documents filed with,
and all correspondence sent to, the Principal Market, any securities exchange or
market, or the National Association of Securities Dealers, Inc., unless such
information is material nonpublic information.
(F)
RESERVATION OF SHARES. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the issuance of the shares of
Common Stock underlying the Preferred Stock to the Investor as required
hereunder. In the event that the Company determines that it does not have a
sufficient number of authorized shares of Common Stock to reserve and keep
available for issuance as described in this Section 5(F) in sufficient time
prior to the need to issue such shares of Common Stock, the Company shall use
all commercially reasonable efforts to increase the number of authorized shares
of Common Stock by seeking shareholder approval for the authorization of such
additional shares.
(G)
TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two (2) years, shareholders who beneficially own 5% or more of the
Common Stock, or Affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (I) customary employment arrangements and benefit programs on
reasonable terms, (II) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a disinterested third party other than such Related Party, or
(III) any agreement, transaction, commitment or arrangement which is approved by
a majority of the disinterested directors of the Company. For purposes hereof,
any director who is also an officer of the Company or any Subsidiary of the
Company shall not be a disinterested director with respect to any such
agreement, transaction, commitment or arrangement. "Affiliate" for purposes
hereof means, with respect to any person or entity, another person or entity
that, directly or indirectly, (I) has a 5% or more equity interest in that
person or entity, (II) has 5% or more common ownership with that person or
entity, (III) controls that person or entity, or (IV) is under common control
with that person or entity. "Control" or "Controls" for purposes hereof means
that a person or entity has the power, directly or indirectly, to conduct or
govern the policies of another person or entity.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
14
(H)
FILING OF FORM 8-K. On or before the date which is four (4) Trading Days after
the Execution Date, the Company shall file a Current Report on Form 8-K with the
SEC describing the terms of the transaction contemplated by the Investment
Agreement in the form required by the 1934 Act, if such filing is
required.
(I)
CORPORATE EXISTENCE. The Company shall use all commercially reasonable efforts
to preserve and continue the corporate existence of the Company.
(J)
NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A
PUT. The Company shall promptly notify the Investor upon the occurrence of any
of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Securities: (I) receipt of any
request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (II) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that
purpose; (III) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Securities for sale in any jurisdiction or the initiation or notice of any
proceeding for such purpose; (IV) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
a Registration Statement, 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 not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (V) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events in this Section 5(J).
(K) REIMBURSEMENT. If
(I) the Investor becomes involved in any capacity in any action, proceeding or
investigation brought by any shareholder of the Company, in connection with or
as a result of the consummation of the transactions contemplated by the
Investment Agreement, or if the Investor is impleaded in any such action,
proceeding or investigation by any person (other than as a result of a breach of
the Investor’s representations and warranties set forth in this Agreement); or
(II) the Investor becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Investment Agreement (other than as a result of a breach of
the Investor’s representations and warranties set forth in this Agreement), or
if this Investor is impleaded in any such action, proceeding or investigation by
any person, then in any such case, the Company will reimburse the Investor for
its reasonable legal and other expenses (including the cost of any investigation
and preparation) incurred in connection therewith, as such expenses are
incurred. In addition, other than with respect to any matter in which the
Investor is a named party, the Company will pay to the Investor the charges, as
reasonably determined by the Investor, for the time of any officers or employees
of the Investor devoted to appearing and preparing to appear as witnesses,
assisting in preparation for hearings, trials or pretrial matters, or otherwise
with respect to inquiries, hearing, trials, and other proceedings relating to
the subject matter of this Agreement. The reimbursement obligations of the
Company under this section shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliates of the Investor that are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees,
attorneys, accountants, auditors and controlling persons (if any), as the case
may be, of Investor and any such affiliate, and shall be binding upon and inure
to the benefit of any successors of the Company, the Investor and any such
affiliate and any such person.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
15
(L)
ACKNOWLEDGEMENT OF TERMS. The Company hereby represents and warrants
to the Investor that: (i) it is voluntarily entering into this Agreement of its
own freewill, (ii) it is not entering this Agreement under economic duress,
(iii) the terms of this Agreement are reasonable and fair to the Company, and
(iv) the Company has had independent legal counsel of its own choosing review
this Agreement, advise the Company with respect to this Agreement, and represent
the Company in connection with this Agreement.
SECTION
6. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The
obligation hereunder of the Company to issue and sell the Securities to the
Investor is further subject to the satisfaction, at or before each Closing Date,
of each of the following conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(A) The
Investor shall have executed this Investment Agreement delivered the same to the
Company.
(B) No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
16
SECTION
7. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The
obligation of the Investor hereunder to purchase Preferred Stock is subject to
the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
(A) The
Company shall have executed the Investment Agreement and delivered the same to
the Investor.
(B) The
Common Stock shall be authorized for quotation on the Principal Market and
trading in the Common Stock shall not have been suspended by the Principal
Market or the SEC, at any time beginning on the date hereof and through and
including the respective Closing Date (excluding suspensions of not more than
one (1) Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing).
(C) The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the applicable Closing Date as though made at that
time and the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Investment Agreement to be
performed, satisfied or complied with by the Company on or before such Closing
Date. The Investor may request an update as of such Closing Date regarding the
representation contained in Section 4(C) above.
(D) No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Investment Agreement.
(E) The
conditions to such Closing set forth in Section 2 shall have been satisfied on
or before such Closing Date.
(F) The
Company shall have confirmed the receipt of the Put Notice.
SECTION
8. TERMINATION. This Agreement shall terminate upon any of the following
events:
(I) when
the Investor has purchased an aggregate of Five Million Dollars ($5,000,000) in
Preferred Stock pursuant to this Investment Agreement; or,
(II) on
the date which is five years from the date herein; or,
INVESTMENT
AGREEMENT
Artfest
International, Inc.
17
(III)
upon written notice of the Company to the Investor. Any and all
shares, or penalties, if any, due under this Agreement shall be immediately
payable and due upon termination of the Line.
(IV) upon
written notice of the Investor to the Company. Any and all shares, or
penalties, if any, due under this Agreement shall be immediately payable and due
upon termination of the Investment Agreement.
SECTION
9. SUSPENSION
This
Agreement shall be suspended upon any of the following events, and shall remain
suspended until such event is rectified:
(I) the
trading of the Common Stock is suspended by the SEC, the Principal Market or
FINRA for a period of two (2) consecutive Trading Days during the Open Period;
or,
(II) The
Common Stock ceases to be registered under the 1934 Act or listed or traded on
the Principal Market. Immediately upon the occurrence of one of the
above-described events, the Company shall send written notice of such event to
the Investor.
SECTION
10. INDEMNIFICATION.
In
consideration of the parties mutual obligations set forth in the Transaction
Documents, each of the parties (in such capacity, an "Indemnitor") shall defend,
protect, indemnify and hold harmless the other and all of the other party's
shareholders, officers, directors, employees, counsel, and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and reasonable expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (I)
any misrepresentation or breach of any representation or warranty made by the
Indemnitor or any other certificate, instrument or document contemplated hereby
or thereby; (II) any breach of any covenant, agreement or obligation of the
Indemnitor contained in the Investment Agreement or any other certificate,
instrument or document contemplated hereby or thereby; or (III) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Investment Agreement or any other certificate, instrument or
document contemplated hereby or thereby, except insofar as any such
misrepresentation, breach or any untrue statement, alleged untrue statement,
omission or alleged omission is made in reliance upon and in conformity with
information furnished to Indemnitor which is specifically intended for use in
the preparation of any such Registration Statement, preliminary prospectus,
prospectus or amendments to the prospectus. To the extent that the foregoing
undertaking by the Indemnitor may be unenforceable for any reason, the
Indemnitor shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to any cause
of action or similar rights Indemnitor may have, and any liabilities the
Indemnitor or the Indemnitees may be subject to.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
18
SECTION
11. GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION.
All disputes arising under this
agreement shall be governed by and interpreted in accordance with the laws of
the State of Florida, without regard to principles of conflict of
laws. The parties to this agreement will submit all disputes arising
under this agreement to arbitration in Miami-Dade County, Florida before a
single arbitrator of the American Arbitration Association
(“AAA”). The arbitrator shall be selected by application of the rules
of the AAA, or by mutual agreement of the parties, except that such arbitrator
shall be an attorney admitted to practice law in the State of
Florida. No party to this agreement will challenge the jurisdiction
or venue provisions as provided in this section. No party to this
agreement will challenge the jurisdiction or venue provisions as provided in
this section. Nothing contained herein shall prevent the party from
obtaining an injunction.
(B) LEGAL
FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the Investment
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
the accountants and other experts, if any, and all other expenses incurred by
such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. Any attorneys' fees and expenses incurred by
either the Company or the Investor in connection with the preparation,
negotiation, execution and delivery of any amendments to this Agreement or
relating to the enforcement of the rights of any party, after the occurrence of
any breach of the terms of this Agreement by another party or any default by
another party in respect of the transactions contemplated hereunder, shall be
paid on demand by the party which breached the Agreement and/or defaulted, as
the case may be. The Company shall pay all stamp and other taxes and duties
levied in connection with the issuance of any Securities.
(C)
COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original
signature.
(D)
HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
19
(E)
SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(F)
ENTIRE AGREEMENT; AMENDMENTS. This Agreement is the FINAL AGREEMENT between the
Company and the Investor with respect to the terms and conditions set forth
herein, and, the terms of this Agreement may not be contradicted by evidence of
prior, contemporaneous, or subsequent oral agreements of the
Parties. No provision of this Agreement may be amended other than by
an instrument in writing signed by the Company and the Investor, and no
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought. The execution and delivery of the
Investment Agreement shall not alter the force and effect of any other
agreements between the Parties, and the obligations under those
agreements.
(G)
NOTICES. Any notices or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have
been delivered (I) upon receipt, when delivered personally; (II) upon receipt,
when sent by facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (III) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall provided to each other party
and updated when applicable.
Each
party shall provide five (5) days prior written notice to the other party of any
change in address or facsimile number.
(H) NO
ASSIGNMENT. This Agreement may not be assigned.
(I) NO
THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the
parties hereto and is not for the benefit of, nor may any provision hereof be
enforced by, any other person, except that the Company acknowledges that the
rights of the Investor may be enforced by its general partner.
(J)
SURVIVAL. The representations and warranties of the Company and the Investor
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings and the termination of this
Agreement.
(K)
PUBLICITY. The Company and the Investor shall consult with each other in issuing
any press releases or otherwise making public statements with respect to the
transactions contemplated hereby and no party shall issue any such press release
or otherwise make any such public statement without the prior consent of the
other party, which consent shall not be unreasonably withheld or delayed, except
that no prior consent shall be required if such disclosure is required by law,
in which such case the disclosing party shall provide the other party with prior
notice of such public statement. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of the Investor without the prior consent
of the Investor, except to the extent required by law. The Investor acknowledges
that this Agreement and all or part of the Investment Agreement may be deemed to
be "material contracts" as that term is defined by Item 601(b)(10) of Regulation
S-K, and that the Company may therefore be required to file such documents as
exhibits to reports or registration statements filed under the 1933 Act or the
1934 Act. The Investor further agrees that the status of such
documents and materials as material contracts shall be determined solely by the
Company, in consultation with its counsel. The Company shall not, in
either a press release or 1934 Act filing, infer that the Company is guaranteed
the entire Five Million Dollars ($5,000,000) but that if and only if all
conditions are met and the Investment Agreement is not terminated, the Company
may receive up to Five Million Dollars ($5,000,000) in the five year time
period.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
20
(L)
FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(M) NO
STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party, as the parties
mutually agree that each has had a full and fair opportunity to review this
Agreement and seek the advice of counsel on it.
(N)
REMEDIES. The Investor shall have all rights and remedies set forth in this
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which the
Investor has by law. Any person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any default or breach
of any provision of this Agreement, including the recovery of reasonable
attorneys fees and costs, and to exercise all other rights granted by
law.
(O)
PRICING OF COMMON STOCK. For purposes of this Agreement, the bid price of the
Common Stock shall be as reported on Bloomberg.
SECTION
12. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The
Company shall not disclose non-public information to the Investor, its advisors,
or its representatives.
(b)
Nothing herein shall require the Company to disclose non-public information to
the Investor or its advisors or representatives, and the Company represents that
it does not disseminate non-public information to any investors who purchase
stock in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 12 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
21
ARTICLE
13 ACKNOWLEDGEMENTS OF THE PARTIES.
Notwithstanding
anything in this Agreement to the contrary, the parties hereto hereby
acknowledge and agree to the following: (i) the Investor makes no
representations or covenants that it will not engage in trading in the
securities of the Company, other than the Investor will not sell short the
Company's common stock at any time during this Agreement; (ii) the Company
shall, by 8:30 a.m. Boston Time on the date which is four (4) trading days after
the execution of this Agreement, file a current report on Form 8-K disclosing
the material terms of the transactions contemplated hereby and in the other
Investment Agreement; (iii) the Company has not and shall not provide material
non-public information to the Investor unless prior thereto the Investor shall
have executed a written agreement regarding the confidentiality and use of such
information; and (iv) the Company understands and confirms that the Investor
will be relying on the acknowledgements set forth in clauses (i) through (iii)
above if the Investor effects any transactions in the securities of the
Company.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
22
SIGNATURE
PAGE OF INVESTMENT AGREEMENT
Your
signature on this Signature Page evidences your agreement to be bound by the
terms and conditions of the Investment Agreement as of the date first written
above.
The
undersigned signatory hereby certifies that he has read and understands the
Investment Agreement, and the representations made by the undersigned in this
Investment Agreement are true and accurate, and agrees to be bound by its
terms.
SUNNY
ISLES VENTURE, LLC
By: /s/ Ben
Kaplan_______________________
Xxx
Xxxxxx, managing Member
ARTFEST
INTERNATIONAL, INC.
By: /s/
Xxxxxx Vakser___________________
Xxxxxx
Xxxxxx, CEO
INVESTMENT
AGREEMENT
Artfest
International, Inc.
23
LIST OF
EXHIBITS
| EXHIBIT A | Certificate of Designation of Preferred Stock | ||
| EXHIBIT B | Put Notice | ||
INVESTMENT
AGREEMENT
Artfest
International, Inc.
24
EXHIBIT
A
Series
A 12% Convertible Preferred Shares of Artfest International, Inc.
The
Corporation’s Board of Directors created a new series of stock to be known as
Series A Convertible Preferred Stock consisting of 500,000 shares “Series A
Convertible Preferred Stock” having the preferences, limitations and relative
rights set forth below:
(1) Designation and
Rank. The series shall be designated the "Series A Convertible
Preferred Stock" ("Series A Convertible Preferred") and shall consist of 500,000
shares. The Series A Convertible Preferred and any other series of Preferred
Stock authorized by the Board of Directors of this Corporation are hereinafter
referred to as "Preferred Stock" or "Preferred." The Series A Convertible
Preferred shall be senior to the common stock.
(2) Conversion into Common
Stock.
(a) Right
to Convert. Each share of Series A Convertible Preferred shall be convertible,
at the option of the holder thereof, at any time after six (6) months from the
date of issuance (the "Conversion Date") into a number of fully paid and
non-assessable shares of Common Stock based upon the price per share of the
Common stock, determined based on the average of the Corporation’s common stock
for each of the ten (10) consecutive trading days immediately prior to the date
the holder gives notice to the Corporation of their intent to convert Series A
Convertible Preferred, less a discount of twenty percent (20%) (the "Conversion
Ratio"). Notwithstanding the above calculation, the value of the Common Shares
shall not be below $0.001 per share (the “Floor Price”) for purposes of
Conversion.
(b)
Mechanics of Conversion. Before any holder shall be entitled to
convert, he/she shall surrender the certificate or certificates representing
Series A Convertible Preferred to be converted, duly endorsed or accompanied by
proper instruments of transfer, at the office of the Corporation or its transfer
agent, and shall give written notice to the Corporation at such office that he
elects to convert the same. The Corporation shall, as soon as practicable after
delivery of such certificates, or such agreement and indemnification in the case
of a lost, stolen or destroyed certificate, issue and deliver to such holder of
Series A Convertible Preferred a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled as
aforesaid. The Corporation will round down any fractional share
resulting in the calculation of Common shares. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Convertible Preferred to be
converted.
(c)
Adjustments to Conversion Ratio. - Merger or Reorganization. In case of any
consolidation or merger of the Corporation as a result of which holders of
Common Stock become entitled to receive other stock or securities or property,
or in case of any conveyance of all or substantially all of the assets of the
Corporation to another corporation, the Corporation shall mail to each holder of
Series A Convertible Preferred at least thirty (30) days prior to the
consummation of such event a notice thereof, and each such holder shall have the
option to either (i) convert such holder's shares of Series A Convertible
Preferred into shares of Common Stock pursuant to this Section 2 and thereafter
receive the number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Series A Convertible Preferred would have been entitled
upon such consolidation, merger or conveyance, or (ii) exercise such holder's
rights pursuant to Section 2(a). Unless otherwise set forth by the Board of
Directors, the Conversion Ratio shall not be affected by a stock dividend or
subdivision (stock split) on the Common Stock of the Corporation, or a stock
combination (reverse stock split) or stock consolidation by reseriesification of
the Common Stock. However, once the Series A Convertible Preferred has been
converted to Common Stock, it shall be subject to all corporate actions that
affect or modify the common stock.
(d) No
Impairment. The Corporation will not, by amendment of its Articles of
Incorporation, this Certificate of Designation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 2 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Convertible Preferred against impairment.
(e)
Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock, that in their best estimate, as shall from time to time be
sufficient to effect conversion of the Series A Convertible
Preferred.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
25
(3)
Dividend.
|
(a)
|
Each
share of Series A Convertible Preferred shall pay an annual dividend of
twelve percent (12%) per annum with payments to be paid commencing on the
1st day of July 2010, prorated for the number of days the investment is
owned. At the option of the Corporation, the payment will be made in cash
or Common Stock. If paid in Common Stock, the price per share will be
determined based on the average of the closing price for the Corporation’s
common stock for each of the five (5) consecutive trading days immediately
prior to the payment dates listed
above.
|
(4) Redemption or Conversion at
the Option of the Corporation:.
|
(a)
|
Beginning
July 1, 2009 and on any business day thereafter up to and including
February 1, 2010, the Corporation shall have the right to call for
redemption of all or any part of the Series A Convertible Preferred from
any source of funds legally available therefore. The Corporation shall
affect such redemption by paying in cash or by converting the Series A
Convertible Preferred to Common Shares of the Corporation according to the
terms and conditions stated in Section 2. If for cash, the
redemption shall be for the sum of $12.50 per share of Series A
Convertible Preferred plus any accrued dividend, (the “Series A Redemption
Price”). At least 30 days but not more than 60 days prior to the date of
redemption (the “Redemption Date”), written notice (the “Redemption
Notice”) shall be mailed, first class postage prepaid, to each holder of
record, at the close of business on the business day next preceding the
day on which the notice is given, of the Series A Convertible Preferred to
be redeemed, at the address shown on the records of the Corporation for
such holder. The Redemption Notice shall notify each holder of the
redemption to be effected, specifying the number of shares to be redeemed
from such holder, the Redemption Date and Redemption Price, the place at
which payment may be obtained and calling upon each holder to surrender to
the Corporation, in the manner and at the place designated, such holder’s
certificates representing the shares to be redeemed. Each holder of Series
A Convertible Preferred to be redeemed shall surrender to the Corporation
the certificates representing such shares in the manner and at the place
designated in the Redemption Notice. Beginning on the Redemption Date,
whether or not a certificate evidencing shares of Series A Convertible
Preferred is actually received by the Corporation or not, the holders of
Series A Convertible Preferred shall cease to enjoy any of the rights,
privileges or preferences of the Series A Convertible Preferred, but shall
have only a right to receive the Redemption Price upon surrender of the
certificate or certificates representing the shares of Series A Preferred
Stock. The Redemption Price shall be payable to the order of the person
whose name appears on such certificates as the owner thereof. Each such
surrendered certificate shall be canceled. No share or shares of Series A
Convertible Preferred redeemed or otherwise acquired by the Corporation
shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Corporation shall be authorized to
issue.
|
(5) Liquidation
Preference.
(a) In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary (a "Liquidation"), the assets of the
Corporation available for distribution to its stockholders shall be distributed
as follows:
(1) The
holders of the Series A Convertible Preferred shall be entitled to receive,
prior to the holders of the other series of Preferred Stock and prior and in
preference to any distribution of the assets or surplus funds of the Corporation
to the holders of any other shares of stock of the Corporation by reason of
their ownership of such stock, an amount equal to $1.00 per share with respect
to each share of Series A Convertible Preferred.
(2) If
upon occurrence of a Liquidation the assets and funds thus distributed among the
holders of the Series A Convertible Preferred shall be insufficient to permit
the payment to such holders of the full preferential amount, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed among the holders of the Series A Convertible Preferred ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.
(3) After
payment of the full amounts to the holders of Series A Convertible Preferred as
set forth above in paragraph (1) of this Section 5, any remaining assets of the
Corporation shall be distributed pro rata to the holders of the Series A
Convertible Preferred and Common Stock (in the case of the Series A Convertible
Preferred, on an "as converted" basis into Common Stock).
INVESTMENT
AGREEMENT
Artfest
International, Inc.
26
|
(b)
|
For
purposes of this Section 5, and unless a majority of the holders of the
Series A Convertible Preferred affirmatively vote or agree by written
consent to the contrary, a Liquidation shall be deemed to include (i) the
acquisition of the Corporation by another entity by means of any
transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) and (ii) a sale
of all or substantially all of the assets of the Corporation, unless the
Corporation's stockholders of record as constituted immediately prior to
such acquisition or sale will, immediately after such acquisition or sale
(by virtue of securities issued as consideration for the Corporation's
acquisition or sale or otherwise) hold at least fifty percent (50%) of the
voting power of the surviving or acquiring
entity.
|
|
(c)
|
If
any of the assets of the Corporation are to be distributed other than in
cash under this Section 5, then the board of directors of the Corporation
shall promptly engage independent competent appraisers to determine the
value of the assets to be distributed to the holders of Series A
Convertible Preferred or Common Stock. The Corporation shall, upon receipt
of such appraiser's valuation, give prompt written notice to each holder
of shares of Series A Convertible Preferred or Common Stock of the
appraiser's valuation.
|
(6) Voting
Rights. The Series A Convertible Preferred shall not have
voting rights, unless and until they are converted to Common Shares of the
Corporation
(7) Reissuance. No
share or shares of Series A Convertible Preferred acquired by the Corporation by
reason of conversion or otherwise shall be reissued as Series A Convertible
Preferred, and all such shares thereafter shall be returned to the status of
undesignated and unissued shares of Series A Preferred of the
Corporation.
INVESTMENT
AGREEMENT
Artfest
International, Inc.
27
EXHIBIT
B
Date:
RE: Put
Notice Number __
Dear
Sir,
|
·
|
This
is to inform you that as of today, Artfest International, Inc., a Delaware
corporation (the "Company"), hereby elects to exercise its right pursuant
to the Investment Agreement to require Sunny Isles venture, LLC to
purchase Preferred Stock. The Company hereby certifies
that:
|
The
amount of this Put is $__________.
Regards,
____________________________________________________________________________
Artfest
International, Inc.
_____________
INVESTMENT
AGREEMENT
Artfest
International, Inc.
28
